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A Lesson in Proper LLC Governance

Limited Liability Companies are often touted as flexible and easy-to-establish business structures. This reputation makes LLCs an attractive option for many small business owners; however, flexibility does not necessarily translate to low maintenance.

A recent 8th circuit U.S. Court of Appeals decision in Robl Construction, Inc. v. Homoly highlights the risks for LLCs when they fail to keep accurate records and maintain proper LLC governance. ( Robl Construction, Inc. v. Homoly, No. 13-3607 (8th Cir. April 1, 2015))

Some lessons that can be learned from the Robl Construction, Inc. v. Homoly decision are:

  • Understand the LLC governing documents. You should be involved in the drafting process, specifically the Operating Agreement.
  • Formalize all agreements. Resist the temptation to make “gentleman’s agreements” with business partners for the sake of time or convenience.
  • Amend the LLC governing documents if they no longer meet the needs of the entity or serve the intent of its owners.
  • Operate the business with accuracy and formality. Comply with the terms of the LLC governing documents at all stages of a proposed action or transaction.
  • Keep in mind that email can be used in litigation and may be relied upon to determine the parties’ intent should a dispute arise.
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