Uniform Limited Liability Company Act: Default Rules and Duties

The Revised Uniform Limited Liability Company Act is a model statute drafted by the Uniform Law Commission that supplies default rules for LLCs in states that have adopted it. It was first issued in 1996, substantially rewritten in 2006, and amended again in 2013.¹ Roughly 20 states and the District of Columbia follow some version of it. If your LLC is organized in one of those states, the act fills every gap your operating agreement leaves open, from voting and profit-sharing to what happens when a member walks away. The operating agreement is the first source of authority; the act’s provisions apply only where the agreement is silent.

The 1996 version arrived after most states had already written their own LLC statutes, so only nine ever adopted it.² The 2006 revision drew broader uptake, and the 2013 amendments refined indemnification and fiduciary duty waivers. In states that follow their own statute instead, the concepts below are often similar, but the specific defaults can differ in ways that matter.

What Your Operating Agreement Can’t Override

Freedom of contract runs deep in the act, but it has walls. Certain protections cannot be stripped out by any operating agreement, no matter how carefully drafted. A provision that crosses one of these lines is unenforceable, and the act’s default fills the gap.

The contractual obligation of good faith and fair dealing cannot be eliminated. The agreement can define how the standard is measured, but only so long as the definition is not manifestly unreasonable.³
A member’s right to petition a court for judicial dissolution when managers are engaged in illegal or fraudulent conduct cannot be waived.
The right to inspect company books and financial information cannot be unreasonably restricted.
No clause can relieve anyone from liability for bad faith, intentional misconduct, or knowing violations of law.³

Fiduciary duties can be narrowed, but not eliminated, and only to the extent the restriction is not manifestly unreasonable. Courts applying that test look at whether the restriction would strike a reasonable person as clearly unfair given the LLC’s purposes and the circumstances when the agreement was drafted.

Default Management and Voting

When the operating agreement doesn’t specify a management structure, the LLC is member-managed. Every member shares equal rights in running day-to-day operations unless the agreement says the company is manager-managed or uses similar language.³

Voting defaults to one vote per member. A member who put in $10,000 has the same voting weight as one who put in $100,000. Ordinary business decisions pass by majority. Actions outside the ordinary course of business require unanimous consent.³

That unanimity rule catches people off guard. Selling the company’s only asset, taking on a large loan, or changing the nature of the business all likely sit outside the ordinary course, meaning one dissenting member can block the deal. Members who want voting weighted by capital contribution, or a supermajority threshold instead of unanimity for major decisions, have to write that into the operating agreement.

Who Can Bind the LLC to Outside Contracts

Under the original 1996 act, every member was automatically treated as an agent of the LLC and could bind it to contracts the way partners can bind a partnership. The 2006 revision reversed that. Section 301 now states that a member is not an agent of the company solely by reason of being a member.³ LLCs come in too many structural varieties for outsiders to know who has authority, and some members may be passive investors with no management role.

Common-law agency still applies. If a member regularly negotiates deals for the LLC and the company lets it happen, a court might find apparent authority even without a statutory grant. The operating agreement should specify which members or managers can sign contracts and commit the company.

For real estate specifically, an LLC can file a statement of authority with the Secretary of State and record a certified copy in the county land records. That filing makes a grant of authority to transfer real property conclusive in favor of anyone relying on it in good faith, and a recorded limitation puts the world on notice.³ Statements expire after five years if not renewed.

Fiduciary Duties

The act imposes two fiduciary duties on whoever is managing the LLC, plus a separate contractual obligation that applies to everyone.

Duty of Loyalty

The duty of loyalty has three components. A member or manager must account to the company for any profit or benefit derived from the company’s business or property, must avoid dealing with the company on behalf of someone whose interests conflict, and must refrain from competing with the company before dissolution.³ The operating agreement can identify specific activities that won’t count as loyalty violations, but it cannot eliminate the duty, and the carve-out cannot be manifestly unreasonable.

