Lighthouse
Lighthouse on Limited Liability Companies

Detailed Contents

This table lists every chapter, section and subsection of Lighthouse on Limited Liability Companies with its paragraph (¶) number. Each entry links to its place in the text.

Part I: Foundations

Chapter 1The Limited Liability Company: Origins and Development

  1. ¶ 101Overview
    1. 101.01Scope of the chapter
    2. 101.02The defining attributes
    3. 101.03Organization
    4. 101.04Terminology
    5. 101.05Reference statutes
  2. ¶ 110Antecedents
    1. 110.01The problem the form solved
    2. 110.02The general partnership
    3. 110.03The limited partnership
    4. 110.04Partnership associations
    5. 110.05The business trust
    6. 110.06The civil-law limited company
    7. 110.07Domestic responses within corporate law
    8. 110.08Why the form came late
  3. ¶ 120The Tax Classification Problem
    1. 120.01The statutory term "association."
    2. 120.02The resemblance test
    3. 120.03Kintner and the professional associations
    4. 120.04The 1960 regulations
    5. 120.05The four characteristics applied
    6. 120.06Equal weighting
    7. 120.07Consequence for an entity with full limited liability
    8. 120.08The 1980 proposed regulations
  4. ¶ 130The First Statutes: Wyoming (1977) and Florida (1982)
    1. 130.01Origins of the Wyoming act
    2. 130.02Features of the 1977 statute
    3. 130.03The early rulings
    4. 130.04Florida
    5. 130.05The decade of limited use
  5. ¶ 140Revenue Ruling 88-76 and the Spread of the Form
    1. 140.01The ruling
    2. 140.02The legislative wave
    3. 140.03Bulletproof and flexible statutes
    4. 140.04Revenue Procedure 95-10
    5. 140.05Single-member LLCs before 1997
    6. 140.06Model and uniform legislation
    7. 140.07The limited liability partnership
  6. ¶ 150The Check-the-Box Regulations
    1. 150.01Notice 95-14
    2. 150.02The 1996 final regulations
    3. 150.03Default classifications
    4. 150.04Elections and changes in classification
    5. 150.05Effect on state LLC statutes
    6. 150.06Validity of the regulations
    7. 150.07Limits of disregarded status
    8. 150.08The significance of 1997
  7. ¶ 160The Second Generation of Statutes
    1. 160.01Three themes
    2. 160.02Delaware and freedom of contract
    3. 160.03The Revised Uniform Act
    4. 160.04Series LLCs and protected series
    5. 160.05Special-purpose variants
    6. 160.06Entity transactions
    7. 160.07The single-member LLC and the charging order
  8. ¶ 170The LLC Today
    1. 170.01Prevalence
    2. 170.02Uses
    3. 170.03Recognition in federal law
    4. 170.04Recognition abroad
    5. 170.05Unsettled questions
    6. 170.06The LLC and the corporation compared in use
  9. ¶ 180The Nature of the LLC: Entity, Contract and Status
    1. 180.01Three conceptions
    2. 180.02The LLC as entity
    3. 180.03The LLC as contract
    4. 180.04The LLC as statutory status
    5. 180.05The conceptions applied
    6. 180.06The member's interest as property
    7. 180.07Choosing between conceptions in argument
  10. ¶ 190Using This Treatise
    1. 190.01Plan of the work
    2. 190.02Numbering and cross-references
    3. 190.03Features of each chapter
    4. 190.04Citation conventions
    5. 190.05Reading an LLC question
    6. 190.06The companion volume
    7. 190.07Currency

Chapter 2The State Statutes and the Uniform Acts

  1. ¶ 201Overview
    1. 201.01Scope of the chapter
    2. 201.02Why the statute matters
    3. 201.03Organization
  2. ¶ 210The Landscape of State Statutes
    1. 210.01Fifty-one statutes
    2. 210.02Three families
    3. 210.03The influence of Delaware
    4. 210.04The influence of the uniform acts
    5. 210.05Default and mandatory rules
    6. 210.06Statutory gaps and the general law
    7. 210.07The need for state-specific research
  3. ¶ 220The Uniform Limited Liability Company Act (1996)
    1. 220.01Origins
    2. 220.02Structure
    3. 220.03The buyout right and its consequences
    4. 220.04Significance today
  4. ¶ 230The Revised Uniform Limited Liability Company Act
    1. 230.01Origins and name
    2. 230.02Section numbering
    3. 230.03Adopting jurisdictions
    4. 230.04The operating agreement and its limits
    5. 230.05The "manifestly unreasonable" standard
    6. 230.06Agency without status
    7. 230.07Continuity and dissociation
    8. 230.08Judicial dissolution and oppression
    9. 230.09The charging order
    10. 230.10Derivative actions and other features
  5. ¶ 240The Delaware Limited Liability Company Act
    1. 240.01Enactment
    2. 240.02Structure
    3. 240.03Key provisions
    4. 240.04The 2004 and 2013 amendments
    5. 240.05Annual amendment
    6. 240.06The Court of Chancery
    7. 240.07The Court of Chancery as a forum since 2024
  6. ¶ 250Other Leading Statutes
    1. 250.01Overview
    2. 250.02New York
    3. 250.03Texas
    4. 250.04Nevada
    5. 250.05Wyoming
    6. 250.06California
    7. 250.07Florida
    8. 250.08Massachusetts, Georgia and Virginia
  7. ¶ 260Harmonization, Entity Transactions and Protected Series
    1. 260.01The harmonization project
    2. 260.02The Model Entity Transactions Act
    3. 260.03The Uniform Protected Series Act
    4. 260.04Effect on practice
  8. ¶ 270Amendments and Their Application to Existing LLCs
    1. 270.01The problem
    2. 270.02Delaware's reserved power
    3. 270.03Transition under the uniform acts
    4. 270.04Agreements that incorporate the statute
  9. ¶ 280Interpreting LLC Statutes
    1. 280.01The interpretive setting
    2. 280.02Text and stated policy
    3. 280.03Borrowing from related statutes
    4. 280.04The supplemental law
    5. 280.05Default fiduciary duties in Delaware: the Gatz episode
    6. 280.06Legislative correction of judicial readings
    7. 280.07Uniformity and the official comments
    8. 280.08Gaps the statute leaves deliberately
    9. 280.09Strict and liberal construction
  10. ¶ 290Identifying the Reference Statute in Practice
    1. 290.01The question
    2. 290.02First inquiry: the jurisdiction of formation
    3. 290.03Second inquiry: internal affairs or external relations
    4. 290.04The limits of the formation statute
    5. 290.05The Florida charging-order provisions
    6. 290.06Third inquiry: the version in force
    7. 290.07Fourth inquiry: the agreement and its relation to the statute
    8. 290.08Fifth inquiry: the forum
    9. 290.09A working checklist
    10. 290.10Relation to later chapters

