Hawaii Limited Liability Company: How an Operating Agreement Can Avoid Hawaii Statutes

Under the Hawaii Uniform Limited Liability Company Act, there are default rules that apply if your Hawaii limited company does not have a Hawaii operating agreement in place. Some of those default rules may prevent the company from taking meaningful action due to strict unanimity requirements, especially if the company has many members. This is why it is important to have an operating agreement that has rules tailored to your needs rather than being bound by Hawaii’s default rules.

For example, Section 428-404(c) of the Hawaii Revised Statutes specifically states that certain matters of the business of a limited liability company require the consent of all members. Some of those matters include the following:

(1) amendments to the operating agreement;
(2) amendments to the articles of organization;
(3) admission of a new member;
(4) make interim distributions;
(5) use of company property to redeem an interest subject to a collection order;
(6) compromise between members, the obligation of a member to make a contribution or return money or other property paid or distributed in violation of this chapter;
(7) merge the company with another entity;
(8) consent to dissolve the company; Y
(9) sell, lease, exchange or otherwise dispose of all or substantially all of the property of the business with or without goodwill.

An operating agreement can be used to override such default rules so that only the consent of the majority of members is required for the aforementioned matters instead of unanimity. If you have three or more members, you probably need an agreement because getting unanimity is easier said than done. In addition, the situation of each Hawaii limited liability company may be different, so the agreement must be carefully designed for each circumstance.

Finally, it should be noted that despite the flexibility an operating agreement can provide your business, Section 428-103(b) of the Hawaii Revised Statutes places some limitations on what the agreement can do. An operating agreement cannot:

(1) unreasonably restrict the right to information or access to records;
(2) eliminate the duty of loyalty;
(3) unreasonably reduce the duty of care; Y
(4) eliminate the obligation of good faith and fair dealing, but the operating agreement may determine the standards by which performance of the obligation will be measured, if the standards are not manifestly unreasonable.

However, even with respect to the aforementioned provisions, the agreement may establish limitations and rules.

Therefore, you should seek a consultation with a Hawaii attorney experienced in corporate law so that you can obtain a structured operating agreement for your business needs.

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