What Missouri law says about the operating agreement

Missouri’s LLC law (RSMo 347.081) does three things. First, it says the members “shall adopt” an operating agreement with whatever terms they think fit, within the law. Second, it tells courts to give “maximum effect” to the owners’ freedom to make their own deal. Third, it lets any member go to court to enforce the agreement.

The law also lists topics your agreement can cover. They include:

• How the company is managed.
• Classes of members with different rights.
• How voting power is split, and how votes and notice work.
• Who can sign documents for the company.
• Limits on selling or giving away an ownership share.
• How profits and losses are divided.
• Tax choices.

Put simply, Missouri lets you design your own company. The operating agreement is where that design lives.

The default rules that apply when the agreement is silent

An LLC without a real agreement still has rules. They come from the state law, and two of them often catch owners off guard.

Neither rule is unfair on its own. The trouble is that most owners never hear about them until a death, a divorce or a sale.

What a working operating agreement covers

• Money in. What each owner put in, whether more can be required, and what happens if an owner does not pay a required contribution.
• Money out. When cash is paid out and in what order. Also whether the company pays out enough for owners to cover the tax on their share of profits.
• Who decides. Who can sign contracts, borrow, hire and fire. Which big decisions need more than a simple majority, or every owner’s vote.
• Deadlock. What happens when two 50% owners cannot agree. Options include mediation, a tie-breaking vote, or a buyout.
• Transfers. Whether owners get the first chance to buy a share before an outsider does. Whether transfers to family trusts are allowed. Whether a new holder becomes a member.
• Exit. Buyout terms for death, disability, retirement, divorce and firing for cause. Many owners put these in a separate buy-sell agreement.
• Duties and competition. Whether owners may run competing businesses, and what information they must share.
• Closing down. What events end the company, and how its assets are split when it winds up.

Single-member and manager-managed companies

A one-owner LLC still needs a written agreement. It shows the company is separate from you. It names who runs things if you cannot. And it says what happens to your share when you die. Without it, your family may find the business frozen. No one may know who can sign checks while the estate is sorted out.

In a manager-managed LLC, spell out what the manager can and cannot do. Missouri lets managers be people who are not owners. That helps companies with silent investors. But the limits in your agreement may be the owners’ only protection.

Updating an agreement you already have

Many Missouri LLCs run on an agreement downloaded on day one and never read again. A review usually finds the same problems. The buyout price was never updated. One owner can block every vote. The transfer rules do not match how the owners plan to hand the business down.

To change the agreement, you follow the steps it already sets out. If it requires every owner to agree, one owner can hold out. That alone is a reason to fix the amendment clause.

Harjot Singh Padda, JD, writes new agreements and reviews old ones. If the owners are already fighting over the agreement, that belongs with partnership and shareholder disputes. Mr. Padda will tell you so at the consultation.

Common questions

Related reading

• Forming an LLC in Missouri
• Buy-sell agreements
• Business succession planning
• Partnership and shareholder disputes