Michigan LLC governance: an oral operating agreement is not an operating agreement, and the minority right you cannot draft away

Two people run a Michigan business on a handshake, split the work, and agree how they will divide the money. Then they fall out. In Michigan the handshake does not count, because Michigan is one of the states where an operating agreement has to be written to be an operating agreement at all. Without a signed document, the two owners are not governed by their deal. They are governed by the statute’s defaults, and the statute splits the money equally by headcount no matter who built what.

Michigan runs its own 1993 LLC act, not the national uniform act that Pennsylvania and most states adopted, so its governance rules do not track the ones on those pages. This page covers the two places where Michigan’s own choices change what the operating agreement has to do: the requirement that the agreement be in writing, and a statutory floor that protects a minority member from being frozen out no matter what the majority drafted. The general default mechanics are on the site’s default rules guide; this page does not re-teach them.

An oral operating agreement is not an operating agreement

Start with the definition, because in Michigan the definition is the trap.

Michigan recognizes only a written operating agreement, so an unwritten deal leaves the statute’s defaults in complete control.

MCL 450.4102(r) defines an operating agreement as a written agreement among the members concerning the company’s affairs. Not oral, not implied, not reconstructed from conduct. This is the mirror image of Pennsylvania, which expressly lets an operating agreement be a handshake. In Michigan there is no oral side deal to point to. If it is not written, the Michigan Limited Liability Company Act supplies the rule, and its defaults describe a company almost no one intends.

The one that surprises people most is the money.

Stay silent and Michigan splits distributions equally by headcount, not by the capital each member put in.

Under MCL 450.4303, distributions for an LLC formed after July 1, 1997 are shared in equal shares among the members, per capita, regardless of who contributed what. The member who funded the building and the member who contributed sweat split the distributions evenly unless a written agreement says otherwise. Management runs member-managed by default under MCL 450.4102 and 450.4401, with managers only if the articles say so. None of these defaults rewards the larger investor, and none of them can be fixed after the fact by testimony about what everyone meant, because Michigan will not hear the oral agreement. The written document is not optional paperwork here. It is the only way your actual deal exists in the eyes of a Michigan court.

One narrow comfort for solo owners: MCL 450.4215 confirms that a single-member operating agreement is not unenforceable just because only one person signed it, so the one-owner company still gets the benefit of writing its own rules.

The minority right the majority cannot draft away

Michigan is not the uniform act, so it does not carry the “manifestly unreasonable” fiduciary-waiver machinery that Pennsylvania uses. What it has instead is more direct, and it is the most important thing a minority member in a Michigan LLC should know.

A Michigan member who is being frozen out can ask a court for a buyout or dissolution, and the operating agreement cannot take that petition away.

MCL 450.4515 lets a member petition a circuit court for relief when those in control of the company act illegally, fraudulently, or in a “willfully unfair and oppressive manner” toward that member. The court can order a buyout of the member’s interest, appoint a custodian, or dissolve the company. This is Michigan’s LLC oppression remedy, and it is a real body of litigated law, not a dead-letter provision. The practical consequence is sharp: a majority in a Michigan LLC cannot use the operating agreement to strip a minority member of everything and wait them out, the way a pure freedom-of-contract regime would allow. Withhold every distribution, cut the minority out of information and decisions, drive down the value of their stake, and you have handed them a statutory claim for a court-ordered exit at fair value.

Read that as a structuring consequence on both sides. If you are drafting for the majority, oppression exposure is a live constraint, so the freeze-out playbook that works in some states does not work here, and squeeze mechanics need to be papered as legitimate business decisions, not punishment. If you are the minority member being offered a deal, a Michigan LLC gives you a floor that survives the operating agreement, which is protection you would not necessarily keep in a Delaware entity built for the sponsor. The freedom of contract guide covers the general spectrum; Michigan sits well toward the protective end of it because of 4515.

Duties, exits, and the rules worth writing down

Michigan’s manager standard of conduct sits in MCL 450.4404: discharge your duties in good faith, with the care an ordinarily prudent person would exercise in a like position, in a manner you reasonably believe is in the company’s best interests. It is an older, thinner standard than the uniform act’s separate duties of loyalty and care, which means more of the real fiduciary framework in a Michigan LLC comes from the written agreement and from common-law duty, not from a detailed statute. That again points back to drafting: the fewer answers the statute gives, the more the document has to.

Exits follow the same logic. A member who leaves without a written buyout provision does not force the company to purchase the interest; a transfer moves economic rights and not membership; and an heir inherits a distribution stream, not a seat at the table. The leaving an LLC guide covers why a silent agreement turns an exit into a standoff, and in Michigan the standoff is worse, because the departing member cannot fall back on an oral understanding of what was promised.

The bottom line

Michigan recognizes only a written operating agreement under MCL 450.4102(r), so an unwritten deal is governed entirely by the statute’s defaults, with no oral side agreement available.

The distribution default splits cash equally by headcount under MCL 450.4303, so an unequal-capital company must put its real split in writing or lose it.

A minority member who is oppressed can petition for a court-ordered buyout or dissolution under MCL 450.4515, and that right cannot be drafted away, which makes freeze-out strategies risky in Michigan.

The manager standard is good-faith, ordinarily-prudent conduct under MCL 450.4404, thinner than the uniform act, so more of the fiduciary framework has to come from the written agreement.

Because Michigan is not the uniform act, none of these rules track Pennsylvania’s or another RULLCA state’s, and the written document carries more of the load here than almost anywhere.

What this page does not cover

This page is about the rules that run your company from the inside and the agreement that has to be written to control them. How outside creditors reach a member’s interest, the exclusive-remedy charging order, and the entireties shield are on the protection page. Where the entity lives, the missing series LLC, and the property-tax uncapping on ownership changes are on the structure and cost page. Fees, forms, the February 15 annual statement, and deadlines are on the filing page.

Last verified August 2026.