Major Elements of Operating Agreement for Limited ...

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Major Elements of Operating Agreement for Limited Liability Companies

The Operating Agreement sets forth the rights and obligations of the members. The Operating Agreement can require disputes to be resolved by arbitration, rather than with costly and stressful litigation. The following is a list of some of the most important elements to include in an Operating Agreement:

Set Rules for Admitting New Members: The Operating Agreement can require the consent of all members, or allow a prospective member to become a member with the consent of a majority of the members or all of the members.

Restrict Members from Freely Transferring Their Interests in the Company: The Operating Agreement should contain rules about how and when members can transfer or encumber their interests in the company.

Right of First Refusal on Transfers of Interests: The Operating Agreement can provide that a member who desires to sell or dispose of the the interest in the LLC must notify the company and the other members and give them the option to purchase the interest before it is offered to a prospective buyer.

Set Rules for Allocation of Profits and Losses and Distributions of Money: Without an Operating Agreement, profits and losses are allocated according to the relative capital contributions that members have made to the LLC.

Company Governance Rules: The Operating Agreement can require the affirmative vote, approval or consent of a majority of the members before significant changes are made in the business operations. This could include a restriction on the company's right to borrow and loan money.

Obligate Members to Pay Money to the Company: An Operating Agreement can require members to make capital contribution to a limited liability company under circumstances described in the Operating Agreement. money to the company when it is formed, on specific future dates or if the company.

Terminate a Member's Interest in the Company: An Operating Agreement may provide circumstances that give the company an option to expel a member and terminate the member's entire interest in the company.

Set Rules for a Member to Withdraw from the Company: By including a restriction on members' rights to withdraw from membership in the company, the limited liability company may be able to recover any money that the member owes to the company before the withdrawal is permitted.

Copyright 2006 All Rights Reserved. Indigo Business Solutions is a registered trade name.

Jo Ann Joy, Esq., MBA, CEO
Phone (602) 663-7007, Fax (602) 324-7582
The future of your business starts here.

For more information about these and other important business topics and for legal consultation, please visit our website at

Jo Ann Joy is the CEO and owner of Indigo Business Solutions, a legal and business consulting firm that differs from other business consulting firms. We offer comprehensive legal and business counseling. Jo Ann is a strategic business attorney who works closely with clients to create and implement strategies that will improve their performance and success. Jo Ann has a law degree, an MBA, a degree in Economics, and a real estate license.

Jo Ann uses her talents, expertise, and education to inspire enterprising and imaginative people to make their goals a reality and enjoy professional and personal growth. Her background includes 20 years in commercial and real estate law, accounting, financial planning, mortgages, marketing, product development, and business strategies. She ran a successful business for 10 years, and she has written and given presentations on many different legal and business subjects.

