In the absence of a custom Operating Agreement, New York LLCs are governed by the states default laws. Unfortunately, these "one-size-fits-all" rules rarely fit actual partnerships, leading to expensive legal conflicts and operational nightmares.

Default rules typically allocate voting power based on the economic value of each member's capital contribution. This is simple for cash, but dangerous for less universally quantifiable contributions like labor and intellectual property.

An operating agreement resolves this question upfront. Cash comes with a receipt; hard work does not. Because the value of labor is not legally fixed, a cash investor can argue that their financial input is the only valid metric. Without a custom agreement, the partner who manages the daily operations could be left with zero voting power.

If you try to resolve this during a conflict, you will be facing a tough lawsuit just to prove your vote counts.

Under New York's Limited Liability Company Law (§ 402), a majority vote is often sufficient to approve the sale of the company's assets.

Minority members in a NY LLC without its own operating agreement can be forced to liquidate their positions. It is in everyone's best interests to create an operating agreement before conflicts occur.

A custom Operating Agreement replaces these blunt state statutes with flexible rules tailored to your specific business model.

Voting Power: You can allocate voting power however you see fit: equally, according to membership tiers, and/or incorporating non-cash contributions like labor.

Profit Distribution: Instead of the state's strict profit distribution by ownership percentage, you can create your own distribution rules. For example, you can pay back investors first or reward a top-performing partner with a larger share of the quarterly profits.

Transferring Ownership and New Membership: Don't be vulnerable to the whims of the majority. Your operating agreement can include protective measures such as Unanimous Consent for admitting new partners (so you know exactly who you are in business with) or a Right of First Refusal (so you have the first option to buy shares if a partner wants to leave)

Management Structure: In New York, all members are managers by default. This can become chaotic as the company grows. You can instead choose a Manager-Managed LLC structure, designating specific individuals to run day-to-day operations.

Exit Strategy: Without an operating agreement, an LLC's dissolution may require a complex, expensive judicial process. This is why you must agree on clear, pre-defined exit paths.

Don't let Albany decide how your partnership ends. Customize your rules today.

If you are a single-member LLC in NY, you can create your Single-Member Operating Agreement with Legal Opus in minutes.