Chapter 3Freedom of Contract and Its Limits

  1. ¶ 301Overview
    1. 301.01Scope of the chapter
    2. 301.02The central question
    3. 301.03Organization
  2. ¶ 310The Principle of Freedom of Contract
    1. 310.01The statutory statement
    2. 310.02The rationale
    3. 310.03The counter-arguments
    4. 310.04The LLC agreement as contract
    5. 310.05Freedom of contract and the statute's definitions
    6. 310.06Scope of the agreement
    7. 310.07Freedom of contract outside Delaware
  3. ¶ 320The Mandatory Rules of the Delaware Act
    1. 320.01A short list
    2. 320.02The implied covenant of good faith and fair dealing
    3. 320.03Limitations on distributions
    4. 320.04Information rights
    5. 320.05Filings and the registered agent
    6. 320.06Equitable powers of the Court of Chancery
    7. 320.07Provisions that are not mandatory
    8. 320.08Amendment provisions
  4. ¶ 330The Non-Waivable Provisions of the Revised Uniform Act
    1. 330.01The approach of the uniform act
    2. 330.02The list in § 105(c)
    3. 330.03What the agreement may do: § 105(d)
    4. 330.04The manifestly unreasonable standard
    5. 330.05The scarcity of decisions
    6. 330.06Variations among adopting states
  5. ¶ 340Modification and Elimination of Fiduciary Duties and Liability
    1. 340.01Four techniques
    2. 340.02The Delaware history
    3. 340.03Elimination must be clear
    4. 340.04Contractual fiduciary standards
    5. 340.05Safe harbors and conclusive presumptions
    6. 340.06Contractual good faith
    7. 340.07Exculpation
    8. 340.08Persons who are not parties
    9. 340.09The uniform act
  6. ¶ 350The Implied Covenant of Good Faith and Fair Dealing
    1. 350.01Nature of the covenant
    2. 350.02A cautious enterprise
    3. 350.03The covenant does not override express terms
    4. 350.04The covenant is not a substitute for fiduciary duty
    5. 350.05Where the covenant applies
    6. 350.06Pleading the covenant
    7. 350.07Remedies
    8. 350.08The uniform act
  7. ¶ 360Waivers of Statutory Rights
    1. 360.01The question
    2. 360.02Judicial dissolution: express waiver in Delaware
    3. 360.03Implied waiver and its limit
    4. 360.04Judicial dissolution under the uniform act
    5. 360.05Information rights
    6. 360.06Derivative actions and forum
    7. 360.07Appraisal and limitation periods
    8. 360.08Waiver by conduct
  8. ¶ 370Third Parties and the Limits of Contract
    1. 370.01Who is bound
    2. 370.02Creditors and other outsiders
    3. 370.03The liability shield is statutory
    4. 370.04Transferees and assignees
    5. 370.05Controllers and affiliates
    6. 370.06Corporate separateness of subsidiaries
  9. ¶ 380Limits Imposed by Public Policy and Equity
    1. 380.01Creatures of contract, primarily
    2. 380.02Contract law limits
    3. 380.03Equity
    4. 380.04Fraud and federal law
    5. 380.05Judicial criticism of unlimited contractual freedom
    6. 380.06The forum
  10. ¶ 390Drafting Within the Limits
    1. 390.01Method
    2. 390.02Identify the governing statute and its mandatory rules
    3. 390.03State each modification of duty expressly
    4. 390.04Distinguish elimination, exculpation and safe harbors
    5. 390.05Define discretion
    6. 390.06Build approval procedures with care
    7. 390.07Address statutory remedies deliberately
    8. 390.08Replace short-form agreements
    9. 390.09Integrate the agreement
    10. 390.10Relation to later chapters

Chapter 4The LLC Compared: Corporations, Partnerships, Statutory Trusts and Foreign Vehicles

  1. ¶ 401Overview
    1. 401.01Scope of the chapter
    2. 401.02Why the comparison matters
    3. 401.03Two levels of analysis
    4. 401.04Organization
  2. ¶ 410Method of Comparison
    1. 410.01The attributes compared
    2. 410.02The relative weight of the attributes
    3. 410.03The default and the elective
    4. 410.04State law and tax law
    5. 410.05Sources
  3. ¶ 420The C Corporation
    1. 420.01State-law attributes
    2. 420.02Mandatory structure
    3. 420.03Close corporations
    4. 420.04Federal income tax
    5. 420.05Advantages of the C corporation
    6. 420.06The 2025 changes to § 1202
    7. 420.07The § 1202 question in practice
    8. 420.08Converting an LLC to a corporation for § 1202
    9. 420.09Comparison with the LLC
  4. ¶ 430The S Corporation
    1. 430.01The S election
    2. 430.02Eligibility
    3. 430.03The one-class-of-stock rule
    4. 430.04Comparison with partnership taxation
    5. 430.05Employment taxes
    6. 430.06The § 199A deduction
    7. 430.07State law
  5. ¶ 440General Partnerships and Limited Liability Partnerships
    1. 440.01Formation without filing
    2. 440.02Liability of partners
    3. 440.03Management and transfer
    4. 440.04The LLP
    5. 440.05The full shield
    6. 440.06The LLP compared with the LLC
    7. 440.07Tax-exempt and foreign owners of pass-through entities
    8. 440.08Inadvertent partnerships
  6. ¶ 450Limited Partnerships and Limited Liability Limited Partnerships
    1. 450.01The traditional limited partnership
    2. 450.02The control rule
    3. 450.03The Uniform Limited Partnership Act (2001)
    4. 450.04The LLLP
    5. 450.05The general partner as an entity
    6. 450.06Contractual freedom
    7. 450.07Federal income tax
    8. 450.08The limited partnership compared with the LLC
  7. ¶ 460Statutory Trusts
    1. 460.01The Delaware Statutory Trust Act
    2. 460.02Liability and contractual freedom
    3. 460.03Series
    4. 460.04Uses
    5. 460.05Federal income tax
    6. 460.06The statutory trust compared with the LLC
  8. ¶ 470Non-U.S. Vehicles
    1. 470.01Scope
    2. 470.02The German GmbH
    3. 470.03The UK LLP
    4. 470.04Offshore LLC statutes
    5. 470.05U.S. tax classification of non-U.S. entities
    6. 470.06Foreign classification of U.S. LLCs: hybrid status
    7. 470.07Anson and the UK position
    8. 470.08Planning for non-U.S. members
  9. ¶ 480Choice of Entity in Practice
    1. 480.01The decision as a sequence
    2. 480.02The forms compared
    3. 480.03Closely held operating businesses
    4. 480.04Venture-backed companies
    5. 480.05Real estate
    6. 480.06Investment funds
    7. 480.07Family wealth and estate planning
    8. 480.08Professional practices
    9. 480.09Single owners
    10. 480.10Non-U.S. owners
  10. ¶ 490Converting Between Forms
    1. 490.01Methods
    2. 490.02Statutory conversion
    3. 490.03Partnership to LLC
    4. 490.04Corporation to LLC
    5. 490.05LLC or partnership to corporation
    6. 490.06Changes in the number of owners
    7. 490.07Limits on repeated elections
    8. 490.08Non-tax consequences