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* Government Statistics on Legal Verdicts and Jury Awards - $ U.S. district courts terminated approximately 512,000 civil cases during fiscal years 2002-03. Nearly 20% or 98,786 of these cases were torts in which plaintiffs claimed injury, loss, or damage from a defendant’s negligent or intentional acts. $ Of the 98,786 tort cases terminated in U.S. district courts in 2002-03, about 2% or 1,647 cases were decided by a bench or jury trial. $ An estimated 9 out of 10 tort trials involved personal injury issues C most frequently, product liability, motor vehicle (accident), marine, and medical malpractice cases. $ Juries decided about 71% of all tort cases brought to trial in U.S. district courts; judges adjudicated the remaining 29%. $ Plaintiffs won in 48% of tort trials terminated in U.S. district courts in 2002-03. Plaintiffs won less frequently in medical malpractice (37%) and product liability (34%) trials. $ Eighty-four percent of plaintiff winners received monetary damages with an estimated median award of $201,000. $ Plaintiffs won more often in bench (54%) than in jury (46%) tort trials. The estimated median damage awards were higher in jury ($244,000) than in bench ($150,000) tort trials. April 2006 - A Jury in New Jersey found last week that Vioxx significantly contributed to a 77-year-old man's heart attack awarded him $9 million in punitive damages yesterday, raising Merck & Co.'s liability in the case to $13.5 million and intensifying pressure on it to settle such lawsuits. Example of Personal Injury Case 2004 : Ford Explorer rollover-prone and roof not crash safe and worthy- CASE TYPE : Product Design Defect, Auto Truck Vehicle - SUV, Motor Vehicle – Rollover CASE : Buell-Wilson v. Ford Motor Co., San Diego Co., Calif., Super. Ct. GIC 800836 Los Angeles, Calif. JURY VERDICT: $369,000,000 (369 Millions Dolalrs 2005 - In what may be one of the biggest massive medical malpractice tort verdicts in the state of Texas, a state jury awarded $606 million - including a remarkable $ 600 million dollars in punitive damages - to the family of an 82-year-old patient who had cancer and then who died after receiving an overdose of chemotherapy drugs. 2005 - In the 9th big loss for Ford in SUV Explorer rollover cases, a Florida jury awarded $61.2 million to the parents of an 18-year-old boy who was killed in a 1997 (wrongful death & Product Defect and Product Liability Issues) Example of Personal Injury Lawyer Case 2004 : Dodge Caravan seatback collapsed on baby in a car-seat - CASE TYPE : Automobiles, Products Liability - Product Design Defect, Wrongful Death, Motor Vehicle - Rear-ender, Motor Vehicle - Passenger, Motor Vehicle - Minivan CASE : Flax v. DaimlerChrysler Corp., Davidson Co., Tenn., Cir. Ct. O2C-1288 JURY VERDICT : $105,500,000 (105 Million Dollars 2005 – Billion Dollar Verdicts - In one of 2005's largest verdicts to an individual plaintiff regarding financial fraud , a Florida jury ordered Morgan Stanley Broker Dealer to pay $1.45 billion to investor Ronald O. Perelman for defrauding him in the sale of his camping gear company - Coleman. 2005 - February, a prominent Houston law firm and a Texas bank were SMACKED and Beaten with a $65.5 million verdict in a highly complex estate planning case that involved major problems and conflicts of interest. (65 million dollar jury award) 2005 – 3 years after a jury acquitted a company in Florida of manslaughter and criminal charges, a Florida civil jury SLAMMED the outdoor advertiser with a $65 million jury award verdict for the shock and electrocution of a sixth-grade boy. Age Discrimination - In December, a Los Angeles California jury found that PrivatAir - an aviation company focusing on private airline services - wrongfully fired Captain Doyle D. Baker on the basis of his age, defaming him in the termination process and causing extreme emotional distress.

Punitive damages serve a number of important functions which—despite a few horror stories, which are themselves either apocryphal or overturned in the courts, the functions remain valid and in the public interest. Persons causing great harm—persons deliberately or with gross negligence causing great harm should not view paying damages as merely a cost of doing business, a cost that might fit neatly into a risk analysis of wrongdoing. That is what happened in the Ford Pinto case in which the cost of paying claims to victims of a known deadly hazard was deemed less than the cost to retool the assembly line, and thus the hazard was maintained knowing full well that further people—more people would be injured or killed. This is the purpose of punitive damages, to punish this kind of egregious wrongdoing, and to deter, to be a deterrent to such conduct. It is not immediately clear why a deterrent—or the necessity of the deterrent should bear any great relationship to the amount of actual damages in a given case. There is nothing wrong and indeed something highly desirable in maintaining this disincentive to wrongdoing in an appropriate relationship to the harm and the conduct of the tort-feasor. This trend has led one commentator to suggest that ''[p]unitive damages have replaced baseball as our national sport.'' Theodore B. Olson, Rule of Law: The Dangerous National Sport of Punitive Damages, Wall St. J., Oct. 5, 1994, at A17. See also Malcolm E. Wheeler, A Proposal for Further Common Law Development of the Use of Punitive Damages in Modern Products Liability Litigation, 40 Ala. L. Rev. 919, 919 (1989) (''Today, hardly a month goes by without a multimillion-dollar punitive damages verdict in a product liability case.'').  


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