Limited Liability Companies: Pitfalls of Not Having an Operating Agreement

June 2023

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Founding Partner Daniel Wotman brought his 40 years of business litigation experience to a presentation last month to over 60 Mentors who volunteer for SCORE Long Island, an organization that provides free and confidential business mentoring services to prospective and established small business owners on Long Island.

In “Limited Liability Companies: Pitfalls of Not Having an Operating Agreement,” Daniel detailed several recent business divorce litigations he handled, demonstrating real world examples of disputes between partners and limited liability company members, the pitfalls of not having written partnership and operating agreements governing responsibilities of partners and limited liability company members, consequences of the lack of contract provisions governing dissolution and termination of these entities, and lessons learned from these cases.

Daniel further discussed the fundamental basics critical to a written operating agreement, what happens when a Judge decides whether to dissolve a limited liability company without an operating agreement, and the severe consequences that limited liability companies may face if they haven't drawn one up.

Daniel further warned about other mistakes to avoid, including the inadvertent creation of binding verbal partnerships when one was not intended. Daniel discussed the importance of a careful due diligence review of potential business partners before ever signing the operating agreement, and negotiation methods to unwind a failing limited liability company.

SCORE is a 501(c)(3) nonprofit organization and a resource partner of the U.S. Small Business Administration. Since 1964, the national SCORE has helped more than 11 million entrepreneurs start, grow or successfully exit a business.