Part II: Formation and Organization

Chapter 5Choice of Jurisdiction

  1. ¶ 501Overview
    1. 501.01Scope of the chapter
    2. 501.02The central question
    3. 501.03Organization
  2. ¶ 510The Elements of the Choice
    1. 510.01The default: the home state
    2. 510.02What the formation state governs
    3. 510.03What the formation state does not govern
    4. 510.04The factors
    5. 510.05The relative weight of the factors
    6. 510.06The choice is not permanent
  3. ¶ 520Costs: Annual Taxes, Foreign Registration and Doing Business
    1. 520.01The layers of cost
    2. 520.02Delaware
    3. 520.03California
    4. 520.04Doing business
    5. 520.05Failure to register
    6. 520.06Registered agents and compliance
    7. 520.07State income taxes
  4. ¶ 530Delaware
    1. 530.01The conventional choice
    2. 530.02Contractual freedom
    3. 530.03Features
    4. 530.04Privacy
    5. 530.05Limits
  5. ¶ 540The Court of Chancery as a Forum Since 2024
    1. 540.01The question
    2. 540.02Tornetta v. Musk and In re Tesla
    3. 540.03Moelis and section 122(18)
    4. 540.04Senate Bill 21 and Rutledge v. Clearway
    5. 540.05Palkon v. Maffei
    6. 540.06Reincorporations and competing legislation
    7. 540.07Relevance to LLCs
  6. ¶ 550Wyoming and the 2016 Veil-Piercing Statute
    1. 550.01Why Wyoming
    2. 550.02The charging order
    3. 550.03GreenHunter
    4. 550.04The 2016 amendment
    5. 550.05Effect of the amendment
    6. 550.06Specialized entities
    7. 550.07Assessment
  7. ¶ 560Nevada, South Dakota and Texas
    1. 560.01Nevada
    2. 560.02Nevada's alter-ego statute
    3. 560.03Nevada series
    4. 560.04South Dakota
    5. 560.05Texas
    6. 560.06Other competitors
  8. ¶ 570Charging-Order Protection as a Choice Factor
    1. 570.01Why it matters
    2. 570.02The three approaches
    3. 570.03Single-member LLCs
    4. 570.04Florida
    5. 570.05The forum
    6. 570.06Bankruptcy
    7. 570.07Tax payments under a charging order
  9. ¶ 580Privacy, Reporting and Other Factors
    1. 580.01The public record
    2. 580.02Federal beneficial ownership reporting
    3. 580.03Tax classification
    4. 580.04Statutory features
    5. 580.05Counterparty expectations
    6. 580.06The relationship with trusts
  10. ¶ 590Making the Choice
    1. 590.01A sequence of questions
    2. 590.02The decision matrix
    3. 590.03Counterparties and the cost of conversion
    4. 590.04Recording the decision
    5. 590.05A checklist
    6. 590.06Relation to later chapters

Chapter 6Formation, Registered Agents and Annual Maintenance

  1. ¶ 601Overview
    1. 601.01Scope of the chapter
    2. 601.02Why formation matters
    3. 601.03Relation to other chapters
    4. 601.04Organization
  2. ¶ 610The Certificate of Formation
    1. 610.01The filing
    2. 610.02Required contents
    3. 610.03Optional contents
    4. 610.04The moment of formation in Delaware
    5. 610.05The moment of formation under the uniform act
    6. 610.06The operating agreement and the filing
    7. 610.07Amendment and correction
  3. ¶ 620Names
    1. 620.01The required designation
    2. 620.02Distinguishability
    3. 620.03Restricted words
    4. 620.04Reservation
    5. 620.05Assumed names
  4. ¶ 630The Registered Office and Registered Agent
    1. 630.01Function
    2. 630.02The agent's duties
    3. 630.03The 2025 amendment: no virtual agents
    4. 630.04Commercial registered agents
    5. 630.05The communications contact
    6. 630.06Change and resignation of the agent
    7. 630.07Service through the filing office
  5. ¶ 640Pre-Formation Acts and Defective Formation
    1. 640.01The problem
    2. 640.02The agency rule
    3. 640.03Pre-formation agreements among the members
    4. 640.04Substantial compliance and the moment of formation
    5. 640.05Partially disclosed principals
    6. 640.06De facto formation and estoppel
    7. 640.07Acts during a period of cancellation
    8. 640.08Ratification of defective acts
  6. ¶ 650The Public Record and Statements of Authority
    1. 650.01What the record shows
    2. 650.02The effect of the record
    3. 650.03Statements of authority under the uniform act
    4. 650.04Why statements of authority matter
    5. 650.05Delaware practice
  7. ¶ 660Annual Reports, Taxes and Fees
    1. 660.01The continuing obligations
    2. 660.02Delaware: the annual tax
    3. 660.03Delaware: state tax classification
    4. 660.04California
    5. 660.05Wyoming and Nevada
    6. 660.06New York publication
    7. 660.07The uniform act
    8. 660.08Foreign registrations
  8. ¶ 670Good Standing, Cancellation, Administrative Dissolution and Revival
    1. 670.01Good standing
    2. 670.02Cancellation for nonpayment
    3. 670.03Cancellation for loss of the registered agent
    4. 670.04Judicial cancellation
    5. 670.05Revival in Delaware
    6. 670.06Administrative dissolution under the uniform act
    7. 670.07Reinstatement under the uniform act
    8. 670.08Consequences during the period of default
  9. ¶ 680Beneficial Ownership Reporting and Federal Tax Steps at Formation
    1. 680.01The Corporate Transparency Act
    2. 680.02The 2025 interim final rule
    3. 680.03The 2026 final rule
    4. 680.04Bank and other customer due diligence
    5. 680.05State beneficial ownership laws
    6. 680.06The employer identification number
    7. 680.07Classification elections
    8. 680.08State registrations
  10. ¶ 690A Formation and Maintenance Checklist
    1. 690.01Purpose
    2. 690.02Before filing
    3. 690.03At formation
    4. 690.04Every year
    5. 690.05On a change in circumstances
    6. 690.06Relation to later chapters

