The Value of Mandatory meetings for New York (and Other) Business Limited Liability Companies
A fundamental difference between a New York limited liability company and a New York corporation that is statutory in nature is the “Annual Meeting” requirement. A hallmark of the corporate form is that it must conduct an annual meeting that provides a “state of the union” of sorts for the various interested parties (i.e., shareholders, etc.). In contrast, the New York Limited Liability Law takes a VERY hands off approach to the notion of meetings and instead leaves it up to the members to call meetings or not (although the default rule is that there will be an annual meeting).
I often recommend to my clients to have some mechanism in their New York Business LLC Operating Agreement some form of meeting structure and the below outlines some of those.
Statutory Annual Meeting
The New York Limited Liability Act provides that in the absence of something contrary in the Operating Agreement, the LLC must have a regular annual meeting. Most businesses will not use this default rule and will instead opt for some language in their Operating Agreement that lays out a structure for regular or special meetings as defined below.
The Operating Agreement can provide for regular meetings. These can be called for as a requirement by the Operating Agreement and may be set for a particular time frame (e.g., monthly, annually, etc.) The function of such meetings is to provide predictability and a forum to communicate and air out concerns and ideas. Again, in New York State this is NOT a statutory requirement and the members can do as they see fit. However, regular meetings can keep communication consistent and prevent miscommunication through prolonged periods where there is no structured forum to communicate.
Just as the name suggests, these meetings are called for a special purpose and are not part of a routine schedule. A good LLC Operating Agreements will provide a mechanism for the calling of such meetings by the members and/or the managers (you can read about members versus managers here). These meetings can discuss “big ticket” items such as taking on debt, filing a lawsuit, acquiring or leasing a property, etc. that require more than a passing approval but actual deliberation before undertaking that course.
Telephonic versus In Person
The business Operating Agreements should allow for the members to participate by phone if necessary. This allows for flexibility and will prevent parties from abusing another party for not being in the same geographic location as the other.
It has been my experience as a practicing attorney that having a mechanism for at least special meetings can be a useful tool for a variety of situations. First and foremost, it assists the membership in voicing and diffusing conflicts that can otherwise, unchecked, sink a viable business venture. Secondly, meetings allow for the drafting of minutes which can prove useful in a legal proceeding such as a tax audit or law suit in providing that the membership and business had taken or avoided certain actions and had a particular mindset about an issue at the time of the meeting. Hence meetings can be a “legal time capsule” that can provide credible evidence in favor of a certain position. And proactively making use of meetings can be a significant factor in assuring long term harmony and success.
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