The limited liability company has become the default business entity in Mississippi and across the country. Its combination of liability protection, tax flexibility, and operational simplicity makes it the natural choice for most new business ventures. But the very flexibility that makes the LLC attractive also creates opportunities for disputes among members — particularly when the operating agreement is poorly drafted, incomplete, or silent on the issue at hand.

Mississippi's LLC Act, codified at Miss. Code Ann. § 79-29-101 et seq., provides a comprehensive framework of default rules that govern the LLC's internal affairs in the absence of contrary provisions in the operating agreement. Understanding when those defaults apply — and what happens when members disagree about what the operating agreement requires — is essential for anyone involved in an LLC dispute.^[1]

The Operating Agreement as the Governing Document

Under Mississippi law, the operating agreement is the primary governing document for an LLC. It defines the rights, obligations, and economic interests of the members and managers. The Mississippi LLC Act expressly provides that the operating agreement governs the relations among the members, between the members and the LLC, and between the members and the managers. Where the operating agreement is silent, the default provisions of the statute fill the gaps.^[2]

The operating agreement need not be in writing — Mississippi recognizes oral operating agreements and agreements implied from conduct — but the evidentiary challenges of enforcing an unwritten agreement in court are significant. Disputes over the terms of an oral operating agreement frequently devolve into credibility contests, with each member offering a different recollection of what was agreed to at the outset. The lesson is clear: a written operating agreement is not merely a formality, but a necessity.

Common Areas of Dispute

Distributions

Disputes over distributions are among the most common flashpoints in LLC litigation. The default rule under the Mississippi LLC Act is that distributions are allocated in proportion to the members' contributions. But the operating agreement can override this default with any allocation the members agree to — preferred returns, waterfall structures, guaranteed payments, and so on. Problems arise when the operating agreement is ambiguous about the timing, amount, or priority of distributions, or when the manager or majority member withholds distributions that minority members believe they are entitled to receive.^[3]

Mississippi courts will enforce the terms of the operating agreement as written, applying standard contract interpretation principles. Where the agreement is ambiguous, extrinsic evidence — including the members' course of dealing, prior distributions, and the circumstances surrounding the formation — may be admissible to resolve the ambiguity.

Management Authority

The Mississippi LLC Act provides that an LLC may be either member-managed or manager-managed. In a member-managed LLC, each member has equal authority to act on behalf of the company. In a manager-managed LLC, the members delegate management authority to one or more designated managers, and the remaining members have no agency authority. Disputes frequently arise when a member exceeds the scope of his or her authority — entering into contracts, incurring debt, or disposing of assets without authorization — or when the operating agreement is unclear about the boundary between day-to-day management and decisions requiring member approval.

A well-drafted operating agreement will specify which actions require supermajority or unanimous consent (such as the sale of substantially all assets, admission of new members, or amendment of the agreement itself) and which can be taken by the manager unilaterally. The absence of these provisions invites disputes and, in the worst case, unilateral action that harms the LLC or its members.

Transfer Restrictions and Buyouts

LLC membership interests are generally transferable under the statute, but operating agreements commonly restrict transfers through rights of first refusal, consent requirements, or outright prohibitions. These restrictions serve important purposes — preventing unwanted outsiders from becoming members, maintaining tax elections (such as S corporation status), and preserving the personal nature of the relationship. But they also create friction when a member wants to exit and the remaining members are unwilling or unable to purchase the interest at a fair price.

Mississippi courts have generally upheld reasonable transfer restrictions as valid contractual provisions. However, restrictions that effectively prevent any transfer at any price may be challenged as unconscionable, particularly where the minority member is locked into an investment with no path to liquidity.^[4]

Fiduciary Duties in the LLC Context

The fiduciary duties of LLC members and managers in Mississippi are governed by both the LLC Act and the operating agreement. The statute imposes a duty of loyalty and a duty of care on managers in manager-managed LLCs and on members in member-managed LLCs. The duty of loyalty prohibits self-dealing, usurpation of LLC opportunities, and competition with the LLC. The duty of care requires that the person act with the care that a person in a like position would reasonably exercise under similar circumstances.^[5]

Importantly, the operating agreement may modify — but not entirely eliminate — these fiduciary duties. The Mississippi LLC Act permits the operating agreement to identify specific activities that do not violate the duty of loyalty, alter the standard of care (so long as it is not unreasonable), and prescribe the standards by which the performance of duties will be measured. Understanding the extent to which the operating agreement has modified the statutory defaults is critical in any fiduciary duty dispute.

Judicial Remedies

When operating agreement disputes cannot be resolved through negotiation, Mississippi courts have several tools at their disposal. A member may bring a direct action for breach of the operating agreement, which is treated as a breach of contract claim. Where fiduciary duty violations are alleged, equitable remedies — including injunctive relief, accounting, and constructive trust — may be available. In extreme cases, a member may petition for judicial dissolution of the LLC, though Mississippi courts treat dissolution as a remedy of last resort.

The operating agreement may also provide for alternative dispute resolution, including mandatory mediation or arbitration. Forum selection, choice of law, and attorney's fees provisions are also common. These provisions can significantly affect the practical dynamics of a dispute and should be carefully considered at the drafting stage.

The best way to avoid operating agreement disputes is to invest in a comprehensive, clearly drafted agreement at the outset — one that addresses distributions, management authority, transfer restrictions, fiduciary duties, and dispute resolution before disagreements arise. For existing LLCs operating under incomplete or outdated agreements, the time to review and update is now, before a dispute forces the issue.