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ARTICLE ABOUT STATUTES FOR CLOSELY HELD BUSINESSES

If you are interested in LLC statutory law, you may be interested in the article cited below and the paragraph summarizing the article.

46 Sw. L. Rev. 63
Southwestern Law Review
2016
Article
TOO MANY COOKS SPOIL THE CAKE, AND TOO MANY STATUTES SPOIL THE LLC: A PLEA FOR UNIFORMITY
Carol Goforth
Copyright © 2016 by Southwestern Law School; Carol Goforth

There is widespread agreement that closely held enterprises play a critical role in this country. Even if some economists are questioning whether all closely-held businesses offer the same long term benefits for the economy in terms of job-production or innovation, the reality that so many American businesses are in fact closely held means that such enterprises are significant to a very large number of individuals. In the past thirty years, we have seen dramatic and unparalleled growth in the range of operational structures available to such businesses. Regrettably, in the rush to try and offer entrepreneurs “new” and “better” statutory options, we have lost the benefits of uniform, predictable and well-understood operational structures. We continue to modify, adapt, and innovate so rapidly that the ideal business form is a constantly shifting and moving target, which serves no one well. This article suggests that it is time to stop offering “new” alternatives and “new” rules, and to attempt to find common ground and move towards a more uniform understanding of how LLCs, in particular, should be structured and operated to maximize efficiency for the closely held, multi-owner business. The current ULLCA, promulgated by the Uniform Law Commission, seems the most likely alternative to achieve this result.

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ADVANCEMENT AND INDEMNIFICATION PROVISIONS IN LLC OPERATING AGREEMENTS

In the operating agreements of larger and more sophisticated LLCs—and sometimes the operating agreements of smaller LLCs—advancement and indemnification provisions can be critically important.  The new post under the link below provides a brief but excellent discussion of the Delaware LLC law relevant in drafting these provisions.

Here’s the link:  http://www.lexology.com/library/detail.aspx?g=a234e902-0fd0-4369-94ca-242ecc7c028c&l=7T7DJ8A

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LOANS AMONG RELATED ENTITIES

Whenever you create a holding company/operating company for your LLC formation clients, you need to provide for itcas among them for tax purposes and anti-veil piercing purposes.  The new post under the following link discusses intercompany loan agreements:

http://www.taxlawforchb.com/2017/01/loans-between-related-entities/

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LLCS AND FREEZE-OUT MERGERS

Under the link below is another excellent new post about a recent New York case involving an LLC merger freezing out a minority member.  The decision in the case was based on the plain language of the governing operating agreement, and, in particular, on the fact that the operating agreement permitted a majority of the members to approve transfers of membership interests but without any requirement that the consenting members be disinterested.  The lesson of the case for LLC lawyers in drafting operating agreements is always to consider whether member consent requirements should make clear that consenting members must be disinterested.

Here’s the link:  http://www.lexology.com/library/detail.aspx?g=b8e8e170-0340-4cdd-a124-b54ae930b1ca&l=7T95V6U

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BUSINESS JUDGMENT RULE

The post under the link below discusses a very recent Delaware Court of Chancery decision about the business judgment rule.  LLC lawyers need to have a detailed understanding of this rule because, among other things, it should often be included with the duty of care provisions in operating agreements for multi-member LLCs.

Here’s the link:

https://delawarechancery.foxrothschild.com/mergers-and-acquisitions/business-judgment-rule-applied-when-disinterested-majority-approved-merger-in-fully-informed-and-uncoerced-vote/?utm_source=Fox+Rothschild+-+Delaware+Chancery+Law+Blog&utm_campaign=c105709976-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_86821ff155-c105709976-70733165

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DELAWARE ENTITIES-LIFE CYCLES

The Delaware Limited Liability Company Act is often the best LLC act under which to form an LLC even for non-Delaware clients; and, as is often said, “Delaware is everyone’s second choice” when clients from two or more jurisdictions are forming an LLC.  The new article whose title is below is a significant contribution to Delaware entity secondary literature:

2016-DEC Bus. L. Today 1
Business Law Today
December, 2016
Feature Article
ENTITY LIFECYCLES: AN OVERVIEW OF THE STATUTORY REQUIREMENTS RELATING TO THE FORMATION, MAINTENANCE, AND TERMINATION OF DELAWARE CORPORATIONS, LIMITED LIABILITY COMPANIES, AND STATUTORY TRUSTS
Shannon S. Frazier
Copyright © 2016 by the American Bar Association; Shannon S. Frazier

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LLCS FOR ESTATE PLANNING AND KEEPING THE FAMILY CABIN IN THE FAMILY

Mike Smith’s excellent post under the link below, entitled “LLCs for Estate Planning and Keeping the Family Cabin in the Family,” may be useful both to LLC lawyers and to estate planners.

Here’s the link:  https://www.michaelsmithlaw.com/blog/2016/12/llcs-estate-planning-keeping-family-cabin-family.html

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DRAFTING INSPECTION PROVISIONS FOR DELAWARE LLCS WHOSE MEMBERS AREN’T DELAWARE CITIZENS AND WHO OPERATE THE LLC’S BUSINESS OUTSIDE OF DELAWARE

The post under the link below discusses a North Carolina case addressing the issue of whether the Delaware Limited Liability Company Act can prevent North Carolina residents from obtaining a North Carolina court order permitting them to inspect the books and records of a Delaware LLC.  Believe it or not, the North Carolina court says they can’t.  The case addresses an issue on which every lawyer drafting LLC agreements for Delaware LLCs with non-Delaware members needs to be an expert.

Here is the link:  http://www.lexology.com/library/detail.aspx?g=3bcf043e-1963-45cb-8c19-97ad8c188986&l=7SX6EVN

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INTELLECTUAL PROPERTY AUDITS

I wouldn’t be surprised if at least a third of all LLC start-ups possess potentially valuable intellectual property.  So LLC formation lawyers have to know a good deal about intellectual property law.  The brief article under the link below is very useful on the subject of client intellectual property audits.

Here’s the link:  http://www.corpcounsel.com/id=1202766987906/Defensive-Due-Diligence-Auditing-Your-IP-Assets-Prior-to-Monitization?kw=Defensive%20Due%20Diligence:%20Auditing%20Your%20IP%20Assets%20Prior%20to%20Monitization&cn=20160909&pt=Daily%20Alert&src=EMC-Email&et=editorial&bu=Corporate%20Counsel&slreturn=20160809083835

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DELAWARE SUPREME COURT CASE ABOUT FIDUCIARY DUTIES

The post under the link below discusses a December 19, 2016 decision by the Delaware Supreme Court affirming the validity of Delaware limited partnership  agreement provisions waiving limited partners’ fiduciary rights.  The decision effectively applies also to all other Delaware “alternative entities,” including LLCs.   It’s often useful for LLC lawyers to provide for waivers of member fiduciary rights even in small family-owned LLCs.  Whether these waivers would be upheld under the LLC acts of non-Delaware states may be unclear.  Under the Delaware Limited Liability Company Act, it is now crystal-clear.

Here is the link:

http://www.lexology.com/library/detail.aspx?g=5da4687a-3fb7-4fc0-9630-0dee47bd4c7a&l=7TC5MFM