Section 103. Effect of Operating Agreement;
Nonwaivable Provisions

(a) Except as otherwise provided in subsection (b), all members of a limited liability company may enter into an operating agreement, which need not be in writing, to regulate the affairs of the company and the conduct of its business, and to govern relations among the members, managers, and company. To the extent the operating agreement does not otherwise provide, this [Act] governs relations among the members, managers, and company.

(b) The operating agreement may not:

(1) unreasonably restrict a right to information or access to records under Section 408;

(2) eliminate the duty of loyalty under Section 409(b) or 603(b)(3), but the agreement may:

(i) identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable; and

(ii) specify the number or percentage of members or disinterested managers that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty;

(3) unreasonably reduce the duty of care under Section 409(c) or 603(b)(3);

(4) eliminate the obligation of good faith and fair dealing under Section 409(d), but the operating agreement may determine the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable;

(5) vary the right to expel a member in an event specified in Section 601(6);

(6) vary the requirement to wind up the limited liability company's business in a case specified in Section 801(3) or (4); or

(7) restrict rights of a person, other than a manager, member, and transferee of a member's distributional interest, under this [Act].

Comment

The operating agreement is the essential contract that governs the affairs of a limited liability company. Since it is binding on all members, amendments must be approved by all members unless otherwise provided in the agreement. Although many agreements will be in writing, the agreement and any amendments may be oral or may be in the form of a record. Course of dealing, course of performance and usage of trade are relevant to determine the meaning of the agreement unless the agreement provides that all amendments must be in writing.

This section makes clear that the only matters an operating agreement may not control are specified in subsection (b). Accordingly, an operating agreement may modify or eliminate any rule specified in any section of this Act except matters specified in subsection (b). To the extent not otherwise mentioned in subsection (b), every section of this Act is simply a default rule, regardless of whether the language of the section appears to be otherwise mandatory. This approach eliminates the necessity of repeating the phrase "unless otherwise agreed" in each section and its commentary.

Under subsection (b)(1), an operating agreement may not unreasonably restrict the right to information or access to any records under Section 408. This does not create an independent obligation beyond Section 408 to maintain any specific records. Under subsections (b)(2) to (4), an irreducible core of fiduciary responsibilities survive any contrary provision in the operating agreement. Subsection (b)(2)(i) authorizes an operating agreement to modify, but not eliminate, the three specific duties of loyalty set forth in Section 409(b)(1) to (3) provided the modification itself is not manifestly unreasonable, a question of fact. Subsection (b)(2)(ii) preserves the common law right of the members to authorize future or ratify past violations of the duty of loyalty provided there has been a full disclosure of all material facts. The authorization or ratification must be unanimous unless otherwise provided in an operating agreement, because the authorization or ratification itself constitutes an amendment to the agreement. The authorization or ratification of specific past or future conduct may sanction conduct that would have been manifestly unreasonable under subsection (b)(2)(i).