Officers, Boards and Corporate-Style Governance

Scope of the chapter. Many LLCs are governed in a manner that a corporate lawyer would recognize at once. A board of managers sets policy, officers with corporate titles run the business, committees review conflicted transactions, and the operating agreement borrows the language of the corporate statute for quorum, notice, consents and fiduciary standards. None of this structure is required by the LLC statutes, and almost all of it is supplied by contract. This chapter examines the corporate-style LLC: why members choose it, the statutory provisions that permit it, the design of the board and its procedures, the role of independent managers and conflicts committees, the authority and duties of officers, the consequences of incorporating corporate law by reference, and the governance of portfolio companies, joint ventures and holding structures. It closes with a governance checklist.

Relation to other chapters. The default allocation of management between members and managers is examined supra ch. 17, and the authority of members, managers and officers to bind the LLC to third parties supra ch. 18. Voting, consents, meetings and information rights of members are examined infra ch. 20. Fiduciary duties of managers and officers are examined infra chs. 21 and 22, and exculpation, indemnification and advancement infra ch. 23. Conflicts of interest and related-party transactions are examined infra ch. 24. This chapter addresses the structure of corporate-style governance and refers to those chapters for the substantive standards that apply within it.

The central point. The statutes treat governance as a matter of contract. The Delaware act provides that a manager "shall also hold the offices and have the responsibilities accorded to the manager by or in the manner provided in a limited liability company agreement." Del. Code Ann. tit. 6, § 18-402. It contains no provision creating a board, an officer or a committee. Each of those institutions exists in an LLC only because the agreement creates it, and each has only the powers and duties the agreement and the general law of agency and equity give it. A practitioner who assumes that an LLC with a board and officers is governed by corporate law will be wrong in most cases, and the error can be costly when a dispute turns on whether an act was authorized or whether a standard of conduct was met.

Organization. The chapter proceeds as follows:

1. the reasons LLCs adopt corporate-style governance (¶ 1910);
2. the statutory foundation (¶ 1920);
3. the board of managers: composition and designation rights (¶ 1930);
4. board procedure: meetings, quorum, voting, written consents and committees (¶ 1940);
5. independent managers and conflicts committees (¶ 1950);
6. officers: authority and duties (¶ 1960);
7. incorporating corporate law by reference (¶ 1970);
8. portfolio companies, joint ventures and holding structures (¶ 1980); and
9. a governance checklist (¶ 1990).