Tuesday, November 9, 2010

Delaware LLC Operating Agreements and the Statute of Frauds

Delaware's Limited Liability Company Act permits a Delaware limited liability company to have an oral operating agreement (Section 18-101(7)).

Delaware's Statute of Frauds makes unenforeceable, among other things, oral contracts which cannot be performed within one year (Title 6, Section 2714).

So would a provision in an oral operating agreement of a Delaware LLC that could not be performed within one year be enforceable, such a a buyout of an exiting member over a three-year period?

Until recently, the answer to that question was unclear. As of August 2, 2010, the Delaware LLC has been amended to clarify that an LLC operating agreement is not subject to the statute of frauds.       

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