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The Twisted Veil of Texas LLCs
The Texas law of veil-piercing for limited liability companies is incoherent. It should be fixed. Section I tells what is wrong with the law. Section II proposes a fix.
Model Company Agreements for Closely Held LLCs
It is often stated that one of the benefits of organizing an entity as a limited liability company is that this form of entity offers the owners and governing authority of the entity the flexibility to agree to provisions for the economic terms and governance that are more flexible than available with respect to a corporation. This is true, and indeed limited liability companies are sometimes used to create highly complex structures with multiple classes of ownership interests and highly customized provisions regarding management and governance of the entity, including complicated provisions for voting and management succession. However, given the large number of entities now being created as limited liability companies in Texas and other states, it is likely that many of these new entities are not entities with complex structures with multiple classes of ownership and complex bureaucracies for governance. Statistics compiled by the Internal Revenue Service show that for the tax year 2020 (the most recent year for which statistics are currently available), approximately 67% of the S corporation returns are for single-shareholder S corporations and approximately 24% have only two shareholders. The Internal Revenue Service does not publish similar statistics for limited liability companies, and single-member limited liability companies are typically disregarded entities that do not file tax returns. But if one assumes that most limited liability companies are closely held entities, then by analogy, it is likely that a large portion of limited liability companies have one or two owners. Therefore, it is much more likely that practitioners will find themselves needing to draft simple limited liability company agreements suitable for entities with one or two or a very few owners, rather than more complex documents.The purpose of this paper is to present and discuss models for governing agreements for limited liability companies when a simple structure is needed.
Appendix A of 2024 Model Company Agreements for Closely Held LLCs
Model Company Agreement for Manager-Managed, Multi-Member Limited Liability Company. This Model Agreement is Appendix A to an article by Cliff Ernst and Elizabeth S. Miller entitled Model Company Agreements for Closely Held LLCs (the “Accompanying Article”). This Model Agreement should not be considered a form to be completed by filling in the blanks. Drafters should be certain that any agreement used by them is appropriate for the particular transaction. This Model Agreement should be read together with the Accompanying Article, including the various references to the Accompanying Article throughout this Model Agreement.
Appendix B of 2024 Model Company Agreements for Closely Held LLCs
Model Company Agreement for Member-Managed, Multi-Member Limited Liability Company. This Model Agreement is Appendix B to an article by Cliff Ernst and Elizabeth S. Miller entitled Model Company Agreements for Closely Held LLCs (the “Accompanying Article”). This Model Agreement should not be considered a form to be completed by filling in the blanks. Drafters should be certain that any agreement used by them is appropriate for the particular transaction. This Model Agreement should be read together with the Accompanying Article, including the various references to the Accompanying Article throughout this Model Agreement.
Appendix C of 2024 Model Company Agreements for Closely Held LLCs
Model Company Agreement for Single Member Limited Liability Company. This Model Agreement is Appendix C to an article by Cliff Ernst and Elizabeth S. Miller entitled Model Company Agreements for Closely Held LLCs (the “Accompanying Article”). This Model Agreement should not be considered a form to be completed by filling in the blanks. Drafters should be certain that any agreement used by them is appropriate for the particular transaction. This Model Agreement should be read together with the Accompanying Article, including the various references to the Accompanying Article throughout this Model Agreement.
Common Pitfalls in Drafting LLC and LP Agreements
Given their structural flexibility and tax advantages, it is little wonder that limited liability companies (“LLCs”) and limited partnerships (“LPs”) have eclipsed the corporation as the primary entities of choice for new businesses in Texas. LLCs and LPs offer a myriad of almost limitless options on ownership structure, company governance and almost all other aspects related to the operation of the entity. However, as it is often said, with much freedom comes much responsibility. A practitioner who puts together a limited liability company (“LLC agreement”) or an agreement of limited partnership (“LP agreement”) for a client should be well versed in the overall structure of these entities and the variables that should be considered in drafting the operative agreement. Both LLCs and LPs are so-called “creatures of contract” in that the Texas Business Organizations Code (“TBOC”) chapters on LLCs and LPs give great deference to the LLC agreement or LP agreement to define the rights and obligations of the members and partners, respectively, of these entities. This paper analyzes select provisions of the LLC agreements and LP agreements that practitioners are likely to have to address in drafting an agreement for a client.
Series Limited Liability Companies: Formation, Operation and Practical Considerations
This paper and presentation are intended to address the statutory authority for a “Series LLC” (hereinafter referred to as a “Series”), selected statutory provisions relating Limited Liability Companies (“LLCs”), a limited examination of how Series LLCs are taxed, how they are treated under the Uniform Commercial Code (“UCC”), under the United States Bankruptcy Code, and various practical considerations related to Series LLCs. Limited Liability Companies will be referred to as LLC, Company or Mothership in this paper.
Equity Incentive Compensation in Limited Liability Companies
Legal Opinions on LLC's
As the use of the limited liability company (“LLC”) has significantly expanded, the bar has been required to examine and refine its customs and practices in the giving of closing opinions for LLCs. Historically, the preponderance of entities participating in financing or acquisition transactions was corporations. The swell of LLC formation, however, has outstripped the historical corporate practice, and LLCs are now the common entity used. Because of the several fundamental differences between LLCs and corporations, it stands to reason that traditional “corporate” legal closing opinions must be reconfigured to meet the specific characteristics of an LLC. One cannot simple perform a “global search” and replace “corporation” with “company.” The form of legal opinion for LLCs must be substantially rewritten, and the underlying due diligence tasks to give the opinion must be redefined. Even the topics that are required to be discussed in a legal opinion must be reformulated from the traditional corporate formulations. I plan to cover two areas: general legal principles that are invoked in the preparation and delivery of a closing opinion, and specific opinion provisions for the core opinions that are generally given about an entity in a financing or acquisition transaction. General principles have been affected by the expanded use of LLCs because the general principles depend on customary practices from corporate practice, and customary practices have been adapted to the unique features of an LLC. Further, the Bar has developed new and more precise diction with respect to the actual language used in the traditional core opinions given.