The limited liability company is viewed as the most popular form of business entity in the United States, surpassing the corporation.

In analyzing internal issues for a limited liability company, three sources of authority are generally most relevant in determining what governs a limited liability company.

First, limited liability companies are governed by a document filed with the applicable state to form the limited liability company. In Delaware, this document is known as the Certificate of Formation. However,  to maintain privacy and confidentiality, as the Certificate of Formation is a public record, generally only limited information is included in the Certificate of Formation.

Second, limited liability companies are governed by the laws of the applicable state. In Delaware, these laws are described in the Delaware Limited Liability Company Act (under Title 6, Chapter 18 of the Delaware Code). State limited liability company laws are an important factor in deciding where to form a limited liability company; favorable Delaware law applicable to limited liability companies has made Delaware a favorable jurisdiction to form a limited liability company relative to other states. However, while the Delaware Limited Liability Company Act addresses many issues in a general manner, it does not resolve many issues that are specific to each limited liability company. For example, the Delaware Limited Liability Company Act does not define the members nor their economic interests, nor the managers nor their decision-making powers, in a specific limited liability company.

Third, limited liability companies are governed by an agreement executed by the members of the limited liability company, commonly known as an operating agreement. If properly drafted to comprehensively address these issues (both generally and specific to each limited liability company), the operating agreement can provide the most significant authority to determine what should govern internal issues for a limited liability company.

A recent Delaware court decision that recognizes the critical importance of operating agreement language for Delaware limited liability companies is Bengson v. Elevate RCM Holdings, LLC, C.A. No. 2025-1347 DG, 2026 WL 2409798 (Del. Ch. August 10, 2026).

The Backstory

In the Bengson case, Plaintiffs, Dena and Rick Bengson (“Plaintiffs”), became members of a Delaware limited liability company, Elevate RCM Holdings, LLC (“Elevate” or “Defendant”), as part of a transaction in which the business of Plaintiffs was acquired (the “Transaction”). As part of the Transaction, Plaintiffs received cash and membership units in Elevate. When they became members of Elevate, Plaintiffs executed joinder agreements (the “Joinder Agreements”) in which they “agree[d] to become a party to, to be bound by, and to comply with the provisions of [Elevate’s] Operating Agreement”. Under Section 11.1(b) of Elevate’s Operating Agreement, “Except to the extent expressly required under the Delaware Act . . . , no Member shall be entitled to any information, inspection, examination, demand, or similar access rights, and each Member hereby irrevocably and unconditionally waives, to the fullest extent permitted by applicable law (including as contemplated by § 18-305, subsection (g) of the Delaware Act), any such information, inspection, examination, demand or similar access rights”.

After Elevate sold a company that it indirectly owned, Elevate Patient Financial Solutions (“ElevatePFS”), Elevate distributed the proceeds of the sale to its members, including Plaintiffs. Plaintiffs initially made some informal requests to Elevate to provide Plaintiffs with various information relating to the sale. Plaintiffs then issued a formal “Request to Inspect Books and Records of Elevate RCM Holdings, LLC” pursuant to Section 11.1 of the Operating Agreement and Section 18-305 of the Delaware Limited Liability Company Act, seeking inspection, examination, and copies of ten categories of documents and asserting that “[t]he purpose of this request is to (i) evaluate the value of [their] current interest in [Elevate]; (ii) determine whether [they] received a proper distribution following the recent transaction involving [ElevatePFS] and (iii) understand the current status of [Elevate], including whether it retains any ownership interest in [ElevatePFS]” (the “Demand”). After Elevate generally rejected the Demand, Plaintiffs filed a Complaint.

