This is the fifth in a series discussing eight bad "D"s to consider when drafting an operating agreement for an LLC.
5. DISINTEREST
I have been involved in more than one LLC in which one of the member-owners became disinterested with the day-to-day operations of the LLC once they realized the LLC was not going to be nearly as profitable or exciting to operate as was originally planned. That disinterested member was then unwilling to participate in many of the day-to-day activities.
When establishing a multiple-member LLC, there needs to be a specific section in the LLC operating agreement outlining the roles and responsibilities of each member. There also needs to be language at the beginning that spells out the consequences when a member fails to fulfill their roles and responsibilities.
A good operating agreement will contain language as to what happens if there is a capital call, and one of the members is unable to respond to that call. The same thing needs to be thought through when it comes to member disinterest. Is their ownership interest in the LLC diminished? Is their income from the LLC diminished? What is going on with the business that has caused the disinterest?
Addressing member disinterest requires careful planning and a lot of up-front conversation between the potential member-owners of an LLC before they work with their counsel to draft the LLC operating agreement.
