Member Control Agreement

What is a Member Control Agreement?

A member control agreement is a contract among the members of a limited liability company which  addresses the members’ concerns in one or more of the following areas: protection of minority members; purchase of a membership interest upon the death or disability of a member; voting control; termination of a member’s employment; bankruptcy of a member; management deadlock solutions; and the divorce of a member whose ex-spouse is or may be awarded the member’s membership interest.

When do I need a Member Control Agreement?

A member control agreement will not be necessary if the company agreement adequately addresses the concerns described above. However, occasionally members opt to set out these issues in a separate contract.  Member control agreements can be limited in scope, or they can be very complex.  The terms of the sale and the purchase of the membership interest and defining the events which may trigger the option or obligation to sell or purchase the membership interest are often sources of controversy between members.  It is wise to meet these challenges head-on before the entity is organized, before the doors of the business are ever opened.  If the parties cannot agree on these terms at the outset, it becomes even more difficult and perhaps impossible to reach an enforceable agreement once the business becomes successful.

I assist clients in the negotiation and preparation of member control agreements for Texas limited liability companies.