Section 203. Articles of Organization

(a) Articles of organization of a limited liability company must set forth:

(1) the name of the company;

(2) the address of the initial designated office;

(3) the name and street address of the initial agent for service of process;

(4) the name and address of each organizer;

(5) whether the company is to be a term company and, if so, the term specified;

(6) whether the company is to be manager-managed, and, if so, the name and address of each initial manager; and

(7) whether one or more of the members of the company are to be liable for its debts and obligations under Section 303(c).

(b) Articles of organization of a limited liability company may set forth:

(1) provisions permitted to be set forth in an operating agreement; or

(2) other matters not inconsistent with law.

(c) Articles of organization of a limited liability company may not vary the nonwaivable provisions of Section 103(b). As to all other matters, if any provision of an operating agreement is inconsistent with the articles of organization:

(1) the operating agreement controls as to managers, members, and members' transferees; and

(2) the articles of organization control as to persons, other than managers, members and their transferees, who reasonably rely on the articles to their detriment.

Comment

The articles serve primarily a notice function and generally do not reflect the substantive agreement of the members regarding the business affairs of the company. Those matters are generally reserved for an operating agreement which may be unwritten. Under Section 203(b), the articles may contain provisions permitted to be set forth in an operating agreement. Where the articles and operating agreement conflict, the operating agreement controls as to members but the articles control as to third parties. The articles may also contain any other matter not inconsistent with law. The most important is a Section 301(c) limitation on the authority of a member or manager to transfer interests in the company's real property.

A company will be at-will unless it is designated as a term company and the duration of its term is specified in its articles under Section 203(a)(5). The duration of a term company may be specified in any manner which sets forth a specific and final date for the dissolution of the company. For example, the period specified may be in the form of "50 years from the date of filing of the articles" or "the period ending on January 1, 2020." Mere specification of a particular undertaking of an uncertain business duration is not sufficient unless the particular undertaking is within a longer fixed period. An example of this type of designation would include "2020 or until the building is completed, whichever occurs first." When the specified period is incorrectly specified, the company will be an at-will company. Notwithstanding the correct specification of a term in the articles, a company will be an at-will company among the members under Section 203(c)(1) if an operating agreement so provides. A term company that continues after the expiration of its term specified in its articles will also be an at-will company.

A term company possesses several important default rule characteristics that differentiate it from an at-will company. An operating agreement may alter any of these rules. Generally, a member of an at-will company may rightfully dissociate at any time whereas a dissociation from a term company prior to the expiration of the specified term is wrongful. See Comments to Section 602(b). Accordingly, a dissociated member of an at-will company is entitled to have the company purchase that member's interest for its fair value determined as of the date of the member's dissociation. A dissociated member of a term company must generally await the expiration of the agreed term to withdraw the fair value of the interest determined at as of the date of the expiration of the agreed term. Thus, a dissociated member in an at-will company receives the fair value of their interest sooner than in a term compnay and also does not bear the risk of valuation changes for the remainder of the specified term. See Comments to Section 701(a).

A company will be member-managed unless it is designated as manager-managed under Section 203(a)(6). Absent further designation in the articles, a company will be a member-managed at-will company. The designation of a limited liability company as either member- or manager-managed is important because it defines who are agents and have the apparent authority to bind the company under Section 301. In a member-managed company, the members have the agency authority to bind the company. In a manager-managed company only the managers have that 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. The agency designation relates only to agency and does not preclude members of a manager-managed company from participating in the actual management of company business. See Comments to Section 404(b).