The Enforceability of Informal Actions in New York Limited Liability Companies

In the operation of a New York limited liability company (“LLC”), written operating agreements and formal corporate procedures are undoubtedly best practices. Nevertheless, New York courts at times recognize that the absence of formal documentation does not render the conduct of LLC members legally insignificant. Indeed, long‑standing practices, oral understandings, and informal arrangements may be enforceable, provided they reflect mutual assent and do not conflict with the Limited Liability Company Law (“LLCL”).

Two decisions Schneider v. Pine Management, Inc. and Doyle v. Icon, LLC underscore the judiciary’s willingness to give legal effect to informal dealings when the parties’ course of conduct demonstrates a shared understanding.

I. Implied Agreements Through Conduct in LLC Operations

In Schneider v. Pine Management, Inc., the plaintiffs argued that Pine Management lacked written authorization to collect management fees from a group of real estate LLCs. The court, however, found that the parties’ decades‑long behavior established an implied‑in‑fact agreement. The members had been aware of Pine Management’s fee practices, had received financial statements documenting the fees, and voiced no objections over many years. This comported with established precedent recognizing that a contract “may be derived from the intentions of the parties as indicated by their conduct,” and that such an agreement is “as binding as an express contract.”

The court further noted that silence may constitute assent where a member has reason to speak but does not, particularly in the face of a well‑understood and long‑standing business practice. This reasoning reflects long‑established doctrine that acquiescence may arise from inaction when continued silence is likely to mislead the other party.

II. The Role of Informal Understandings in the Absence of a Written Operating Agreement

The decision in Doyle v. Icon, LLC similarly illuminates the legal significance of informal agreements among members, especially where no written operating agreement exists. The members of Icon, LLC had operated their bar business for years based largely on verbal understandings, shared expectations, and contributions of labor and capital. When disputes arose regarding ownership percentages and capital responsibilities, the court emphasized that the statutory default rules of the LLCL govern in the absence of a written operating agreement, but that members may still be bound by informal, mutually understood arrangements so long as they do not contravene the statute.

The court recognized that members of an LLC may reach enforceable agreements orally, and that such agreements—reflected in the parties’ conduct—can govern issues such as capital contributions, dilution of membership interests, and profit allocations. In Doyle, the defendants asserted that the members had reached an informal understanding that those unwilling to contribute additional funds during a financial crisis would see their interests diluted or eliminated. The court found sufficient factual disputes regarding this alleged informal agreement to preclude summary judgment, underscoring the judiciary’s recognition of the potential enforceability of such informal arrangements.

III. Course of Performance as Evidence of Members’ Intent

In both cases, the courts highlighted that course of performance—how the parties actually operated over time—is often the most reliable indicator of their intentions. In Schneider, the consistent payment and acceptance of management fees for decades was compelling evidence of assent. In Doyle, the members’ longstanding, informal mode of operation demonstrated that they had relied on understandings outside of any written instruments.

This approach comports with contract interpretation principles recognizing that post‑formation conduct can illuminate the parties’ understanding of their rights and obligations. New York courts have repeatedly held that the parties’ own performance under an agreement—even an unwritten one—may be “highly probative” of their intent.

IV. Practical Implications for LLC Members and Managers

These decisions carry several important implications for LLC members and managers:

1. Informal Practices Can Become Binding

Where members consistently conduct themselves in a particular way and rely on established practices, those practices may become enforceable obligations, even in the absence of written agreements.

2. Silence May Be Construed as Consent

Members who receive notice of another party’s conduct and fail to object may be deemed to have acquiesced, particularly when they have a duty to speak arising from the parties’ relationship or course of dealings.

3. Lack of a Written Operating Agreement Is Not Protective

While the absence of a written operating agreement triggers the LLCL’s default rules, those defaults do not override informal agreements that the members have actually observed in practice, provided no statutory provisions are violated.

4. Courts Look to Reality Over Formality

Judges are willing to enforce what the parties actually did, not merely what they wrote—or failed to write. Consistent conduct is often more persuasive than neglected documentation.

Conclusion

The jurisprudence of New York’s LLC law demonstrates that informal actions and long‑standing practices among LLC members may carry the same legal weight as formally executed agreements. Courts are prepared to enforce such arrangements when they reflect mutual intention, align with the statutory framework, and are evidenced by a clear pattern of conduct.

Accordingly, while LLCs should strive to adopt and maintain comprehensive written operating agreements, members must remain cognizant that their actions—and even their silence—may create binding obligations. In New York, informality does not equate to legal insignificance; rather, it can define the operative terms of the LLC’s internal governance.