Chapter 7The Operating Agreement I: Parties, Formation and Interpretation

  1. ¶ 701Overview
    1. 701.01Scope of the chapter
    2. 701.02Terminology
    3. 701.03The agreement as the map of the deal
    4. 701.04Organization
  2. ¶ 710The Agreement Defined: Forms and Sources
    1. 710.01The Delaware definition
    2. 710.02The uniform act definition
    3. 710.03Every LLC has an agreement
    4. 710.04Oral and implied agreements
    5. 710.05Multi-document agreements
    6. 710.06The single-member agreement
    7. 710.07Agreements that grant rights to non-parties
  3. ¶ 720Parties and Persons Bound
    1. 720.01The members
    2. 720.02The LLC
    3. 720.03Elf Atochem
    4. 720.04Managers
    5. 720.05Assignees and transferees
    6. 720.06Third parties with rights under the agreement
  4. ¶ 730Pre-Formation Agreements and the Timing of the Agreement
    1. 730.01Formation by filing
    2. 730.02The agreement may precede, accompany or follow the filing
    3. 730.03The uniform act
    4. 730.04Initial members and the organizer
    5. 730.05Acts before formation
    6. 730.06Effective date and ratification
  5. ¶ 740Admission of Members
    1. 740.01Why admission matters
    2. 740.02Admission at formation under the Delaware act
    3. 740.03Admission after formation
    4. 740.04Admission of assignees
    5. 740.05Achaian
    6. 740.06Admission under the uniform act
    7. 740.07Admission without an economic interest
    8. 740.08Preemptive rights
    9. 740.09Proving membership
  6. ¶ 750The Short-Form Agreement Problem
    1. 750.01The practice
    2. 750.02What the short form omits
    3. 750.03Carlisle
    4. 750.04The defaults that cause the most trouble
    5. 750.05Single-member LLCs
  7. ¶ 760Principles of Interpretation
    1. 760.01The agreement is a contract
    2. 760.02The objective theory
    3. 760.03Plain meaning
    4. 760.04Reading the agreement as a whole
    5. 760.05Ambiguity
    6. 760.06Contra proferentem
    7. 760.07Specific and general provisions
    8. 760.08Defined terms and the statute's vocabulary
    9. 760.09The uniform act
  8. ¶ 770Extrinsic Evidence, Course of Dealing and Implied Terms
    1. 770.01The rule on extrinsic evidence
    2. 770.02Negotiating history
    3. 770.03Course of dealing and course of performance
    4. 770.04Implied terms distinguished from the implied covenant
    5. 770.05Statutory defaults as gap-fillers
    6. 770.06Recitals, headings and construction clauses
  9. ¶ 780Side Letters and the Certificate of Formation
    1. 780.01Side letters
    2. 780.02Is the side letter part of the LLC agreement?
    3. 780.03Authority to grant side letters
    4. 780.04Disclosure of side letters to other members
    5. 780.05The certificate of formation
    6. 780.06The uniform act's priority rule
    7. 780.07Statements of authority
  10. ¶ 790Structure of a Complete Agreement
    1. 790.01The purpose of structure
    2. 790.02Formation and purpose
    3. 790.03Definitions
    4. 790.04Capital and economics
    5. 790.05Governance
    6. 790.06Duties, conflicts, exculpation and indemnification
    7. 790.07Transfers and admission
    8. 790.08Exit, deadlock and dissolution
    9. 790.09General provisions
    10. 790.10Schedules and exhibits
    11. 790.11Single-member and simple multi-member agreements
    12. 790.12Relation to later chapters

