Evans Cottage LLC Operating Agreement Executive Summary

The LLC Operating Agreement sets forth the procedures under which the LLC was formed (who, when, for how long, where, what the purpose of the LLC is, the accounting that needs to be maintained, the rights and duties of Members, how the LLC is to be managed (and by whom), how Members increase or decrease their Capital Accounts, how the LLC allocates profits and losses, how the LLC is taxed, how Members can get rid of some or all of their interests, how Members can disassociate from the LLC and what their rights are, how new Members are admitted, how the LLC can be terminated, and how the LLC agreement can be changed.

This summary is intended to give you a general idea of what is in the LLC operating agreement, particularly with respect to Membership rights and interests.

The LLC started in 1997 and will continue until 2096 unless dissolved by unanimous vote of the members, or if a majority of Members agree to continue it longer.

Of utmost importance is that the purpose of the LLC is, “To provide a gathering place for the descendants of Harold and Sylvia Evans, where they can enjoy each other’s fellowship and the natural surroundings.” The LLC was established with the intent to preserve the natural beauty and passive recreational value of the Haversham property and surrounding properties. If Haversham is not needed for a gathering place for family, then effort should be made to preserve its natural beauty for others.

General LLC operating procedures are that there are two Managers of the LLC, Beth Evans and Jim Taylor. They are allowed to resign, disassociate, or can be removed by a majority of the shareholders. They essentially have the power to act on behalf of the LLC and legally bind the LLC.

There is an annual meeting once a year, on Memorial Day weekend or whenever the Members otherwise agree to hold it. The LLC Members maintain at Haversham, a copy of names and addresses of everyone who has some membership interest in the LLC along with the Articles of Organization, the Operating Agreement, the last three years of Federal, Foreign, State and Local tax returns, the last three years of financial statements, and a writing or data compilation that sets forth: 1) the amount of cash, the agreed value of property or services contributed by each member, 2)what each member has agreed to contribute, 3)any right of a Member to receive, or of the company to make distributions to a Member which include a return of all or any part of the Member’s Capital Contribution; and 4)any events upon the happening of which the LLC is to be dissolved and its affairs wound up.

Members are the founding Members (those who inherited or otherwise had an interest in Haversham and chose to put their interest into the LLC) and anyone else who has been subsequently approved into membership by the existing membership.

In order to become a Member, you simply need to make some Capital Contribution ($1 is currently acceptable) and be approved into membership by a majority vote (meaning those holding a majority of the shareholder interests). You can also receive someone else’s membership interest instead of making your own $1 or more Capital Contribution.

Members have a right to vote. For some issues votes are tallied according to a majority of individuals and for some issues, votes are tallied according to the majority of the sharing ratio. A member’s share or “sharing ratio” is the amount of the member’s Capital Account/the total of all of the Capital Accounts. Members can give, sell, transfer some or all of their interest to people inside or outside of the LLC with the written consent of a majority (of shares) of Members. Members cannot transfer or sell more than 50% of the LLCs capital in one year. Members can also disassociate from the LLC. To disassociate a member must obtain the consent of a majority (of shares) of Members or disassociation happens automatically upon death, bankruptcy and other unique circumstances. If a member disassociates rather than seeks a sale or transfer of their interest in the LLC, then the remaining LLC Members have five years to pay back their interest. Upon death, the payment must be done in one year.

The LLC may also have assignees, which are people or entities who were given an ownership interest, or who made a Capital Contribution but who just do not have voting rights because for whatever reason they were not approved into membership.

The LLC Members can decide that additional contributions are needed to operate Haversham. No Member is obligated to make additional contributions at any time. If contributions are needed, a request is made and all members have a chance to contribute a proportionate share. Members and Assignees have at least ten business days to contribute. Once Members decided whether or not to contribute, everyone is given another chance to contribute. If one chooses not to contribute, their Capital Account will remain the same, but their proportionate share will decrease. Any contributions a member makes, increases a Members’ Capital Account accordingly.

