The Importance of the Unanimous Consent Provision of an Operating Agreement

Aman Cheema

In the early stages of forming a limited liability company (LLC), founders often rush through drafting and executing the operating agreement, the document that governs how the business will be run, how decisions will be made, and what happens when things go wrong. One clause that especially tends to fly under the radar in home-made agreements, or is left out entirely, is the unanimous consent provision. This can be a critical mistake. If you are a founder, investor, or member involved in any LLC, especially a closely held one, understanding this clause could prevent catastrophic internal gridlock down the line.

What is the unanimous consent provision? In most operating agreements, certain actions require unanimous consent of all members of the company, regardless of ownership percentage. This means every member must affirmatively approve the action before it can proceed. When drafting the operating agreement, the key question to ask is: what actions should require unanimous consent of all members, regardless of percentage ownership? Common examples include: (i) amending the operating agreement itself, (ii) selling or transferring IP owned by the company, (iii) admitting a new member, (iv) selling substantially all assets of the company, (v) dissolving the LLC, (vi) merging or restructuring the business, (vii) incurring significant debt or financial obligations, and (viii) acquiring or disposing of real property. Unlike majority or supermajority consent provisions, which require only a percentage of member approval for certain actions, unanimous consent provisions give each individual member veto power over major decisions.

This provision is especially important because it sits at the intersection of governance and deadlock. A single member, even one with a minimal ownership stake, can halt the company’s strategic moves. This veto power can be necessary in some cases, but in others, it leads to an impasse.

The solution is not to eliminate unanimous consent provisions entirely, but to tailor them strategically. Consider using supermajority thresholds (e.g., 66% or 75%) for certain high-stakes decisions, requiring unanimous consent only for core issues, including deadlock resolution mechanisms, or limiting veto rights to active or vested members. Finally, it is critical to remember that any change to the operating agreement itself often requires unanimous consent. Therefore, if this clause is not carefully structured from the outset, amending it later may be practically impossible without full agreement from all members. Planning early, and strategically, is essential.