Most mem­bers get along. Most man­agers live up to the LLC’s stan­dards. Most LLCs hum-along just fine. The chances of har­mony increase when the mem­bers com­mu­ni­cate con­stantly and effec­tively, com­mu­ni­cate their expec­ta­tions, and are respectful.

But every now and then the LLC can’t make up its mind. The mem­bers may not agree on a mat­ter. A man­ager might not live up to the LLC’s stan­dards. A mem­ber might breach the oper­at­ing agree­ment or the law. When any of this hap­pens, your oper­at­ing agree­ment tells you how to resolve the dispute.

Dis­pute Resolution

The first step is to try to resolve things on your own. If this doesn’t work, then you may try to resolve things through medi­a­tion. If that doesn’t work, then you have to file the mat­ter in court. If you waived your right to a jury trial in the oper­at­ing agree­ment, a judge will decide the mat­ter for you. If you didn’t waive this right, then a jury will decide the mat­ter. You may also agree to arbi­trate the dispute.

Insur­ance

If you’re a man­ager and don’t live up to the LLC’s stan­dards, then you’re per­son­ally liable to the other mem­bers for any dam­ages they incur by your fail­ure. If you’re a mem­ber or man­ager and breach the oper­at­ing agree­ment or the law, then you’re also per­son­ally liable to the other mem­bers for the breach. The LLC can look into pur­chas­ing insur­ance to cover you as a mem­ber or man­ager for these claims.

Cov­er­age

Even though you’re a mem­ber or man­ager in an LLC, some­one out­side of the LLC can still name you per­son­ally in a law­suit. You’ll have to pay for your defense and any judg­ment, unless the mem­bers agree to pay for these. You can ask the LLC to advance your lit­i­ga­tion expenses for these claims.