Chapter 8The Operating Agreement II: Amendment, Enforcement and Integration

  1. ¶ 801Overview
    1. 801.01Scope of the chapter
    2. 801.02Why amendment and enforcement matter
    3. 801.03Organization
  2. ¶ 810The Power to Amend
    1. 810.01The agreement controls its own amendment
    2. 810.02Amendment without a member vote
    3. 810.03Approval of non-parties and conditions
    4. 810.04The statutory defaults
    5. 810.05Form of the amendment
    6. 810.06Implied amendment and course of dealing
    7. 810.07Who are "the members" for amendment purposes
  3. ¶ 820Supermajority, Class and Consent Provisions
    1. 820.01Classes and voting bases
    2. 820.02Supermajority provisions
    3. 820.03Drafting supermajority protection
    4. 820.04Action by written consent
    5. 820.05Consents effective in the future
    6. 820.06Proxies
  4. ¶ 830Amendment by Merger, Division and Other Transactions
    1. 830.01The transaction route
    2. 830.02Consequence for protective provisions
    3. 830.03The corporate analogy
    4. 830.04Merger approval and the power to merge
    5. 830.05Conversion, domestication and transfer
  5. ¶ 840Limits on the Power to Amend
    1. 840.01The question
    2. 840.02Mandatory rules
    3. 840.03Transferees and dissociated members under the uniform act
    4. 840.04Amendments imposing new obligations on members
    5. 840.05The implied covenant
    6. 840.06Fiduciary duties
    7. 840.07The reserved power of the state
  6. ¶ 850Waiver, Estoppel and the Ratification of Defective Acts
    1. 850.01Waiver and estoppel
    2. 850.02Defective acts
    3. 850.03The statutory ratification procedure
    4. 850.04Judicial review
    5. 850.05Relation to other means of cure
    6. 850.06The uniform act
  7. ¶ 860Enforcement of the Agreement
    1. 860.01Who may enforce
    2. 860.02The Court of Chancery's jurisdiction
    3. 860.03Contested managers and contested votes
    4. 860.04Derivative actions
    5. 860.05Specific performance and injunctions
    6. 860.06Remedies limited to contract
    7. 860.07Claims against non-parties
    8. 860.08Fees and expenses
  8. ¶ 870Integration, Side Letters and Agreements of Several Documents
    1. 870.01One agreement, several documents
    2. 870.02Admission without signature
    3. 870.03Side letters
    4. 870.04Integration clauses
    5. 870.05Integration clauses and fraud
    6. 870.06Order of precedence
  9. ¶ 880Severability, Conflicts and Governing-Law Clauses
    1. 880.01Severability
    2. 880.02"To the fullest extent permitted by law."
    3. 880.03Conflicts between the agreement and the certificate
    4. 880.04Governing-law clauses
    5. 880.05Forum selection and arbitration
    6. 880.06Notices, counterparts and electronic signatures
  10. ¶ 890Drafting Checklist
    1. 890.01Method
    2. 890.02Amendment provisions
    3. 890.03Waiver and ratification
    4. 890.04Enforcement
    5. 890.05Integration
    6. 890.06Relation to later chapters

Chapter 9Single-Member LLCs

  1. ¶ 901Overview
    1. 901.01Scope of the chapter
    2. 901.02Why the number of members matters
    3. 901.03Organization
  2. ¶ 910Recognition of the Single-Member LLC
    1. 910.01The early statutes
    2. 910.02The Delaware act
    3. 910.03The uniform act
    4. 910.04Other statutes
    5. 910.05Uses of the single-member LLC
    6. 910.06Single member and single owner
  3. ¶ 920The Single-Member Operating Agreement
    1. 920.01Why a sole member needs an agreement
    2. 920.02Informal agreements
    3. 920.03Management
    4. 920.04Separateness covenants
    5. 920.05Transfer of the sole member's interest
    6. 920.06Provisions to include
  4. ¶ 930Tax Treatment
    1. 930.01Default classification
    2. 930.02Employment taxes
    3. 930.03Excise taxes
    4. 930.04Foreign-owned single-member LLCs
    5. 930.05State taxes
    6. 930.06Changes in the number of members
    7. 930.07Tax classification and state-law consequences
  5. ¶ 940The Liability Shield and Veil Piercing
    1. 940.01The shield applies without regard to the number of members
    2. 940.02Veil piercing extended to LLCs
    3. 940.03Why single-member LLCs are more exposed
    4. 940.04GreenHunter
    5. 940.05The Wyoming response
    6. 940.06Other statutory limits
    7. 940.07Maintaining separateness
  6. ¶ 950Charging Orders and the Sole Member
    1. 950.01The policy of the charging order
    2. 950.02Olmstead v. FTC
    3. 950.03The Florida statute
    4. 950.04The Florida foreclosure remedy reaches only Florida LLCs
    5. 950.05The uniform act
    6. 950.06States that protect the sole member
    7. 950.07Which law governs the remedy
  7. ¶ 960Bankruptcy of the Sole Member
    1. 960.01The interest enters the estate
    2. 960.02In re Albright
    3. 960.03The executory-contract question
    4. 960.04Consequences for planning
    5. 960.05Bankruptcy-remote single-member LLCs
  8. ¶ 970Reverse Piercing and Other Creditor Remedies
    1. 970.01The remedies that survive an exclusive charging order
    2. 970.02Reverse veil piercing
    3. 970.03Curci Investments, LLC v. Baldwin
    4. 970.04Manichaean
    5. 970.05Fraudulent transfer
    6. 970.06The combined effect
  9. ¶ 980Death, Incapacity and Succession
    1. 980.01The problem of the last member
    2. 980.02The Delaware rule
    3. 980.03The personal representative
    4. 980.04The uniform act
    5. 980.05Techniques for continuity
    6. 980.06Incapacity
  10. ¶ 990Planning the Single-Member LLC
    1. 990.01Choosing the form
    2. 990.02Choosing the jurisdiction
    3. 990.03Adding members
    4. 990.04Operating the LLC
    5. 990.05A planning checklist
    6. 990.06Relation to later chapters

Chapter 10Series LLCs and Protected Series

  1. ¶ 1001Overview
    1. 1001.01Scope of the chapter
    2. 1001.02The central difficulty
    3. 1001.03Organization
  2. ¶ 1010Origins and the Three Kinds of Series
    1. 1010.01The Delaware enactment
    2. 1010.02The spread of the device
    3. 1010.03Terminology
    4. 1010.04The three kinds compared
    5. 1010.05Why the device is used
  3. ¶ 1020The Delaware Protected Series
    1. 1020.01The conditions of the shield
    2. 1020.02The agreement and the certificate
    3. 1020.03Records
    4. 1020.04Powers and capacity
    5. 1020.05Members and managers of a series
    6. 1020.06Distributions
    7. 1020.07Termination and winding up
  4. ¶ 1030The Delaware Registered Series
    1. 1030.01The 2018 amendments
    2. 1030.02Formation
    3. 1030.03The shield
    4. 1030.04Good standing and taxes
    5. 1030.05Secured lending
    6. 1030.06Conversions between protected and registered series
    7. 1030.07Mergers of registered series
  5. ¶ 1040The 2026 Amendments and Series That Are Neither Protected Nor Registered
    1. 1040.01The amending act
    2. 1040.02Series that are neither protected nor registered
    3. 1040.03Consequences of an unprotected series
    4. 1040.04Entity transactions
    5. 1040.05The definitions
  6. ¶ 1050Series Statutes of Other States
    1. 1050.01Variation among the statutes
    2. 1050.02Texas
    3. 1050.03Nevada
    4. 1050.04Illinois
    5. 1050.05The first Illinois decision
    6. 1050.06Wyoming
  7. ¶ 1060The Uniform Protected Series Act
    1. 1060.01Purpose and structure
    2. 1060.02Adopting states
    3. 1060.03Associated assets
    4. 1060.04The shield
    5. 1060.05Enforcement against non-associated assets
    6. 1060.06Veil piercing
    7. 1060.07Entity transactions and foreign series
  8. ¶ 1070Recognition Outside the Formation State and in Bankruptcy
    1. 1070.01The problem
    2. 1070.02Statutory choice-of-law provisions
    3. 1070.03Full faith and credit
    4. 1070.04Foreign registration
    5. 1070.05Litigation in practice
    6. 1070.06Bankruptcy eligibility
    7. 1070.07Property of the estate and substantive consolidation
  9. ¶ 1080Taxation
    1. 1080.01The federal question
    2. 1080.02The proposed regulations
    3. 1080.03Practice in the absence of final regulations
    4. 1080.04California
    5. 1080.05Delaware and other states
    6. 1080.06Insurance and cell companies
  10. ¶ 1090Uses, Risks and a Maintenance Checklist
    1. 1090.01Uses
    2. 1090.02Risks
    3. 1090.03Drafting the operating agreement
    4. 1090.04Contracts with third parties
    5. 1090.05Choosing between series and separate entities
    6. 1090.06Relation to later chapters

