PURPOSE CLAUSES IN LLC OPERATING AGREEMENTS

By , October 13, 2017 8:11 pm

As Peter Mahler has written in his post under the link below, countless thousands of LLC operating agreements provide that the purpose of the LLC is “any lawful purpose.”  This language can be a problem when a member seeks statutory dissolution of an LLC on the ground that the LLC cannot achieve its lawful purpose.  In the August 16, 2017 New York appellate decision discussed in Peter’s post, the court held that a member may introduce extrinsic evidence as to the actual purpose of the LLC.  For LLC lawyers, Peter’s post raises the difficult question whether they should include the above standard purpose in operating agreements they draft for their LLC formation clients.

Here’s the link:  http://www.nybusinessdivorce.com/2017/08/articles/llcs/llc-agreement-purposeless-purpose-clause/

NEW HAMPSHIRE TAXES

By , October 10, 2017 3:29 pm

Those of you who follow New Hampshire taxes will want to read New Hampshire Department of Revenue Administration Technical Information Release TIR 2017-004, which summarizes New Hampshire state tax changes enacted in the 2017 New Hampshire legislative session.  Here’s the link:

https://www.revenue.nh.gov/tirs/documents/2017-004.pdf

ARBITRATION VS. LITIGATION

By , October 4, 2017 4:46 pm

Under the link below is an interesting post about the complicated task of choosing between litigation and arbitration for dispute resolution.

Here’s the link:  http://www.corpcounsel.com/id=1202795458469/ATT-GC-Says-Choosing-ADR-Over-Court-Has-Become-Overriding-Philosophy?kw=AT%26T%20GC%20Says%20Choosing%20ADR%20Over%20Court%20Has%20Become%20%27Overriding%20Philosophy%27&et=editorial&bu=Corporate%20Counsel&cn=20170816&src=EMC-Email&pt=Daily%20Alert&slreturn=20170716073328

SERIES LLCS

By , September 28, 2017 6:05 pm

Below are the title and abstract of an interesting law journal article advocating the adoption of series LLC legislation by the roughly 40 U.S. jurisdictions that have not yet done so:

17 J. Bus. & Sec. L. 207
Journal of Business & Securities Law
Spring, 2017
Meredith Pohl
Copyright © 2017 by the Michigan State University College of Law; Meredith Pohl
TAKING THE SERIES LLC SERIOUSLY: WHY STATES SHOULD ADOPT THIS INNOVATIVE BUSINESS FORM

ABSTRACT

The series LLC has gained slow, consistent popularity among states over the past two decades, and this popularity will only continue to grow with the upcoming publication of a Uniform Act. Despite this increase in adoption, there is a dearth of academic literature advising state policymakers of the benefits and risks of adopting the entity form. The series LLC could provide a much-needed economic boost for small businesses in this tough economic climate, growing the state tax base, while increasing efficiency, and decreasing bureaucratic red tape. The series LLC statute ultimately adopted by states should balance pro-creditor and pro-business interests to the fullest extent possible. This balance is best achieved by (1) constructing the statute to minimize risks in bankruptcy for businesses by incorporating many of the equity factors of substantive consolidation into the language, while (2) encouraging bankruptcy courts to adopt a rebuttable presumption of “separateness” to allow creditors a chance to rebut the presumption and recover.

 

WHEN IS A PARTNER ACTING LIKE A PARTNER?

By , September 27, 2017 5:21 pm

Most multi-member LLCs are taxable as partnerships, and all members of these LLCs are taxable as partners in their capacity as partners.  A basic partnership tax issue is the issue of when partners are not acting in their capacity and thus may not be taxable as partners; and when they are not.  This very common partnership tax issue is dealt with in the post under the link below:

http://www.taxlawforchb.com/2017/08/when-a-partner-may-not-be-acting-as-a-partner/

OPPRESSION OF MINORITY SHAREHOLDERS

By , September 22, 2017 11:57 am

The issue of oppression of minority LLC members by majority members is a key issue in drafting any operating agreement for multi-member LLCs.  LLC lawyers can learn a lot about this issue from studying corporate oppression cases.  Under the  link below is an excellent discussion by Peter Mahler concerning a New York case involving truly draconian shareholder oppression.

Here’s the link:  http://www.nybusinessdivorce.com/2017/08/articles/family-owned-businesses/award-oppressive-conduct-majority-shareholder-goes/

AMENDED NEVIS LLC ACT

By , September 19, 2017 3:20 pm

I’m leery of using foreign LLC acts to protect the assets of individuals and families residing in the U.S.   I think doing so can create far more problems than it solves.  But many LLC lawyers disagree with me.

