An Operating Agreement Lays Out Who Has Ownership Interest in a Business
Video Transcribed: Tulsa Cannabis Business Attorney Isaiah Brydie coming into a game with another video. And this video is going to be continuing on disputes between owners of businesses. In this video, we’re going to be talking about what happens when you have a limited liability company and there are disputes between the members. So as a general matter, a limited liability company is governed by what’s called an operating agreement on the business.
So in that operating agreement, it lays out certain terms such as who has ownership interest in the business, what those ownership interests are, what the percentage interest that they have through the profits is, what their voting strengths are, how member votes go, terms on how to draw from the business, terms on what happens at winding up the business, things of that nature.
So it’s a pretty expansive document. And so it’s really important that at the outset of creating an LLC, that you really make sure you have that operating agreement and the terms of the operating agreement really buttoned up.
One thing that you’ll hear me say throughout this discussion is me pointing back to the operating agreement on whatever respective business we’re talking to. And if there’s not a operating agreement on the business, then me appointing to Oklahoma statute and common law. So as a general matter, let’s first go to a member vote. So let’s say that someone proposes to do something, and it’s one of those matters where it falls outside of the purview of a manager or the officer’s on behalf of the business, if there are any.
So then it’s left up to a determination of the members. That would require a member vote, in most instances, unless otherwise provided by the operating agreement. So certain things like this could be the winding up of the business, or actually terminating the business, material change to the business. So for example, selling the principal place of business or selling all of the assets of the business. Admitting a new member or a new owner to the business, that generally requires unanimous consent of all the currently existing members, things like that.
So the first thing that you’re actually going to be looking at is the notice requirements of those meetings. Some operating agreements call for notice to be effectuated 30 or 48 hours before the meeting. Others call for what’s considered reasonable notice. That’s usually understood to be that same 48 hours. Some provisions even call for how you effectuate that notice. Could it be by phone call? Could it even be oral? Could you even waive that notice requirement if you simply attend the meeting? So those are a lot of things that you need to look at initially at the outset.
Secondly is going to be actually moving to a voting strength. Depending on what the ownership interest in the business are, there could or could not be a single member of the LLC, that holds a controlling ownership interest, a controlling voting strength, and also can constitute a quorum on their own behalf. A quorum is the word as associated to the number of votes that are required to actually effectuate a member meeting. So it’s the number of people or the number of votes that needed to be present in order for there to be a meeting.
So if I own two thirds of a company and I also constitute two thirds of the voting strength, and what I need for a quorum, for a meeting, is two thirds of those of those people entitled to vote, I could have my own meeting. Obviously, I’d have to correspond with notice to that meeting. I could have my own vote and potentially also, too, I could pass my own things because I’m my own quorum. So you really want to look at those terms on how those things look. So yeah. That’s a very brief introduction on voting and disputes between members with an LLC.