Section 301. Agency of Members and Managers

(a) Subject to subsections (b) and (c):

(1) Each member is an agent of the limited liability company for the purpose of its business, and an act of a member, including the signing of an instrument in the company's name, for apparently carrying on in the ordinary course the company's business or business of the kind carried on by the company binds the company, unless the member had no authority to act for the company in the particular matter and the person with whom the member was dealing knew or had notice that the member lacked authority.

(2) An act of a member which is not apparently for carrying on in the ordinary course the company's business or business of the kind carried on by the company binds the company only if the act was authorized by the other members.

(b) Subject to subsection (c), in a manager-managed company:

(1) A member is not an agent of the company for the purpose of its business solely by reason of being a member. Each manager is an agent of the company for the purpose of its business, and an act of a manager, including the signing of an instrument in the company's name, for apparently carrying on in the ordinary course the company's business or business of the kind carried on by the company binds the company, unless the manager had no authority to act for the company in the particular matter and the person with whom the manager was dealing knew or had notice that the manager lacked authority.

(2) An act of a manager which is not apparently for carrying on in the ordinary course the company's business or business of the kind carried on by the company binds the company only if the act was authorized under Section 404.

(c) Unless the articles of organization limit their authority, any member of a member-managed company or manager of a manager-managed company may sign and deliver any instrument transferring or affecting the company's interest in real property. The instrument is conclusive in favor of a person who gives value without knowledge of the lack of the authority of the person signing and delivering the instrument.

Comment

Members of a member-managed and managers of manager-managed company, as agents of the firm, have the apparent authority to bind a company to third parties. Members of a manager-managed company are not as such agents of the firm and do not have the apparent authority, as members, to bind a company. Members and managers with apparent authority possess actual authority by implication unless the actual authority is restricted in an operating agreement. Apparent authority extends to acts for carrying on in the ordinary course the company's business and business of the kind carried on by the company. Acts beyond this scope bind the company only where supported by actual authority created before the act or ratified after the act.

Ordinarily, restrictions on authority in an operating agreement do not affect the apparent authority of members and managers to bind the company to third parties without notice of the restriction. However, the restriction may make a member or manager's conduct wrongful and create liability to the company for the breach. This rule is subject to three important exceptions. First, under Section 301(c), a limitation reflected in the articles of organization on the authority of any member or manager to sign and deliver an instrument affecting an interest in company real property is effective when filed, even to persons without knowledge of the agent's lack of authority. New and important Internal Revenue Service announcements clarify that the agency structure of a limited liability company will not cause it to be taxed like a corporation. Secondly, under Section 703, a dissociated member's apparent authority terminates two years after dissociation, even to persons without knowledge of the dissociation. Thirdly, under Section 704, a dissociated member's apparent authority may be terminated earlier than the two years by filing a statement of dissociation. The statement is effective 90 days after filing, even to persons without knowledge of the filing. Together, these three provisions provide constructive knowledge to the world of the lack of apparent authority of an agent to bind the company.