Chapter 11Professional, Low-Profit and Special-Purpose LLCs

  1. ¶ 1101Overview
    1. 1101.01Scope of the chapter
    2. 1101.02Two kinds of regime
    3. 1101.03Relation to other chapters
    4. 1101.04Organization
  2. ¶ 1110Professional LLCs
    1. 1110.01The problem the form addresses
    2. 1110.02Three statutory approaches
    3. 1110.03New York
    4. 1110.04Texas
    5. 1110.05Florida
    6. 1110.06California
    7. 1110.07The role of the licensing body
  3. ¶ 1120Liability and Regulation of Professional LLCs
    1. 1120.01What the shield protects
    2. 1120.02Supervisory liability
    3. 1120.03Liability of the entity
    4. 1120.04Contractual undertakings that defeat the shield
    5. 1120.05Ownership and transfer restrictions
    6. 1120.06Insurance and capitalization
    7. 1120.07Professional LLC or limited liability partnership
  4. ¶ 1130The Low-Profit LLC
    1. 1130.01Origins and purpose
    2. 1130.02The statutory definition
    3. 1130.03Repeal in North Carolina
    4. 1130.04What the L3C statute does and does not do
    5. 1130.05The tranched structure
  5. ¶ 1140Program-Related Investments and the Low-Profit LLC
    1. 1140.01The jeopardizing-investment tax
    2. 1140.02The regulatory definition
    3. 1140.03The L3C statutes track the regulation
    4. 1140.04The position of the Treasury and the Service
    5. 1140.05Equity investments and attribution
  6. ¶ 1150Statutory Public Benefit LLCs
    1. 1150.01The Delaware subchapter
    2. 1150.02Mandatory character
    3. 1150.03Formation and the public benefit
    4. 1150.04The balancing duty
    5. 1150.05Reporting
    6. 1150.06Enforcement
    7. 1150.07Other states
  7. ¶ 1160Nonprofit and Exempt-Owned LLCs
    1. 1160.01Nonprofit purposes
    2. 1160.02The single-member LLC owned by a charity
    3. 1160.03Charitable contributions to the subsidiary LLC
    4. 1160.04Joint ventures with for-profit members: the control principle
    5. 1160.05The ancillary joint venture
    6. 1160.06Unrelated business income
  8. ¶ 1170Restricted-Purpose and Bankruptcy-Remote LLCs
    1. 1170.01The structure
    2. 1170.02Separateness covenants and purpose limits
    3. 1170.03Independent managers
    4. 1170.04The independent manager's duty
    5. 1170.05The springing member
    6. 1170.06Blocking members and public policy
  9. ¶ 1180Close LLCs and Other Statutory Variants
    1. 1180.01The Wyoming close LLC
    2. 1180.02The required notice
    3. 1180.03Default rules of the supplement
    4. 1180.04Uses of the close LLC
    5. 1180.05Other variants
  10. ¶ 1190Choosing and Drafting the Special-Purpose LLC
    1. 1190.01Statutory form or general LLC
    2. 1190.02Drafting the professional LLC agreement
    3. 1190.03Drafting for foundation and exempt investors
    4. 1190.04Drafting the statutory public benefit LLC agreement
    5. 1190.05Drafting the bankruptcy-remote LLC agreement
    6. 1190.06Relation to later chapters

Chapter 12Foreign LLCs and the Internal Affairs Doctrine

  1. ¶ 1201Overview
    1. 1201.01Scope of the chapter
    2. 1201.02Relation to Chapter 2
    3. 1201.03Organization
  2. ¶ 1210The Foreign LLC and the Sources of Law
    1. 1210.01Definition
    2. 1210.02Non-U.S. entities
    3. 1210.03Three bodies of law
    4. 1210.04The uniform pattern
    5. 1210.05Registration and jurisdiction distinguished
  3. ¶ 1220When Registration Is Required
    1. 1220.01The basic rule
    2. 1220.02No affirmative definition
    3. 1220.03The safe-harbor lists
    4. 1220.04Variations that matter
    5. 1220.05The constitutional limit
    6. 1220.06Taxation distinguished
    7. 1220.07Electronic commerce and remote work
  4. ¶ 1230Consequences of Failing to Register
    1. 1230.01The closed courthouse door
    2. 1230.02A curable sanction
    3. 1230.03Defending and counterclaiming
    4. 1230.04Contracts remain valid and members remain protected
    5. 1230.05Fees and penalties
    6. 1230.06Service of process and injunctions
    7. 1230.07New York's publication requirement
  5. ¶ 1240Registration, Maintenance and Withdrawal
    1. 1240.01Contents of the application
    2. 1240.02Additional requirements in particular states
    3. 1240.03Names
    4. 1240.04Maintenance
    5. 1240.05Withdrawal and cancellation
    6. 1240.06Withdrawal by operation of law and transfer of registration
  6. ¶ 1250The Internal Affairs Doctrine Applied to LLCs
    1. 1250.01The doctrine
    2. 1250.02Codification for LLCs
    3. 1250.03What counts as internal affairs
    4. 1250.04Member and manager liability
    5. 1250.05No denial of registration for differences in law
    6. 1250.06California's corporate exception and the absence of an LLC counterpart
    7. 1250.07The operating agreement and the doctrine
  7. ¶ 1260The Limits of the Doctrine
    1. 1260.01External relations
    2. 1260.02Distributions and fraudulent transfer
    3. 1260.03Veil piercing
    4. 1260.04The Wyoming statute in other states
    5. 1260.05Direct liability of members
    6. 1260.06Authority to bind the LLC
  8. ¶ 1270Creditor Remedies Against Interests in Foreign LLCs
    1. 1270.01The question
    2. 1270.02The formation statute and the nature of the interest
    3. 1270.03The forum's charging-order statute does not reach foreign LLCs
    4. 1270.04Florida
    5. 1270.05Jurisdiction over the interest
    6. 1270.06Other creditor theories
  9. ¶ 1280Series, Non-U.S. Entities and Changes of Jurisdiction
    1. 1280.01Series LLCs in other states
    2. 1280.02Registration of series
    3. 1280.03Non-U.S. entities in U.S. states
    4. 1280.04U.S. LLCs abroad
    5. 1280.05Changing the jurisdiction of formation
  10. ¶ 1290Compliance and Planning
    1. 1290.01Mapping the LLC's activities
    2. 1290.02Registering on time
    3. 1290.03Maintaining registrations
    4. 1290.04Documents
    5. 1290.05Creditor-sensitive planning
    6. 1290.06Relation to later chapters

