A key task in drafting any LLC operating agreement is to draft provisions in it that validly override default provisions in the governing LLC act that are contrary to your clients’ best interests. Below are the citation and first paragraph of a law journal article about this process.
42 J. Corp. L. 503
Journal of Corporation Law
Copyright © 2016 by the University of Iowa (The Journal of Corporation Law); Peter Molk
HOW DO LLC OWNERS CONTRACT AROUND DEFAULT STATUTORY PROTECTIONS?
Limited liability companies are built on the idea of contractual freedom. Unlike with other business organization forms, most owner protections apply only by default to LLCs, which are free to waive or modify them as desired. This freedom promises economic efficiency if parties are sophisticated but raises the potential for opportunism by relatively more sophisticated managers and majority owners. While companies ranging from small landscape firms to Chrysler and Fidelity organize as LLCs, remarkably little is known about whether or how LLCs use this contractual flexibility.
I analyze the operating agreements of 283 privately owned LLCs organized under Delaware and New York law to determine when and how parties alter default provisions. I find widespread use of LLC statutes’ flexibility to decrease default owner protections, as well as widespread adoption of owner protections that do not apply by default. There is little evidence, however, that the contractual freedom is used to craft systematically more efficient contractual owner protections. Instead, using a proxy for owner vulnerability, I find that LLCs with more vulnerable owners adopt significantly fewer owner safeguards, suggesting that contractual freedom may be used more often for opportunism and not for efficiency.
The recent post under the link below contains excellent advise for business founders planning for the eventual sale of their businesses.
The new post under the link below should be read not only by estate planners but also by LLC lawyers who want to think critically about “death taxes.”
The post under the link below contains an excellent “punch list” of things you should do after forming your LLC.
Under the link below is a post by Peter Mahler from his Business Divorce website. The post cites and briefly discusses five recent non-NY LLC cases. All of these cases address issues of considerable interest not only to litigators but also to LLC formation lawyers.
Here’s the link:
The March 2017 issue of the ABA’s Business Law Today contains several important articles about LLC law and tax. Here’s a link to the table of contents:
Both of the cases discussed in the post by Peter Mahler under the link below involve business disputes between brothers. As every LLC lawyer will know, business divorces between family members involve special horrors. In the first case, the first brother was unable to prove he was the second brother’s partner, and should have known he wasn’t. In the second, the brothers were partners but hated each other, and their partnership was dissolved because the brothers’ mutual hatred made it “not reasonably practicable to carry on the business [of the relevant LLC] in conformity with the operating agreement.”
Here is the link: http://www.nybusinessdivorce.com/2017/03/articles/family-owned-businesses/pair-unbrotherly-business-altercations-go-trial/#more-18898
Many LLCs are taxable as S corporations, and far more should be. The attached post under the link below addresses a couple of fundamental and pervasive S corporation issues about basis and losses. The post applies, of course, as much to LLCs that are S corporations as to state-law business corporations that are S corporations.
Here is the link: http://www.taxlawforchb.com/2017/05/s-corps-basis-loss-limitations/