by Evin Bachelor

Many farms are organized under a business entity, such as a limited liability company. Attorneys commonly recommend this not only for the additional liability protection, but also for the flexibility in transferring the farm to the next generation.

Most clients do an excellent job keeping proper records of their LLC activities, but every now and then, a new client says they don’t know where their LLC paperwork is anymore.

Some clients report that after setting up the LLC, they did not have to look at or think about the operating agreement, so it was lost. Or, their prior attorney had the only copy, but then moved, retired or died. Or, the client filed the LLC themselves with the Ohio secretary of state and did not realize they needed to do anything else.

When you have an LLC but no governing documents, the state of Ohio has a set of default rules for you to fill in the blanks. These default rules are set forth in Ohio Revised Code Chapter 1706, titled the Ohio Revised Limited Liability Company Act.

By default, management is by a simple majority of the members, so long as the decision to be made is within the ordinary course of activities of the LLC. However, unanimous consent of the members is required to declare bankruptcy, dissolve the LLC and undertake acts outside the ordinary course of the LLC’s activities.

The ordinary course of activities is not defined, but rather depends upon what the LLC normally does as a business.

By default, a new voting member may be admitted by being an incorporator, via unanimous consent of all other members, or via a merger with another LLC. This provides limited protection to keep third parties from having an economic interest in a family LLC.

Include buy-sell agreements

One critical piece of default language the statute fails to provide is a detailed buy-sell agreement. If you are familiar with a corporation, you may be familiar with a buy-sell agreement, which is a contractual arrangement by which shareholders may exit a business by selling their shares to the other shareholders or the company.

Without a buy-sell agreement, the members would have to reach an agreement on a buyout in the moment when tensions may arise. It could have been avoided if the parties knew what the exit plan would have to look like. Or worse, a member could choose to sell his or her interest to someone outside of the LLC without the consent of the remaining members.

If you have lost your operating agreement and cannot find a copy, your “now what” should be scheduling an appointment to implement a new operating agreement with an experienced attorney whom you trust.

Bachelor is an attorney with Wright and Moore Law based in Delaware, Ohio. Contact him at [email protected] or 740-990-0750, or visit ohiofarmlaw.com.