Part III: Capital and Economic Rights

Chapter 13Contributions, Capital Accounts and Member Loans

  1. ¶ 1301Overview
    1. 1301.01Scope of the chapter
    2. 1301.02Why the subject matters
    3. 1301.03Organization
    4. 1301.04Relation to other chapters
  2. ¶ 1310The Forms of Contribution
    1. 1310.01The statutory definitions
    2. 1310.02Capacity as member
    3. 1310.03Cash
    4. 1310.04Property
    5. 1310.05Services
    6. 1310.06Promissory notes and other obligations
    7. 1310.07Admission without contribution
    8. 1310.08Contributions by transferees
  3. ¶ 1320Enforcing the Promise to Contribute
    1. 1320.01The basic rule
    2. 1320.02The cash-equivalent option
    3. 1320.03Statute of frauds
    4. 1320.04Compromise and the rights of creditors
    5. 1320.05Conditional obligations
    6. 1320.06Transferees
    7. 1320.07Irrevocable subscriptions
  4. ¶ 1330Capital Calls and Remedies for Default
    1. 1330.01The capital call
    2. 1330.02Mandatory and optional calls
    3. 1330.03Statutory authority for default remedies
    4. 1330.04Dilution
    5. 1330.05Member loans to cover the default
    6. 1330.06Subordination, forced sale and forfeiture
    7. 1330.07Suit for the contribution
    8. 1330.08Good faith in the call
  5. ¶ 1340Capital Accounts
    1. 1340.01Function
    2. 1340.02The economic effect test
    3. 1340.03The maintenance rules
    4. 1340.04Liabilities
    5. 1340.05Promissory notes
    6. 1340.06Capital accounts and percentage interests
    7. 1340.07Records
  6. ¶ 1350Revaluations, Deficit Restoration and the Qualified Income Offset
    1. 1350.01The problem of unrealized appreciation
    2. 1350.02Revaluation (book-up)
    3. 1350.03The deficit restoration obligation
    4. 1350.04Other arrangements treated as obligations to restore
    5. 1350.05The alternate test and the qualified income offset
    6. 1350.06State-law consequences of the tax provisions
  7. ¶ 1360Contributions of Property and Services
    1. 1360.01Valuation
    2. 1360.02Liabilities and encumbrances
    3. 1360.03Title and transfer
    4. 1360.04Federal income tax consequences in outline
    5. 1360.05Services: capital and profits interests
    6. 1360.06Services: vesting and forfeiture
    7. 1360.07Intellectual property
  8. ¶ 1370Member Loans
    1. 1370.01Members as creditors
    2. 1370.02The uniform act
    3. 1370.03Fiduciary duties and member loans
    4. 1370.04Usury
    5. 1370.05Documentation
    6. 1370.06Loans and capital calls compared
    7. 1370.07Tax treatment in outline
  9. ¶ 1380Member Loans in Bankruptcy and Member Guaranties
    1. 1380.01Two doctrines
    2. 1380.02Recharacterization: the source of the power
    3. 1380.03The factors
    4. 1380.04The Third Circuit's approach
    5. 1380.05Equitable subordination
    6. 1380.06Member guaranties
  10. ¶ 1390New Issuances, Preemptive Rights and Drafting
    1. 1390.01Authority to issue new interests
    2. 1390.02New classes and senior interests
    3. 1390.03Preemptive rights
    4. 1390.04Securities law
    5. 1390.05Drafting checklist
    6. 1390.06The capital provisions as a whole

