LLC Default Rules Under RULLCA Without an Operating Agreement

If you never signed an operating agreement for your LLC, the Revised Uniform Limited Liability Company Act supplies one for you. The LLC default rules without an operating agreement treat every member as an equal: one vote per person, an equal share of distributions, and equal authority to run the business, no matter who put in the most money or does the most work. These defaults apply in the states that have adopted some version of RULLCA, and they govern anything the members haven’t otherwise agreed to.

The equal-by-default framework surprises most new owners. A member who contributed $200,000 and a member who contributed $5,000 split profits down the middle. Each gets one vote. Either can block a major decision. Changing any of that requires unanimous consent from everyone, which is exactly the leverage you don’t want a minority owner to have if you’re the one who funded the business.

You May Already Have an Operating Agreement

Before assuming the defaults apply to you in full, know that RULLCA defines “operating agreement” much more broadly than most people expect. The term covers any agreement among all the members about the LLC’s affairs, whether it’s written, oral, implied from how the members have behaved, or some combination of the three. Two co-owners who agreed over lunch to split profits 60/40 have an operating agreement under RULLCA.

The default rules below only fill in where that agreement is silent. If you and your co-members have an understanding about something, a court may treat that understanding as part of your agreement rather than reaching for the statutory default. The problem is proving what was agreed when nothing was written. Oral deals invite disputes about who said what, which is why written agreements exist.

Who Runs the LLC and Who Can Bind It

Every LLC is presumed to be member-managed unless the organizing documents say otherwise.¹ That means every owner has actual authority to conduct business on behalf of the company for transactions within its ordinary activities. If the LLC runs a restaurant, any member can order supplies, hire staff, or renew the lease without clearing it with the others.

Routine decisions are controlled by a simple majority of the members. Three out of five agree on a vendor switch, the decision stands. But anything outside the ordinary course of business requires the consent of every single member.¹ Selling the company’s assets, taking on unusual debt, entering a new line of business, amending the agreement itself: one holdout can stop any of it.

One nuance that catches third parties: RULLCA does not grant members statutory apparent authority the way partnership law does. Vendors and counterparties cannot simply assume any member has power to bind the LLC. Authority flows from the management structure, so for large or unusual deals, the other side may need to verify that the member signing actually has authority to act.

Votes, Profits, and Distributions Are Per Capita

The default voting and profit-sharing system is per capita, not proportional to investment. Every member gets exactly one vote and an equal share of distributions, regardless of what they contributed.¹ This is the single most disruptive default rule, and it generates the most disputes.

Distributions follow the same rule. When the LLC decides to distribute cash or assets, each member receives an identical portion. No one gets a larger share for working longer hours, bringing in more clients, or putting up more capital unless a written agreement says so. Changing these ratios requires unanimous consent, because amending the operating agreement counts as an extraordinary action.¹ In a two-member LLC where one person put in 90% of the capital, the other member has no reason to agree to a proportional split later. That’s precisely the trap of relying on defaults.

Capital Contribution Promises Survive Hardship

If a member promised to contribute money, property, or services, that obligation is enforceable, and personal hardship doesn’t erase it. Death, disability, or any other inability to perform personally does not excuse the promise.¹ If a member agreed to contribute equipment and fails to deliver, the LLC can demand a cash payment equal to the value of what was promised.

Reducing or forgiving a promised contribution requires unanimous consent. Creditors who extended credit to the LLC in reliance on a member’s promise are also protected. If the other members quietly agreed to let someone off the hook, a creditor who didn’t know can still enforce the original contribution against the member who fell short.

Fiduciary Duties Apply at Full Strength

In a member-managed LLC, every member owes two fiduciary duties to the company and to each other: the duty of loyalty and the duty of care.¹ The duty of loyalty means you cannot compete with the LLC, deal with it as an adverse party, or take business opportunities that belong to the company for yourself. The duty of care requires you to act with the diligence a reasonable person in your position would use. Honest mistakes are protected; gross negligence and intentional misconduct are not.

RULLCA also imposes a separate obligation of good faith and fair dealing on every member. This is a contractual standard rather than a fiduciary one, and it applies to all actions taken under the operating agreement or the act itself. A written agreement can modify fiduciary duties within limits, but it cannot eliminate the good faith obligation. Without any written agreement, members are held to the broadest version of every duty.¹ Violating these standards can lead to personal liability for any losses the company or the other members suffer.

Transferring a Membership Interest

RULLCA splits a membership interest into two bundles: economic rights and governance rights. A member can freely transfer their economic rights (the share of distributions and profits) to anyone without asking the others first.² The buyer becomes a “transferee” and starts receiving distributions, and that is the end of their rights.

