Hawaii Limited Liability Company – How an Operating Agreement Can Avoid Hawaii’s Statutory Rules

Under Hawaii’s Uniform Limited Liability Company Act, there are default rules that become applicable should your Hawaii limited liability company fail to have a Hawaii operating agreement in effect. Some of those default rules may prevent the company from taking significant action due to strict unanimity requirements, especially if the company has a large membership. This is why it is important to have an operating agreement that will have rules tailored to your needs rather than be subject to Hawaii’s default rules.

For example, Hawaii Revised Statutes Section 428-404(c) specifically provides that certain matters of a limited liability company’s business require the consent of all the 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) making interim distributions;
(5) use of the company’s property to redeem an interest subject to a charging order;
(6) compromising among members, an obligation of a member to make a contribution or return money or other property paid or distributed in violation of this chapter;
(7) merging the company with another entity;
(8) consent to dissolve the company; and
(9) selling, leasing, exchanging, or otherwise disposing of all, or substantially all, of the company’s property with or without goodwill.

An operating agreement can be used to override such default rules so that only a majority of the members’ consent is required for the aforementioned matters rather than unanimity. If you have three or more members, you probably need an agreement because obtaining unanimity is easier said than done. Furthermore, each Hawaii limited liability company’s situation may be different, so the agreement should be carefully crafted to each circumstance.

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

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

However, even with respect to the aforementioned provisions, the agreement can set limitations and standards.

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