Menu
Coming to an agreement with your business partners isn’t always so simple, especially when a decision significantly affects the business. Indeed, certain company decisions should, and almost always do, warrant greater consensus amongst the members of the LLC. Consequently, careful consideration must be given to voting rights when drafting the operating agreement of your LLC. In most LLCs, voting power is proportional to each member’s interests; but from there, the level of consent required to approve a decision will vary based on the terms of the operating agreement as well as the nature of the decision itself. Understanding how these voting structures work and knowing when to implement one or another is crucial for ensuring your LLC runs smoothly and avoiding potential conflicts among members.
Majority Votes: Keeping Routine Decisions Simple
For most day-to-day decisions, a majority vote is typically enough. This means more than 50% of the voting members must agree to move forward. These decisions generally cover routine matters that fall within the normal scope and ordinary course of the LLC’s business. For example, routine decisions may include hiring new employees, approving standard vendor contracts, and authorizing small expenditures within established budgets. In many cases, LLCs will streamline operations by delegating authority for these routine matters to designated officers or managers, allowing them to make standard day-to-day decisions without requiring member votes. By requiring only a majority vote —or by empowering officers to act independently within a certain scope—, LLCs can operate efficiently daily, ensuring that the business doesn’t get bogged down by constant deliberation over routine issues. However, this can sometimes frustrate minority members who may feel their input is overlooked, particularly if their votes rarely affect the outcome.
Supermajority Votes: Bigger Decisions Require Broader Consensus
For those decisions that exert more gravity on the direction of the business, multi-member LLCs often use a supermajority vote. These “major decisions” can include amending the operating agreement, securing major financing, selling significant assets, mergers, and dissolving the LLC. This threshold is often two-thirds or more of the members, but the exact benchmark should be noted in the operating agreement. The supermajority threshold strikes a balance, preventing a simple majority from making decisions that could significantly impact the company’s future while still allowing for impactful decisions without necessitating a unanimous from all members.
Unanimous Votes: Protecting All Members’ Interests When It Matters Most
Of course, should the members of the LLC choose, they can require a unanimous vote for major decisions. On the one hand, requiring unanimous approval ensures that every member has a say in decisions that could fundamentally change the nature or structure of the company. On the other hand, multi-member LLCs that utilize a unanimous vote can be at risk of deadlock, potentially stalling essential decisions. As a result, members of the LLC should consider whether they would prefer a supermajority threshold or a unanimous vote for major decisions.
When forming a multi-member LLC, clearly defining the voting thresholds for different types of decisions in your operating agreement is essential. The key is balancing efficiency with fairness, ensuring that routine decisions can be made without excessive delay while reserving higher thresholds for matters that significantly impact the business or its members. With a thoughtful approach to voting, you can ensure that your LLC operates smoothly and that all members feel their voices are heard. Whether you need help with entity formation, drafting an operating agreement, or other corporate matters, RR&A is here to help!
Disclaimer: The information and material on this website is general information about our practice and firm. This information does not offer specific legal advice and the use of this information does not create an attorney-client relationship with RR&A or any of its attorneys. The information on this website should not be used for legal advice, and persons should not act upon the information on this website without engaging professional legal counsel.
515 POST OAK BLVD. | SUITE 430 | HOUSTON, TX 77027 | 832-831-2289
524 E. LAMAR BLVD | SUITE 235 | ARLINGTON, TX 76011 | 682-318-3427
DISCLAIMER | PRIVACY POLICY | SITEMAP | COPYRIGHT © 2024
