Around a year ago I wrote about Delaware Chancery Court’s ruling in Olson v. Halvorsen, in which it held that the statute of frauds applies to oral LLC operating agreements. I pointed out that Delaware’s LLC law expressly permits oral operating agreements, whereas New York’s LLC law defines the operating agreement as a written agreement. To my knowledge, no New York court has yet grappled with the issue.
The Olson ruling was appealed to the Delaware Supreme Court, which yesterday affirmed Chancery Court’s ruling (read decision here). In a posting today on his Ideoblog, Professor Ribstein quotes at length from the decision and offers his always-incisive analysis, including his take on how the Olson ruling might play out in a jurisdiction like New York that requires written operating agreements.
It’s an important issue for practicing attorneys who help form and give counsel to LLCs, so if you fall into that category — or even if you don’t — I recommend you read the Professor’s post.
Update June 22, 2010: Over at the Unincorporated Business Entities Law blog, Gary Rosin reports that the Delaware legislature has enacted an amendment to the definition of "limited liability company agreement" in § 18-101(7) of the Delaware LLC Act which overrules the Supreme Court’s Olson ruling by explicitly stating that "[a] limited liability company agreement is not subject to any statute of frauds." How’s that for plain-English drafting?