Below are the citation, title and first paragraph of a very clear and thoughtful new law journal article about recent amendments to the Nevis LLC Act.

31-OCT Prob. & Prop. 56
Probate and Property
September/October, 2017
Feature
Gary A. Forster
Copyright © 2017 by American Bar Association; Gary A. Forster

THE NEW NEVIS

The Nevis Limited Liability Company (Amendment) Ordinance (NLLCAO), 2015 (the “New Ordinance”) strengthens and clarifies the prior Nevis Limited Liability Company Ordinance (NLLCO) of 1995 (“Prior Ordinance”). Among the improvements made by the New Ordinance are the addition of (1) fraudulent transfer provisions governing assets contributed to a Nevis LLC, (2) language prohibiting enforcement of foreign judgments against member equity, and (3) enhanced limitations on creditor remedies. This article explores several significant aspects of the New Ordinance.

LLC BREAK-UPS

By , September 13, 2017 4:32 pm

The handling of LLC break-ups because of member deadlocks is a key area of LLC practice.  Set forth below are the title, citation, and and an excerpt of the introduction to an article about business entity break-ups by judicial dissolution.  The article is focused on NY law, but it has important implications in every other state.

38 Cardozo L. Rev. 1541
Cardozo Law Review
April, 2017
Note
Roxanne Makoff
Copyright © 2017 by Yeshiva University; Roxanne Makoff
JUDICIAL DISSOLUTION UNDER NEW YORK’S LIMITED LIABILITY COMPANY LAW: SHOULD BREAKING UP BE THIS HARD TO DO?

This Note addresses the issues that arise when member relations in New York LLCs become irreconcilably fractious and require judicial intervention. Because New York’s LLC Law does not provide exit-rights, parties who wish to sever relations with other members must either draft an operating agreement that provides for withdrawal or expulsion, negotiate an exit-right under hostile conditions, or persuade a court to order the remedy in the context of a judicial dissolution action.  Under current New York case law, disagreement–deadlock–between LLC members is not an independent ground for judicial dissolution. Rather, the petitioner must convince the court that the LLC is unable to practicably achieve its purpose or is financially unfeasible. The New York standard, which rejects the application of corporate and partnership principles to LLCs, gives extreme deference to the operating agreement and is more stringent than the same standard in Delaware, whose Limited Liability Company Act (Delaware LLC Act) is, like New York’s LLC Law, also grounded on principles of freedom of contract. Faced with an increasing number of petitions for judicial dissolution due to irreconcilable deadlock between LLC members, New York judges are finding creative ways to circumvent the current standard in order to grant dissolution.

This Note argues that New York should replace its current, flawed approach with a standard similar to that of Delaware, which permits deadlock as a ground for judicial dissolution. Under the Delaware standard, New York courts could order judicial dissolution when the relations between the parties have become so hostile that continuing to work together is futile. The Delaware standard, which can aptly be described as “deadlock-plus,” is desirable because it does not give judges unfettered freedom to order judicial dissolution. Rather, under the “deadlock-plus” standard the parties must show deadlock plus the nonexistence of an enforceable and adequate exit-mechanism within the four corners of the operating agreement, or, if an acceptable exit-mechanism is indeed provided for in the operating agreement, the continuation of the LLC is financially unfeasible. Ultimately, the “deadlock-plus” standard, as evidenced by Delaware case law, preserves principles of freedom of contract while promoting functioning business relationships.

AGREEMENT TO NEGOTIATE

By , September 11, 2017 4:10 pm

LLC lawyers, like all other business lawyers, find themselves dealing from time to time with agreements to negotiate, as entered into by their clients or other persons.  The post under the link below discussed a recent Delaware case holding the agreement to negotiate in issue in that case to be invalid.  The case seems to me to have implications in most or all non-Delaware jurisdictions

Here’s the link:  https://delawarechancery.foxrothschild.com/case-summaries/chancery-denies-relief-under-agreement-to-negotiate/?utm_source=Fox+Rothschild+-+Delaware+Chancery+Law+Blog&utm_campaign=96e6e7ad79-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_86821ff155-96e6e7ad79-70733165

ARBITRATION

By , September 7, 2017 2:10 pm

An important issue in drafting operating agreements for multi-member LLCs is whether these agreements should provide for dispute resolution among the members and managers by litigation or by arbitration.  The post under the link below is a brief but excellent overview about arbitration.

http://www.lexology.com/library/detail.aspx?g=1a018130-aa5f-4a74-89b7-d5acbe9efa69&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2017-08-03&utm_term=