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Limited Liability Company Law – Whether a Manager of a Manager-Managed Limited Liability Company Breached Fiduciary Duties Under Delaware Law to the Limited Liability Company and Its Members
Gatz Props., LLC v. Auriga Capital Corp., 59 A.3d 1206 (Del. 2012)
Series LLCs: Nuts and Bolts, Benefits and Risks, and the Uncertainties That Remain
A series limited liability company (“Series LLC”) is a variation of the traditional limited liability company (“Traditional LLC”) that is available under several states’ limited liability company (“LLC”) statutes. A Series LLC is, effectively, a collection of subunits within one LLC that can be created according to statute without actually forming multiple LLCs. Under a typical Series LLC statute, found in Delaware, Texas, Illinois, and several other states, a Series LLC can have as many different, individual series as the members desire, and each series looks and acts almost exactly like a separate LLC. In effect, a Series LLC is a way around creating multiple LLCs – only a single entity need be created, but assets, ownership and, therefore, liability, can be allocated exactly as if multiple entities had been formed.
The Series LLC: a New Planning Tool
Texas adopted new provisions permitting the creation and operation of series limitedliability companies (the “Series LLC”) under Texas law in 2009.1 This paper discusses thestate of law on Series LLCs under the Texas Business Organizations Code (“TBOC”) withsome consideration of other jurisdictions’ laws and practice pointers for resolving the issuespresented by the statutory formulation for the Series LLC. After discussing what Series LLCsare and can do, the paper will analyze points of ambiguity and development where the resultsof the use of the Series structure may not be perfectly clear. This vehicle for formation is stillunder development, but, in the right circumstances, presents an elegant solution to ownershipand management of closely related, but not identical, groups of assets.
Practical Pitfalls in Drafting Texas Limited Liability Company Agreements
This article provides drafting guidance on a variety of topics related to the creation of Texas limited liability companies, including sample clauses, checklists, and boilerplate language (among many other aspects). By following these guidelines, drafters can avoid common pitfalls and create a robust, enforceable Texas LLC 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.
Considerations in Drafting Limited Liability Company Agreements and Limited Partnership 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.
Compensation Strategies for the LLC
An LLC taxed as a partnership is one of the most flexible entity forms available today for allocating ownership interests. Unlike the cor porate model, where profits are allocated strictly pro-rata on the basis of the number of shares owned, management and owners of an LLC have virtually complete freedom to allocate profits among members so long as the allocation has "substantial economic effect" under IRC Sec. 704(b).
Formation and Governance of LLC's An Annotated Company Agreement
An Annotated Company Agreement (Short Form)
Formation and Governance Issues in Company Agreements
Company Agreement Annotated (Long Form)
Choice of Entity Decision Tree
In selecting a form of business entity for an oil patch deal in Texas the organizer or initial owners can consider the following five business entity forms: Corporation; General Partnership; Limited Partnership; Limited Liability Partnership (“LLP”); and Limited Liability Company (“LLC”). The form of business entity most advantageous in a particular situation depends on the business objectives for which the entity is being organized. In most situations, the choice of entity focus will be on how the entity and its owners will be taxed and the extent to which the entity will shield the owners and managers of the business from liabilities arising out of its activities. An increasingly important factor in choosing the form of entity, and its state of domicile, is the extent to which the fiduciary duties and personal liability of the entity’s governing persons may be limited in the entity’s governing documents.
How Available Compensation Arrangements Differ Among Types of Entities
The income tax rules governing equity compensation in limited liability companies sets them apart from corporations. The kernel of the difference is that between equity compensation in LLCs and in corporations derives from the fundamental difference between the tax consequences of issuing equity in exchange for services in each form of entity. Receipt of stock from a corporation in exchange for services is generally taxable, absent planning, while receipt of interests in an LLC may be simply made non-taxable if the interests issued are profits interests. This becomes a subject matter area where you may not use one set of forms for all types of entities.
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.
Acquisitions of Partnerships LLC's
This presentation covers issues relating to the purchase and sale of interests in partnerships and LLC's. Specifically information relating to the interest to be sold; review of the business elements of the interest to be acquired; terms to include in a purchase agreement and closing documents; and limitations on or encumbrances to transferability.
Selected Issues in Negotiating and Drafting LLC Documentation
This article takes an LLC Company Agreement with multiple Members and Managers and provides annotations and practice comments about each provision.
