In an excellent recent law journal article entitled “Corporate Law after Hobby Lobby,” available here, two corporate law professors have argued persuasively for the validity of the U.S. Supreme Court’s decision in Hobby Lobby that closely held state-law business corporations as entities (i) may engage in religious conduct; (ii) may have a religious purpose; and (iiI) need not have as a purpose the maximization of profits for the benefit of their shareholders. In my view, the reasoning in the article applies equally to LLCs. This means that if your clients want to form an LLC for a religious purpose, they may validly do so under Hobby Lobby unless state law provides otherwise. And in my view, this meaning applies equally to clients who want to form LLCs for purposes of promoting religious skepticism, critical thinking or other purposes that some people might view as anti-religious.
Another basic distinction you should be aware of in forming LLCs is the distinction between an LLC dissolution and an LLC liquidation. Click here for to read a post about this distinction in the excellent LLC blog called LLC Law Monitor.
In handling LLC formations, you need to understand the difference between actual and apparent LLC member and manager authority. For a clear explanation of the difference in the context of litigation in a New York court, click here for a recent post in an excellent LLC blog called LLC Law Monitor.
If you have a fairly standard LLC formation practice, it will only very rarely be necessary for you to include “jerk insurance” clauses in operating agreements you negotiate or draft for your clients. However, you should at least be familiar with the concept. Click here to learn about jerk insurance clauses:
The term “material” is often a useful one to include in LLC operating agreements, even though the precise meaning of the term is usually quite unclear. For example, many operating agreements provide that the managers must promptly disclose to the members all material information of which the managers become aware that may affect the LLC. The following link briefly discusses this issue under Delaware law and includes a link to a very recent Delaware case on the issue:
The case under this link–http://courts.delaware.gov/opinions/download.aspx?ID=216530—discusses manager dismissals under Delaware LLC law. The link is to the blog post discussing the case is http://www.delawarelitigation.com/2014/12/articles/uncategorized/chancery-denies-motion-to-dismiss-claim-seeking-ouster-of-llc-manager/.
How would you draft an LLC operating agreement to avoid the problems outlined in the above case?
On December 30, 2014, the Delaware Chamber of Commerce issued its decision in a case called Prokupek v. Consumer Capital Partners LLC, C.A. 9918-VCN (December 30, 2014). In an excellent blog called the Delaware Business Litigation Reports (every LLC lawyer should subscribe to it), a blog post about the case summarizes it as follows:
This decision applies settled law in the corporate context to hold that a former member of an LLC may not obtain inspection rights because those are limited to current members. The opinion is also interesting in that it holds that even if the member interests were redeemed at too low a price, the right to inspect ended and the former member should pursue a breach of contract claim.
Another good post by Ken Adams—this time, on the question of what it takes to become a good contract drafter: http://www.adamsdrafting.com/what-it-takes-to-be-a-great-contract-drafter.
It is sometimes tempting to include one or more “best efforts” clauses—e.g., “The manager shall use her best efforts to complete X task by Y date.” In his excellent blog about contract drafting, Ken Adams has recently published a post that states, in essence, that you should never use such a clause. You can read his blog here: http://www.adamsdrafting.com/does-it-make-sense-to-require-someone-to-use-efforts-to-complete-something-in-a-reasonable-time/.
In his final post for 2014 in his excellent “Business Divorce” blog, Peter Mahler has listed and briefly summarized the top ten close-corporation and LLC cases he’s discussed in his blog during 2014. The link to this post is http://www.nybusinessdivorce.com/2014/12/articles/llcs/top-ten-business-divorce-cases-of-2014/. Many of these cases are LLC cases. Most were decided in the New York courts. However, the principles underlying many of these New York cases are equally important in most or all other states.