A transferee cannot vote, participate in management, inspect records, or demand information about the business. They’re a passive recipient of whatever the LLC decides to distribute. For a transferee to become a full member with governance rights, every existing member must consent.² That protects the remaining owners from being forced into a working relationship with someone they didn’t choose. It also makes a membership interest hard to sell at full value: sophisticated buyers won’t pay top dollar for a passive stake with no control.

Access to Information and Records

In a member-managed LLC, any member can inspect and copy company records during regular business hours with reasonable notice, so long as the information relates to their rights and duties as a member. That includes financial statements, tax records, and operational documents.

The rules tighten for manager-managed LLCs. A member requesting records there must describe what they want with reasonable detail, explain why they need it, and show that the information connects to that purpose. The company can also impose reasonable use restrictions, including liquidated damages for misuse. Transferees who hold only economic interests get no inspection rights at all. A member who has dissociated retains some information rights, but they’re narrower than those of a current member.

Leaving the LLC Does Not Trigger a Buyout

Any member can leave the LLC at any time simply by giving notice of their intent to withdraw.² Once the company receives that notice, the departing member loses all management and voting rights, and their membership interest converts to a transferable interest. They can still receive distributions. They can no longer run anything.

Dissociation does not entitle the departing member to a buyout or any distribution.² This surprises people who assume leaving an LLC works like selling stock. A member who walks away ends up holding an illiquid economic interest with no control over whether or when distributions happen. The remaining members have no obligation to buy them out unless the operating agreement says so.

Dissociation can also be involuntary. The other members can expel someone by unanimous vote in specific circumstances, including when continuing business with that person would be unlawful or when the person has transferred their entire economic interest. A court can order expulsion if a member has engaged in conduct that materially harms the company or has persistently breached their duties. Death, bankruptcy, and dissolution of a member that is itself a business entity are other triggers.

A member who dissociates wrongfully is liable to the LLC and the other members for any damages the departure causes. Wrongful dissociation usually means leaving in violation of the agreement or at a time that breaches the member’s duties, and that liability stacks on top of anything else the member already owes.

What Forces the LLC to Dissolve

RULLCA identifies several events that force the LLC to dissolve and wind up its affairs:¹

Unanimous member consent to dissolve.
Ninety consecutive days with no members and no one admitted during that window.
A court order on a member’s petition when the LLC’s activities are unlawful, when operating in conformity with the organizing documents is no longer practicable, or when those in control have acted illegally, fraudulently, or oppressively against the petitioning member.
Administrative dissolution by the state filing office for compliance failures like not maintaining a registered agent or not filing required reports.

A single member’s departure does not dissolve the LLC on its own. The business continues, and the departing member’s interest converts to a transferable interest.

Once dissolution starts, assets get distributed in a strict order. Creditors come first, including members who are creditors of the company. After debts are settled, remaining assets go to members: first to satisfy any outstanding distribution obligations, then to return capital contributions, and finally any surplus is divided among members in the same proportions they share distributions.² Under the per capita default, that last bucket splits evenly regardless of who contributed more.

Indemnification for Members Acting Properly

RULLCA provides automatic indemnification for members who act properly on the company’s behalf. If you make a payment in the course of LLC business and you complied with your duties in doing so, the LLC must reimburse you.¹ The LLC must also hold you harmless against claims and liabilities you incur because of your role, as long as those liabilities didn’t arise from your own breach of duty.

The LLC can advance reasonable expenses, including attorney’s fees, to a member facing a claim related to their role. The member has to agree to repay the advance if indemnification turns out not to be warranted. A member who breached their fiduciary duties or acted in bad faith loses this protection entirely.

Federal Tax Treatment Is Separate

RULLCA controls the LLC’s internal rules. The IRS controls federal tax treatment on its own track, based on how many members the company has. A multi-member LLC that hasn’t filed an election is automatically taxed as a partnership, so the LLC itself pays no income tax.³ Profits and losses pass through to each member’s individual return.

A single-member LLC is a “disregarded entity” for income tax purposes. The owner reports business income and expenses on their personal return, usually on Schedule C.⁴ The LLC remains a separate entity for employment tax and certain excise taxes, so it still needs its own employer identification number for those.

Either type of LLC can elect corporate tax treatment by filing Form 8832, but it doesn’t happen automatically. Without that election, the default classification applies. Tax allocations follow the operating agreement’s allocation of income, and where there is no written agreement, the per capita default applies to tax allocations as well. That means members who are splitting profits equally by default are also being taxed on equal shares, even if their economic reality is nothing like equal.

1
Bureau of Indian Affairs. Uniform Limited Liability Company Act (2006) (Last Amended 2013)
2
The State Bar of California. Revised Uniform Limited Liability Company Act
3
Internal Revenue Service. Limited liability company (LLC)
4
Internal Revenue Service. Single member limited liability companies