An Operating Agreement governs internal management and ownership rights of a limited liability company. This playbook highlights voting procedures, capital contributions, and dissolution mechanics.
Why This Matters: Inappropriate dispute mechanisms can increase costs, delay resolutions, and impact enforceability across jurisdictions.
Negotiation strategy
If you're the Company:
Ensure the governing law is favorable to your business operations and aligns with your risk management strategy. Opt for arbitration to avoid lengthy court proceedings.
If you're the Members:
Negotiate for a neutral jurisdiction that does not disproportionately favor the other party. Consider mediation as a first step to resolve disputes amicably.
Essential elements
1
Governing Law
Specifies applicable legal regime.
2
Jurisdiction
Determines court location for disputes.
3
Dispute Resolution
Outlines arbitration or mediation process.
Action framework
ACCEPT
Propose edits if the jurisdiction is unfavorable or if the dispute resolution process lacks clarity.
EDIT
Reject clauses that impose excessive burdens or risks, such as unfavorable governing law.
ADD
Add clauses if missing to ensure clarity and risk mitigation in legal proceedings.
PRO TIP
Always specify a reputable arbitration institution and clear procedural rules to avoid ambiguity.
Example clauses
FAVORABLE
Preferred New York Governing Law
"This Agreement shall be governed by and construed in accordance with the laws of New York."
NEUTRAL
Template Governing Law Clause
"This Agreement shall be governed by and construed in accordance with the laws of [State/Country]."
UNFAVORABLE
Unclear Jurisdiction Clause
"The jurisdiction for any disputes shall be determined at a later date."
Fallbacks
Cross-Border Transactions
In cross-border deals, ensure the governing law is internationally recognized and the dispute resolution process is enforceable in multiple jurisdictions.
High-Value Contracts
For high-value contracts, prioritize arbitration to maintain confidentiality and control over the dispute resolution process.
Long-Term Agreements
In long-term agreements, consider periodic reviews of the governing law and dispute resolution clauses to adapt to changing legal landscapes.
FEATURED SOLUTIONS
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WEEK 2
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WEEK 3
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WEEK 4
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