Do I Really Need A Company Agreement?

Steven D. Goldberg, Esq. Wilmington, DE
sgoldberg@stevendgoldberg.com
http://www.stevendgoldberg.com
Contact me if you need assistance in forming/organizing a Delaware business entity or any matter of Delaware law. Delaware Forms and Publications are available at http://www.delawarellclaw.com

My company is just me or just me and my friend, do I really need to have a company agreement? The answer is yes and that it is because the Delaware LLC Act requires that every LLC have a company agreement. Under Delaware law the agreement may be written, oral or implied. The company agreement is sometimes called an operaing agreement.

You think, maybe, that you will just have an oral agreement? Your banker probably will not like that idea when you apply to open an account or apply for a loan.  The obvious risk with an oral agreement for a company with 2 or more members is that there may not be a real meeting of the minds on the business terms or in the event of a dispute you and the other member(s) may not remember the agreement in the same way.

If your oral agreement contains terms such as when a member withdraws from the company he or she will be paid out for their investment over time, there is now the real risk that the agreement itself may be unenforceable as it violates the Statute of Frauds. The Statute of Frauds holds that any oral agreement which cannot be performed within one year is uninforcable. A recent Delaware Chancery case held that such a provision was uninforcable.

The result is that your company must have a company agreement and that agreement should be written. A good source for Delaware LLC forms is www.delawarellclaw.com