The Hidden Problem with Internet LLC Documents When There Is More Than One Member

A Puerto Rico Perspective

Forming an LLC in Puerto Rico has never been easier. With a few clicks, anyone can download a “free” operating agreement template from the internet, fill in names and percentages, and feel legally protected.

That sense of security is often false — and dangerously so — especially when the LLC has more than one member.

What works (sometimes) for a single-member LLC becomes a legal minefield the moment there are two or more owners. In Puerto Rico, the consequences can be severe: loss of

control, forced litigation, fiduciary deadlock, tax surprises, and even judicial dissolution.

This article explains why generic online LLC documents routinely fail in multi-member Puerto Rico LLCs, and why courts are increasingly unwilling to “save” poorly drafted agreements after the fact.

1. Internet LLC Templates Are Not Drafted for Puerto Rico Law

Most online LLC templates are written for:

• Delaware

• Generic “50-state” use

• Or worse, common-law jurisdictions with very different default rules

Puerto Rico is a civil-law jurisdiction with:

• A hybrid LLC statute

• Strong default rules when agreements are silent

• Courts that interpret ambiguity against the drafter

When an operating agreement does not clearly allocate rights and remedies, Puerto Rico law fills the gaps — often in ways the members never intended.

Silence is not neutral.

2. Multi-Member LLCs Create Fiduciary Duties — Even If Your Template Never Mentions Them

Many internet templates:

• Barely mention fiduciary duties

• Copy Delaware language without adaptation

• Fail to define standards of conduct

In Puerto Rico, members and managers of an LLC owe fiduciary duties by operation of law, particularly in closely held companies.

If your agreement does not:

• Define duty of care standards

• Address conflicts of interest

• Regulate self-dealing

• Establish approval mechanisms

then ordinary business disagreements can quickly become fiduciary-duty litigation.

Courts will not assume “business judgment protection” unless the agreement clearly supports it.

3. Voting Deadlocks Are the #1 Litigation Trigger — and Templates Almost Never Fix Them

In practice, most Puerto Rico LLC disputes arise from:

• 50/50 ownership structures

• Vague voting provisions

• No deadlock-resolution mechanism

Most internet templates say something like:

“Decisions shall be made by a majority of the members.”

That language is meaningless when ownership is split evenly.

Without:

• Tie-breaker rules

• Buy-sell mechanisms

• Put-call provisions

• Mandatory mediation or arbitration

deadlock becomes existential. Puerto Rico courts may order:

• Judicial dissolution

• Forced liquidation

• Appointment of a receiver

None of which are outcomes either member wanted.

4. Capital Contributions and Distributions Are Usually Wrong — or Incomplete

Generic templates often assume:

• Equal contributions

• Simple cash investments

• Pro rata distributions

Real Puerto Rico LLCs rarely look like that.

Problems arise when:

• One member contributes cash, another labor or assets

• Capital calls are not clearly defined

• Members disagree on reinvestment vs. distributions

If the agreement does not clearly distinguish capital accounts, profit allocations, and distribution timing, courts will default to statutory rules — not business logic.

This is especially dangerous in family businesses and professional practices.

5. Exit Rights Are Almost Always Missing or Unenforceable

Perhaps the most costly flaw in internet LLC documents is the absence of a real exit mechanism.

Many templates:

• Prohibit transfers outright

• Say nothing about valuation

• Ignore death, disability, or divorce

• Do not address minority oppression

In Puerto Rico, when there is no contractual exit:

• Members are effectively trapped

• The only remedy may be litigation

• Courts may impose solutions no one negotiated

A well-drafted multi-member LLC agreement must address:

• Voluntary exits

• Forced exits

• Valuation methods

• Payment terms

• Minority protections

Templates almost never do.

6. Courts Will Not Rewrite a Bad Agreement

A common misconception is that “the judge will fix it.”

Puerto Rico courts have consistently held that:

• Courts interpret contracts; they do not redesign them

• Poor drafting is not judicial error

• Ambiguity is resolved against the drafter

When members rely on internet forms, they often discover — too late — that the document they signed locks them into a structure that no longer works.

At that point, legal fees quickly exceed what proper drafting would have cost.

7. Single-Member vs. Multi-Member: A Critical Legal Divide

To be clear:

• Single-member LLCs can often operate with minimal documentation

• Multi-member LLCs cannot

The moment you add a second member, the LLC becomes:

• A governance system

• A fiduciary relationship

• A potential litigation vehicle

Using a generic internet template in that context is not “cost-saving.”

It is risk-loading.

Conclusion: The Cheapest Document Is Often the Most Expensive

Internet LLC templates are not inherently evil — they are simply not designed for real multi-member businesses operating under Puerto Rico law.

If your LLC has:

• More than one owner

• Unequal contributions

• Long-term business plans

• Outside investors

• Family members

• Or meaningful assets

then a generic template is not protection. It is exposure.

Good LLC agreements do not prevent success — they prevent disaster.

About This Article

This article is for informational purposes only and does not constitute legal advice. Multi-member LLCs require fact-specific legal analysis under Puerto Rico law.