Connecticut General Statutes Section 34-243d. Operating agreement: Scope, function and limitations.
Information regarding fiduciary responsibilities of LLC members can be found in Connecticut General Statutes Section 34-243d Operating Agreement: Scope, function and limitations which is set forth below. Connecticut’s Uniform Limited Liability Company Act laws are set forth in Sections 34-243 to 34-283d of the Connecticut General Statutes.
What is a Limited Liability Company Operating Agreement?
An operating agreement is a document which governs the internal operations of the limited liability company (“LLC”) and can be drafted even after the LLC has been formed. Under Connecticut law, an LLC is not required to have an operating agreement. The operating agreement governs: (1) Relations among the members as members and between the members and the limited liability company; (2) the rights and duties under sections 34-243 to 34-283d, inclusive, of a person in the capacity of manager; (3) the activities and affairs of the company and the conduct of those activities and affairs; and (4) the means and conditions for amending the operating agreement.
Does every Limited Liability Company in Connecticut Need to Have an Operating Agreement?
Connecticut Law § 34-243d-f describes the powers and limitations of an operating agreement, but doesn’t require LLCs to adopt one. However, your operating agreement may be your most important internal document. Your operating agreement proves you own your LLC. Though your Connecticut Certificate of Organization serves as official documentation for your LLC, you’re only required to list the name of one member. In this case, only one person would be able to use your Certificate of Organization as proof of ownership. Your operating agreement, however, should include the names of all owners, which means all members of your LLC can use it to show ownership. This is important when it comes to certain tasks, like opening a business bank account or renting property.
Should a Single Member Limited Liability Company Have an Operating Agreement?
Yes, it can secure your liability protection. An operating agreement helps protect your personal assets from your business assets. This is crucial to understand, as it’s the primary main reason that your single-member LLC needs an operating agreement. Even if an operating agreement isn’t required in your state, running your company without an operating agreement could jeopardize your LLC status. A Connecticut limited liability company attorney can help advised you on a simple operating agreement to provide you additional protection as you launch your business venture and protect your assets.
Can Members of a Connecticut LLC agree to Waive their Rights Regarding Fiduciary Responsibilities?
Pursuant to Section 34-243d (d) (2) members of a limited liability company may agree in the operating agreement to limit their fiduciary responsibilities. Section 34-243d (d) (2) provides that the operating agreement of a member-managed limited liability company may expressly relieve a member of a responsibility that the member otherwise would have under sections 34-243 to 34-283d, inclusive, and imposes the responsibility on one or more other members, the operating agreement also may eliminate or limit any fiduciary duty of the member relieved of the responsibility which would have pertained to the responsibility. By agreement, members can alter certain duties to expand, restrict, or eliminate fiduciary duties owing to either the LLC or the other members and managers, so that the business fits expectations and needs. Any modification must be performed in accordance with the LLC’s state authorizing statute, which may limit which duties can be modified. Finally, in elimination or “exculpation” of fiduciary duties, some states mandate that provisions be made in the LLC’s written operating agreement and that the provisions be set forth “clearly” and “unambiguously” to be upheld and not be rendered void by courts as a matter of public policy.
Sec. 34-243d. Operating agreement: Scope, function and limitations. (a) Except as provided in subsections (c) and (d) of this section, the operating agreement governs: (1) Relations among the members as members and between the members and the limited liability company; (2) the rights and duties under sections 34-243 to 34-283d, inclusive, of a person in the capacity of manager; (3) the activities and affairs of the company and the conduct of those activities and affairs; and (4) the means and conditions for amending the operating agreement.
(b) To the extent the operating agreement does not provide for a matter described in subsection (a) of this section, the provisions of sections 34-243 to 34-283d, inclusive, govern the matter.
(c) An operating agreement may not: (1) Vary the law applicable under section 34-243c; (2) vary a limited liability company's capacity under subsection (a) of section 34-243h, to sue and be sued in its own name; (3) vary any requirement, procedure or other provision of sections 34-243 to 34-283d, inclusive, pertaining to: (A) Registered agents; or (B) the Secretary of the State, including provisions pertaining to records authorized or required to be delivered to the Secretary of the State for filing under sections 34-243 to 34-283d, inclusive; (4) vary the provisions of section 34-247c; (5) alter or eliminate the duty of loyalty or the duty of care, except as provided in subsection (d) of this section; (6) eliminate the implied contractual obligation of good faith and fair dealing under subsection (d) of section 34-255h, except that the operating agreement may prescribe the standards, if not manifestly unreasonable, by which the performance of the obligation is to be measured; (7) relieve or exonerate a person from liability for conduct involving bad faith, willful or intentional misconduct, or knowing violation of law; (8) unreasonably restrict the duties and rights under section 34-255i, except that the operating agreement may impose reasonable restrictions on the availability and use of information obtained under said section and may define appropriate remedies, including liquidated damages, for a breach of any reasonable restriction on use; (9) vary the causes of dissolution specified in subdivisions (4) and (5) of subsection (a) of section 34-267; (10) vary the requirement to wind up the company's activities and affairs as specified in subsections (a) and (e) of section 34-267a and subdivision (1) of subsection (b) of section 34-267a; (11) unreasonably restrict the right of a member to maintain an action under sections 34-271 to 34-271e, inclusive; (12) vary the provisions of section 34-271d, except that the operating agreement may provide that the company may not have a special litigation committee; (13) vary the required contents of a plan of merger under subsection (b) of section 34-279h or, a plan of interest exchange under section 34-279m; or (14) except as provided in section 34-243e and subsection (b) of section 34-243f, restrict the rights under sections 34-243 to 34-283d, inclusive, of a person other than a member or manager.
(d) Subject to subdivision (7) of subsection (c) of this section, without limiting other terms that may be included in an operating agreement, the following rules apply: (1) The operating agreement may: (A) Specify the method by which a specific act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified by one or more disinterested persons after full disclosure of all material facts; and (B) alter the prohibition on making a distribution under subdivision (2) of subsection (a) of section 34-255d so that the prohibition requires only that the company's total assets not be less than the sum of its total liabilities. (2) To the extent the operating agreement of a member-managed limited liability company expressly relieves a member of a responsibility that the member otherwise would have under sections 34-243 to 34-283d, inclusive, and imposes the responsibility on one or more other members, the operating agreement also may eliminate or limit any fiduciary duty of the member relieved of the responsibility which would have pertained to the responsibility. (3) If not manifestly unreasonable, the operating agreement may: (A) Alter or eliminate the aspects of the duty of loyalty set forth in subsections (b) and (i) of section 34-255h; (B) identify specific types or categories of activities that do not violate the duty of loyalty; (C) alter the duty of care, but may not authorize conduct involving bad faith, willful or intentional misconduct, or knowing violation of law; and (D) alter or eliminate any other fiduciary duty.
(e) The court shall decide as a matter of law whether a term of an operating agreement is manifestly unreasonable under subdivision (6) of subsection (c) of this section or subdivision (3) of subsection (d) of this section. The court: (1) Shall make its determination as of the time the challenged term became part of the operating agreement and by considering only circumstances existing at that time; and (2) may invalidate the term only if, in light of the purposes, activities and affairs of the limited liability company, it is readily apparent that: (A) The objective of the term is unreasonable; or (B) the term is an unreasonable means to achieve the term's objective.
(P.A. 16-97, S. 5.)
History: P.A. 16-97 effective July 1, 2017.