Duty of Care

The duty of care sets a forgiving floor. A member or manager must refrain from grossly negligent or reckless conduct, intentional misconduct, and knowing violations of law.³ Ordinary mistakes, even expensive ones, do not violate this duty. The agreement can adjust the standard but cannot authorize conduct reaching bad faith or intentional wrongdoing.

Good Faith and Fair Dealing

Good faith and fair dealing is not a fiduciary duty under the act. It is a separate contractual obligation that binds every member and manager, not just those running the company. The agreement can set standards for measuring compliance, so long as those standards are not manifestly unreasonable. The distinction matters because fiduciary duties carry different remedies and modification rules than contractual obligations.

Indemnification

The act requires an LLC to indemnify its members and managers for claims, debts, and liabilities they incur while acting on the company’s behalf, provided they were complying with their fiduciary and management duties at the time. This covers both current and former members and managers.³

Indemnification is a default rule, so the operating agreement can scale it back or expand it. What it cannot do is eliminate liability for bad faith, intentional misconduct, or knowing legal violations. The LLC also has discretion to advance legal expenses to a member or manager facing a claim, provided the person agrees to repay if they ultimately lose and aren’t entitled to indemnification.

Profit Distributions

If the operating agreement doesn’t address profit-sharing, the act requires distributions in equal shares. Capital contributions are ignored. A member who put in $500,000 receives the same distribution as a member who put in $50,000.³ This default alone is a strong reason to draft a distribution schedule tied to capital accounts or ownership percentages.

Leaving the LLC (Dissociation)

A member can leave the LLC at any time by expressing the intent to withdraw. The act calls this dissociation. Having the power to leave does not mean leaving is free. If the operating agreement includes a fixed term or restricts withdrawals, an early departure counts as wrongful dissociation, and the leaving member is liable to the company and the remaining members for any damages caused.

Under the revised act, dissociation does not trigger a buyout. Instead, the former member becomes a transferee of their own interest. They keep the right to receive distributions but lose all management and governance rights immediately. They cannot vote, access company records, or participate in running the business. The economic stake remains; the seat at the table is gone.

Transferring Membership Interests

The act draws a sharp line between a member’s economic rights and their governance rights. A member can freely transfer their transferable interest, meaning the right to receive distributions. The transferee gets distributions and nothing else. They cannot participate in management, inspect records, or vote.³

Admitting a new person as an actual member, with full governance rights, requires the unanimous consent of existing members unless the operating agreement provides otherwise. This default protects against outsiders gaining control through a transfer, and it means a member’s creditors, heirs, or divorce-settlement recipients end up with economic rights only.

Charging Orders and Creditors

When a member owes a personal debt and a creditor obtains a judgment, the creditor cannot seize the member’s LLC interest or force a liquidation. The exclusive remedy is a charging order, which acts as a lien on the member’s transferable interest. The LLC must redirect any distributions that would have gone to the debtor-member and pay them to the creditor.

The creditor does not become a member. They gain no management rights, no access to records, and no power to force a distribution. If distributions are insufficient to satisfy the judgment within a reasonable time, a court may order foreclosure on the transferable interest. Even then, the buyer at the foreclosure sale takes only the economic rights.

This structure is one of the main reasons LLCs are used for asset protection. A creditor’s recovery is limited to whatever the company chooses to distribute, and a company controlled by other members has no obligation to accelerate distributions because one member’s creditor is waiting.

Why the Operating Agreement Does the Heavy Lifting

Every default described above was designed for an LLC that didn’t plan ahead. Equal voting regardless of investment. Equal distributions regardless of capital. No buyout when a member leaves. No automatic authority to sign contracts. These rules are reasonable generic backstops, but they rarely match what the members actually intended when they formed the business. A carefully drafted operating agreement at formation can override every one of them and head off disputes that would otherwise land in court.

1
Uniform Law Commission. Limited Liability Company (2006) (Last Amended 2013)
2
North Dakota Legislative Branch. Revised Uniform Limited Liability Company Act – Background Memorandum
3
Bureau of Indian Affairs. Uniform Limited Liability Company Act (2006) (Last Amended 2013)