2023 Vermont Statutes › Title 11 - Corporations, Partnerships and Associations › Chapter 25 - Limited Liability Companies › § 4003. Effect of operating agreement; nonwaivable provisions

§ 4003. Effect of operating agreement; nonwaivable provisions
(a) Except as otherwise provided in subsection (b) of this section, an operating agreement regulates the affairs of the company and the conduct of its business and governs relations among the members, among the managers, and among the members, managers, and the limited liability company. To the extent the operating agreement does not otherwise provide, this chapter regulates the affairs of the company, the conduct of its business, and governs relations among the members, among the managers, and among members, managers, and the limited liability company.
(b) An operating agreement may not:
(1) vary a limited liability company’s capacity under subsection 4011(e) of this title to sue and be sued in its own name;
(2) except as provided in subchapter 8 of this chapter, vary the law applicable under subsection 4011(g) of this title;
(3) vary the power of the court under section 4030 of this title;
(4) subject to subsections (c) through (f) of this section, eliminate or restrict the duty of loyalty, the duty of care, or any other fiduciary duty;
(5) subject to subsections (c) through (f) of this section, eliminate or restrict the contractual obligation of good faith and fair dealing under subsection 4059(d) of this title;
(6) unreasonably restrict the duties and rights with respect to books, records, and other information stated in section 4058 of this title, but the operating agreement may impose reasonable restrictions on the availability and use of information obtained under that section and may define appropriate remedies, including liquidated damages, for a breach of any reasonable restriction on use;
(7) vary the power of a court to decree dissolution in the circumstances specified in subdivision 4101(a)(4) of this title;
(8) vary the requirement to wind up a limited liability company’s business as specified in section 4101 of this title;
(9) unreasonably restrict the right of a member to maintain an action under subchapter 9 of this chapter;
(10) restrict the right to approve a merger, conversion, or domestication under section 4152 of this title to a member that will have personal liability with respect to a surviving, converted, or domesticated organization; or
(11) restrict the rights under this title of a person other than a member, manager, or transferee of any interest in a limited liability company.
(c) Unless unreasonable, the operating agreement may:
(1) restrict the duty:
(A) as required in subdivision 4059(b)(1) and subsection 4059(h) of this title, to account to the limited liability company and to hold as trustee for it any property, profit, or benefit derived by the member in the conduct or winding up of the company’s business, from a use by the member of the company’s property, or from the appropriation of a limited liability company opportunity;
(B) as required in subdivision 4059(b)(2) and subsection 4059(h) of this title, to refrain from dealing with the company in the conduct or winding up of the company’s business as or on behalf of a party having an interest adverse to the company; and
(C) as required in subdivision 4059(b)(3) and subsection 4059(h) of this title, to refrain from competing with the company in the conduct of the company’s business before the dissolution of the company;
(2) identify the specific types or categories of activities that do not violate the duty of loyalty;
(3) alter the duty of care, except to authorize intentional misconduct or knowing violation of law;
(4) alter any other fiduciary duty, including eliminating particular aspects of that duty; and
(5) prescribe the standards by which to measure the performance of the contractual obligation of good faith and fair dealing under subsection 4059(d) of this title.
(d) The operating agreement may specify the method by which a specific act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified by one or more disinterested and independent persons after full disclosure of all material facts.
(e) To the extent the operating agreement of a member-managed limited liability company expressly relieves a member of a responsibility that the member would otherwise have under this chapter and imposes the responsibility on one or more other members, the operating agreement may, to the benefit of the member that the operating agreement relieves of the responsibility, also eliminate or limit any fiduciary duty that would have pertained to the responsibility.
(f) The operating agreement may alter or eliminate the indemnification for a member or manager provided by section 4060 of this title and may eliminate or limit a member or manager’s liability to the limited liability company and members for money damages, except for:
(1) breach of the duty of loyalty;
(2) a financial benefit received by the member or manager to which the member or manager is not entitled;
(3) a breach of a duty under subsection 4059(d) of this title;
(4) intentional infliction of harm on the company or a member; or
(5) an intentional violation of criminal law.
(g)(1) The court shall decide any claim under subsection (c) of this section that a term of an operating agreement is manifestly unreasonable.
(2) The court:
(A) shall make its determination as of the time the challenged term became part of the operating agreement and by considering only circumstances existing at that time; and
(B) may invalidate the term only if, in light of the purposes and activities of the limited liability company, it is readily apparent that:
(i) the objective of the term is unreasonable; or
(ii) the term is an unreasonable means to achieve the provision’s objective.
(h) A limited liability company is bound by and may enforce the operating agreement, whether or not the company has itself manifested assent to the operating agreement.
(i) A person that becomes a member of a limited liability company is deemed to assent to the operating agreement.
(j)(1) Two or more persons intending to become the initial members of a limited liability company may make an agreement providing that upon the formation of the company the agreement will become the operating agreement.
(2) One person intending to become the initial member of a limited liability company may assent to terms providing that upon the formation of the company the terms will become the operating agreement.
(k)(1) An operating agreement may specify that its amendment requires the approval of a person that is not a party to the operating agreement or the satisfaction of a condition.
(2) An amendment is ineffective if its adoption does not include the required approval or satisfy the specified condition.
(l)(1) The obligations of a limited liability company and its members to a person in the person’s capacity as a transferee or dissociated member are governed by the operating agreement.
(2) Subject only to any court order issued under subdivision 4074(b)(2) of this title to effectuate a charging order, an amendment to the operating agreement made after a person becomes a transferee or dissociated member is effective with regard to any debt, obligation, or other liability of the limited liability company or its members to the person in the person’s capacity as a transferee or dissociated member.
(m) If a record that has been delivered by a limited liability company to the Secretary of State for filing and has become effective under this chapter contains a provision that would be ineffective under subsection (b) of this section if contained in the operating agreement, the provision is likewise ineffective in the record.
(n) Subject to subsection (c) of this section, if a record that has been delivered by a limited liability company to the Secretary of State for filing and has become effective under this title conflicts with a provision of the operating agreement:
(1) the operating agreement prevails as to members, dissociated members, transferees, and managers; and
(2) the record prevails as to other persons to the extent they reasonably rely on the record. (Added 2015, No. 17, § 2; amended 2015, No. 97 (Adj. Sess.), § 42; 2015, No. 157 (Adj. Sess.), § E.3.)