How Available Compensation Arrangement Differ Among Types of Entities
The income tax rules governing equity compensation in limited liability companies sets them apart from corporations. The kernel of the difference is that between equity compensation in LLCs and in corporations derives from the fundamental difference between the tax consequences of issuing equity in exchange for services in each form of entity. Receipt of stock from a corporation in exchange for services is generally taxable, absent planning, while receipt of interests in an LLC may be simply made non-taxable if the interests issued are profits interests. This becomes a subject matter area where you may not use one set of forms for all types of entities.
The Series LLC: A New Planning Tool
Texas adopted new provisions permitting the creation and operation of series limited liability companies (the ―Series LLC‖) under Texas law in 2009. This paper discusses the state of law on series under the Texas statute, with some consideration of other jurisdictions and laws and practice pointers for resolving the issues presented by the statutory formulation for the Series LLC. After discussing what series are and can do, the paper will analyze points of ambiguity and development where the results of the use of the series structure may not be perfectly clear. This vehicle for formation is still under development, but, in the right circumstances, presents an elegant solution to ownership and management of closely related, but not identical, groups of assets.
Acquisitions of Partnerships and LLCs
These are the presentation slides.
Top Ten "Gotchas" Drafting Pass Through Entities
Partnership agreements and limited liability company agreements are, by their nature, agreements that afford a great deal of flexibility in drafting and operation. This flexibility is what makes these entities attractive for planning purposes. This same flexibility is what also requires persons drafting these agreements undertake the responsibility to fully understand the intention of the parties to the transaction and to properly reflect those intention in an agreement entered into between the parties.
Texas Series LLCs, A Valuable New Option and a Coming Trend for Holding and Operating Texas Real Estate; or Too Many Unanswered Questions
When Texas authorized the use of a series limited liability company (SLLC) in 2009, it became one of a small number of states to do so. This paper will address the question of whether and under what circumstances the Texas series limited liability company (TSLLC) might be recommended by a Texas lawyer for use by his real estate or business clients, or whether there are too many unanswered questions and too many risks still remaining to use this legal entity at this time.
The Series LLC: A New Planning Tool
While the Series LLC is a new vehicle that has some unanswered questions, it is a solution to problems of management of assets that have common, but not identical features. The statute makes very clear the ability to deal with assets and the transactions surrounding assets that may be held by an entity. If you focus on the feature of asset management and commonality, but not identity, the confusion caused by the flexibility permitted in the TBOC provisions falls away, and you are able to focus on fact patterns that are truly facilitated by this structure. The single most ―common‖ commonality is management, but the commonality may be the nature of the asset (such as the accumulation of one large asset from divided parts) or the development of an asset over time, where ownership may shift. We would like to encourage you to join the ranks of the optimists and urge you to study and think about this new vehicle. Consider embracing the good points of a Series LLC in transactions appropriate for the solutions that it provides.
What are Series LLCs? An Overview of Drafting and Operational Considerations
This paper is to discuss what the state of law is on series under the Texas statute, with some consideration of the other jurisdiction and practice pointers for resolving the issues presented by the statutory formulation for the Series LLC.
Acquisitions of Partnerships and LLCs
These are the presentation slides.
What are Series LLCs? An Overview of Drafting and Operational Considerations
This paper is to discuss what the state of law is on series under the Texas statute, with some consideration of the other jurisdiction and practice pointers for resolving the issues presented by the statutory formulation for the Series LLC.
Top Ten "Gotchas" Drafting Pass Through Entities
This program highlights some of the issues most often overlooked by the parties as they head down the path to the formation of their new business entity. In certain circumstances we have included sample language to illustrate one or more of these issues. As you review this outline, please remember that these sample provisions are provided only for the purpose of illustration. Also remember that the sample provisions are, by necessity, generic in nature, for illustrative purposes only, and should not be viewed as one size fits all. The laws relating to the formation and operations of Limited Partnerships and Limited Liability Companies will vary from state to state. As you encounter these and other issues in connection with the formation of these entities please consult the application of the local laws in particular state in which you plan to have your entity formed or operate to make certain these and other issues relating to the formation of entities of this nature are properly addressed.
Selected Issues in Drafting Texas Limited Liability Company Agreements
Tips on drafting LLC agreements.