Membership

Members should ensure (through the Managers and anyone else who volunteers to help) that:

  1. All members receive an annual report and any required information returns required by RI and other state’s laws. (I do not know what these “information returns” are).
  2. There is an accounting kept of the Capital Account of each Member.

The LLC stipulates that the Fair Market Value of the Haversham Property is $699,500. The LLC document specifically says that no interest is to accrue on the value.
Capital Accounts: every member will have a capital account, which is their initial contribution into the LLC. Interest does not accrue on capital contributions.
Taxes: If Haversham were to generate income, then Members could be asked individually to pay income taxes or the LLC can pay the taxes and members can contribute to cover their share. Payment by the LLC of income taxes that a member is required to pay will reduce that member’s Capital Account and proportionate shares accordingly.
Members are not liable for the liabilities of the LLC.

LLC Member Q&As

How do I become a member?
Contribute or receive interest in the LLC of at least $1 and request approval by the Members.
What benefits do I gain from being an LLC member?
  • Possible benefits
    • Every member has a capital account with the LLC. You can contribute as much as you want to the capital for maintaining Haversham into the future
    • Can easily pass on your interests to other family members within the LLC in life to keep Haversham in the family.
    • Can pass on your interest to assignees outside of the family.
    • Definite benefits
  • You can participate in the decision making of the LLC
What can I do with my Membership interest if I do not want it?
  1. Give away or otherwise transfer some of it, but still retain some minimal interest and voting rights, participation in the LLC.
  2. You can sell, exchange, assign, transfer, mortgage, pledge, grant, hypothecate, some or all of your interest in the LLC during life to other members in or outside of the LLC, requesting consent of a majority of the members (Article VIII.7). You can still retain some interest and voting rights.
  3. You can disassociate entirely and receive the fair market value of your shares in 5 years, which if no one agrees to contribute, could require the LLC to sell property.
  4. You can die and should your estate desire, the LLC will repay your interest in 1 year, which if no one agrees to contribute, could require the LLC to sell property.
  5. You cannot dispose of a membership interest if it will result in the termination of the LLC.
  6. You can stop contributing and your proportionate shares will decrease over time as others contribute.
How can I grow my membership interest?
  1. When requests for capital are made, or when others request to sell some or all of their shares, you can pay to receive more shares.
  2. When someone offers to gift their shares to others, you can agree to accept those shares.
What costs do I incur from being an LLC member?
  • Possible costs
    • Everyone will be invited at times to make additional contributions. There is no requirement that you make those contributions. If you choose not to contribute,
      someone else may contribute the amount you did not contribute and your shares will decrease proportionately. If you choose to contribute where someone else does not, your interest in the company will be increased accordingly.
    • You can be a contributing member who can contribute on behalf or because of the fact that other members chose not to contribute for whatever reason
    • Members could be responsible for income taxes, and if not paid, one’s capital account will reduce accordingly.
  • Definite costs
    • Initial membership cost of $1, or other agreed upon amount.
What do I lose from not being an LLC member?
  • No voting rights, therefore you have no legal decision making rights about what happens.
  • Unable to pass on an interest in Haversham to anyone inside or outside of the LLC
What causes me to automatically disassociate?
  • Withdrawal with the consent of a Majority of the remaining members
  • Bankruptcy
  • Death
  • Estate disassociates once assets are distributed
This is a disclaimer that THIS IS NOT TO BE TAKEN AS LEGAL ADVICE. While I am an attorney, I practice law in Pennsylvania in the field of Education Law- not corporate law. I have written this as general information for you, as a member, or interested member, or hoping to be a partly or wholly interested member, or a member wanna be, so that we have a starting place to be able to ask questions and maybe come to some good family conversations and understandings. YOU SHOULD GET REAL LEGAL ADVICE regarding your disposition of shares/interests in the LLC. While I like to think of myself as fair, I DO NOT REPRESENT YOU WITH RESPECT TO THIS LLC. I am even getting my own legal advice regarding my estate and the LLC.