The Delaware Court of Chancery, in the Bengson case, held:

“The central issue in this case is whether Plaintiffs waived their statutory inspection rights when they agreed to be bound by Defendant’s Operating Agreement. A preliminary issue is whether Section 11.1(b) of the Operating Agreement constitutes a permissible and enforceable waiver. I conclude that Section 18-305 of the LLC Act does not expressly prohibit the waiver of inspection rights, and Defendant’s Operating Agreement expresses the waiver in sufficiently clear terms. Plaintiffs freely and knowingly waived their statutory inspection rights when they executed joinders to Defendant’s Operating Agreement, and public policy does not preclude the Court from holding Plaintiffs to their bargain. . . . The Operating Agreement employs a regime of waiver. . . . Section 11.1(b) states that members who wish to invest in Defendant agree to ‘waive[], to the fullest extent permitted by applicable law (including as contemplated by § 18-305, subsection (g) of the Delaware Act), any . . . information, inspection, examination, demand or similar access rights[.]’ . . . [T]he issue at the heart of this case is not whether the Operating Agreement eliminates a statutory inspection right. Instead, it is whether Plaintiffs, in agreeing to be bound by the Operating Agreement, agreed to an enforceable waiver of a statutory inspection right. . . . Barring sufficient public policy concerns or express statutory language prohibiting a waiver, sophisticated parties may contractually waive a statutory right in exchange for valuable consideration. . . . Thus, what matters in this case is that . . . Section 18-305 does not expressly prohibit the waiver of its default inspection right. . . . The policy of the Delaware LLC Act is ‘to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company [operating] agreements.’ . . . Thus, the first step in a case ‘involving the internal affairs of a limited liability company . . . is to examine the [operating] agreement to determine whether it addresses the issue.’ . . . If the agreement addresses the issue, ‘the agreement controls unless it violates one of the [LLC Act]’s mandatory provisions.’ . . . In this case, however, it is immaterial whether Section 18-305 is a mandatory provision. Sophisticated and informed ‘parties can agree to waive mandatory rights’ in exchange for valuable consideration unless the General Assembly expressly prohibits it or public policy counsels against it. . . . For such a waiver to be enforceable, it must be clear and unequivocal, and the waiving party must know of the requirement or condition they are agreeing to waive. . . . Section 18-305 contains no express language prohibiting a waiver of the default inspection right. . . . Neither does the LLC Act. Accordingly, contractual waiver of Section 18-305’s default inspection right is permissible under the LLC Act. . . . [U]nlike the [Delaware General Corporation Law], the LLC Act expressly intends ‘to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.’ . . . Accordingly, investors are advised to review contract terms carefully before investing and not to look to the courts to save them from contracts that may appear ill-advised in retrospect. . . . Plaintiffs executed Joinder Agreements agreeing to be bound by the Operating Agreement. The Operating Agreement contains a provision waiving inspection rights ‘to the fullest extent’ permissible under Delaware law. Under these circumstances, it is not against public policy to hold the parties to their bargain. . . . As previously stated, the LLC Act does not prohibit the contractual waiver of the inspection right available under Section 18-305. Under the circumstances of this case, public policy does not preclude such a waiver. Defendant will thus prevail in this action if the contractual language to which Plaintiffs assented is sufficiently clear to constitute a knowing and unequivocal waiver and Plaintiffs received valuable consideration. . . . I conclude that Section 11.1(b) is a clear and unequivocal waiver that extends to inspection rights under Section 18-305, and that Plaintiffs’ arguments against enforcement fail. . . . Section 11.1(b)’s waiver language is clear and unequivocal. . . . It acknowledges that Section 18-305(g) provides a basis to vary the inspection right . . . and, in my view, highlights for readers that they are agreeing to waive the right. . . . Plaintiffs executed the Joinder Agreements as part of the Transaction. Plaintiffs negotiated the Transaction, including consideration consisting of cash and membership units in the entity. Section 11.1(b) is as enforceable as any other provision in the transaction documents. This single provision in the Operating Agreement does not require separate, additional consideration to be binding. . . . In sum, Plaintiffs bargained with Defendant for the sale of their company. In exchange for cash and membership units, Plaintiffs sold Defendant their company and agreed to be bound by Defendant’s Operating Agreement. The Operating Agreement contains a clear and unequivocal waiver of members’ statutory inspection rights. Plaintiffs have accordingly agreed to be bound by the waiver. . . . Section 11.1(b) of Defendant’s Operating Agreement contains a clear and unequivocal waiver of statutory inspection rights, and sophisticated parties – Plaintiffs – consented to the waiver when they agreed to be bound by the Operating Agreement in connection with the sale of their company to Defendant. I therefore deny Plaintiffs’ request to inspect Defendant’s books and records.”

The Bengson case stands for the specific position that an operating agreement can waive statutory rights under Section 18-305 of the Delaware Limited Liability Company Act to inspect the books and records of a Delaware limited liability company. More generally, the Bengson case shows the power of the language of an operating agreement to govern the internal affairs of a Delaware limited liability company. If the language of Section 11.1(b) of the operating agreement in the Bengson case had not been properly drafted to waive statutory inspection rights, Plaintiffs likely would have won the case and been able to enforce the Demand. However, because the language of Section 11.1(b) of the operating agreement in the Bengson case was properly drafted to waive statutory inspection rights, Defendant won the case, and the Demand was unsuccessful. The language of the operating agreement in the Bengson case was critical to resolve an internal issue and govern Defendant.

Four Key Draft Tips To Note

Given the critical importance of operating agreement language, it is vital that the operating agreement for a limited liability company be drafted correctly. Four points are relevant here.

• First, the basic facts concerning the specific limited liability company need to be reflected in the language of the operating agreement. Issues concerning members (names, capital contributions, percentage interests, and transferability of membership interests) and managers (names and relative decision-making authorities) must be properly drafted in the operating agreement.
• Second, when there are adverse parties as members and/or managers of a limited liability company, special care must be taken that the language of the operating agreement is satisfactory to all parties. This point is often an issue when a new member joins a limited liability company. The language of the operating agreement may need to be amended to reflect the interests of the new member (while still maintaining the interests of the prior members).
• Third, while limited liability companies can offer asset protection, the level of asset protection provided by a limited liability company can be materially expanded by the language of the operating agreement. Operating agreement provisions that discourage a creditor from attaching a membership interest (such as special “creditor capital contribution”, “creditor phantom income”, and “creditor cash flow restriction” provisions), allow for a creditor to be easily removed from a limited liability company (such as special “creditor favorable buy-out” and “creditor expulsion” provisions), or otherwise generally restrict creditor rights in a limited liability company, can significantly increase the asset protection from a limited liability company.
• Fourth, operating agreements should never be viewed as “cookie cutter/one size fits all” forms. The language of the operating agreement must be drafted and tailored to cover the specific facts and circumstances applicable to the specific limited liability company.

If the lawyer for your limited liability company is not following any of these four points in drafting the operating agreement for your limited liability company, you are not receiving proper representation.

If you have any questions concerning the Bengson case or concerning the language of any operating agreement, please discuss these issues with your advisers.

Note – Delaware LLC Costs Increase

While Delaware generally is viewed as one of the best states in which to form a limited liability company, the cost of Delaware limited liability companies was just increased. The annual Delaware limited liability company franchise tax was just increased from $300 to $400. This increase is retroactive to January 1, 2026 (covering the 2026 tax year), but it will first be billed and payable with Delaware limited liability company annual reports due in 2027 (by June 1, 2027). It is important to remember that these Delaware limited liability company franchise tax costs (paid to Delaware) are in addition to Delaware registered agent charges (paid to a private registered agent company) also payable by a Delaware limited liability company. Unfortunately, like many things in life these days, it will now be more expensive to derive the benefits offered by a Delaware limited liability company.

If you have any questions concerning Delaware limited liability company costs, please discuss these issues with your advisers.

If you wish to discuss any of the above, find Pen Pal Gary’s contact info here.

Disclaimer: please note that nothing in this article is intended to be, or should be relied on as, legal advice of any kind. Neither LHBR Consulting, LLC nor Gary Stern provides legal services of any kind.