Chapter 14Allocations and Distributions

  1. ¶ 1401Overview
    1. 1401.01Scope of the chapter
    2. 1401.02Two different questions
    3. 1401.03The role of the statute
    4. 1401.04Organization
  2. ¶ 1410Statutory Defaults for Sharing Profits, Losses and Distributions
    1. 1410.01The Delaware default: agreed value of contributions
    2. 1410.02The importance of the records
    3. 1410.03The uniform act default: equal shares
    4. 1410.04No default allocation under the uniform act
    5. 1410.05Redemptions under the defaults
    6. 1410.06Choosing the default deliberately
  3. ¶ 1420The Right to Distributions
    1. 1420.01No general right to interim distributions
    2. 1420.02Mandatory and discretionary distributions
    3. 1420.03Discretion and the implied covenant
    4. 1420.04Distributions in kind
    5. 1420.05The member as creditor
    6. 1420.06Record dates
    7. 1420.07Distributions on resignation or dissociation
  4. ¶ 1430Limitations on Distributions
    1. 1430.01Purpose
    2. 1430.02The Delaware balance-sheet test
    3. 1430.03The uniform act's two tests
    4. 1430.04Measuring the effect
    5. 1430.05Distributions in installments
    6. 1430.06Other limits
  5. ¶ 1440Liability for Wrongful Distributions
    1. 1440.01Liability of recipients in Delaware
    2. 1440.02The Delaware limitation period
    3. 1440.03Liability of managers and consenting members under the uniform act
    4. 1440.04Recipients and contribution under the uniform act
    5. 1440.05Who may sue
    6. 1440.06Fraudulent transfer law
    7. 1440.07Compromise of the obligation to return
  6. ¶ 1450Tax Distributions
    1. 1450.01The problem
    2. 1450.02The formula
    3. 1450.03Pro rata or targeted
    4. 1450.04Interaction with the solvency limits
    5. 1450.05Withholding and entity-level taxes
  7. ¶ 1460Tax Payments and Charging Orders
    1. 1460.01The question
    2. 1460.02The treatise's position under the American statutes
    3. 1460.03What the LLC may do
    4. 1460.04The Nevis statute
    5. 1460.05Withholding taxes and entity-level payments
    6. 1460.06Federal tax consequences
  8. ¶ 1470Tax Allocations in Outline
    1. 1470.01Scope
    2. 1470.02The statutory rule
    3. 1470.03Economic effect
    4. 1470.04Substantiality
    5. 1470.05Layered and targeted allocations
    6. 1470.06Contributed and revalued property
    7. 1470.07The link to state law
  9. ¶ 1480Waterfalls, Redemptions and Non-Pro-Rata Distributions
    1. 1480.01The distribution waterfall
    2. 1480.02Operating and liquidating waterfalls
    3. 1480.03Clawbacks and givebacks
    4. 1480.04Redemptions
    5. 1480.05Non-pro-rata distributions
    6. 1480.06Distributions and the shield
  10. ¶ 1490Drafting Checklist
    1. 1490.01Purpose
    2. 1490.02Consistency
    3. 1490.03The statutory overlay
    4. 1490.04Relation to later chapters

Chapter 15Profits Interests and Equity Compensation

  1. ¶ 1501Overview
    1. 1501.01Scope of the chapter
    2. 1501.02Why the form matters
    3. 1501.03The limits of the form
    4. 1501.04Organization
  2. ¶ 1510Capital and Profits Interests
    1. 1510.01The liquidation test
    2. 1510.02Applying the test
    3. 1510.03Capital interests for services
    4. 1510.04The economic difference
    5. 1510.05Mixed interests
    6. 1510.06Valuation in practice
  3. ¶ 1520The Safe Harbors and the Cases
    1. 1520.01The statutory silence
    2. 1520.02Campbell
    3. 1520.03Rev. Proc. 93-27
    4. 1520.04The three exceptions
    5. 1520.05Services in a partner capacity
    6. 1520.06Rev. Proc. 2001-43 and unvested interests
    7. 1520.07The practice of protective elections
  4. ¶ 1530The 2005 Proposals and Later Guidance
    1. 1530.01The proposed regulations
    2. 1530.02The liquidation value safe harbor
    3. 1530.03Status of the proposals
    4. 1530.04Fee waivers and the 2015 proposal
    5. 1530.05Practical consequences
  5. ¶ 1540Vesting and Section 83
    1. 1540.01The section 83 framework
    2. 1540.02Capital interests subject to vesting
    3. 1540.03Profits interests subject to vesting
    4. 1540.04The protective election
    5. 1540.05Forfeiture allocations
    6. 1540.06Acceleration and vesting events
  6. ¶ 1550Thresholds, Hurdles and Catch-Ups
    1. 1550.01The problem the threshold solves
    2. 1550.02Revaluation
    3. 1550.03The distribution threshold
    4. 1550.04Catch-up allocations
    5. 1550.05Vesting and the threshold
    6. 1550.06Successive grants
  7. ¶ 1560Section 1061 and Carried Interests
    1. 1560.01The statute
    2. 1560.02Applicable partnership interests
    3. 1560.03Exceptions
    4. 1560.04The capital interest exception
    5. 1560.05Gains outside the statute
    6. 1560.06Transfers to related persons
    7. 1560.07Applicability
  8. ¶ 1570Partner or Employee
    1. 1570.01The rule of Rev. Rul. 69-184
    2. 1570.02Disregarded subsidiaries
    3. 1570.03Tiered partnerships
    4. 1570.04Consequences for the recipient
    5. 1570.05Guaranteed payments and salary
  9. ¶ 1580Alternatives and Securities Law
    1. 1580.01The range of alternatives
    2. 1580.02Options
    3. 1580.03Phantom equity and appreciation rights
    4. 1580.04Section 409A
    5. 1580.05Rule 701
  10. ¶ 1590Issuance, Termination and Drafting
    1. 1590.01Authority to issue
    2. 1590.02Governance rights of incentive units
    3. 1590.03Termination of service
    4. 1590.04Tax treatment of a repurchase
    5. 1590.05Valuation
    6. 1590.06Grant checklist
    7. 1590.07Relation to other chapters

Chapter 16Preferred Interests, Waterfalls and Financing

  1. ¶ 1601Overview
    1. 1601.01Scope of the chapter
    2. 1601.02The contractual character of the subject
    3. 1601.03Relation to the tax chapters
    4. 1601.04Organization
  2. ¶ 1610Classes and Series of Interests
    1. 1610.01The Delaware authority
    2. 1610.02Consequences of the Delaware authority
    3. 1610.03Classes under the uniform act
    4. 1610.04Classes, series and units
    5. 1610.05Protective provisions
    6. 1610.06Amendments affecting a class
    7. 1610.07Default allocations where the agreement is silent
  3. ¶ 1620Preferred Returns and Liquidation Preferences
    1. 1620.01The preferred return
    2. 1620.02The base and the computation
    3. 1620.03Current and accrued returns
    4. 1620.04The liquidation preference
    5. 1620.05Participating and non-participating preferences
    6. 1620.06Deemed liquidation events
    7. 1620.07Enforcement
  4. ¶ 1630Distribution Waterfalls
    1. 1630.01The structure
    2. 1630.02A worked example
    3. 1630.03The effect of the catch-up
    4. 1630.04European and American waterfalls
    5. 1630.05Hurdles measured by IRR and multiple
    6. 1630.06Allocations that follow the waterfall
  5. ¶ 1640Clawbacks, Escrows and Tax Distributions
    1. 1640.01The clawback
    2. 1640.02Securing the clawback
    3. 1640.03The clawback and § 18-607
    4. 1640.04Holdbacks and reserves
    5. 1640.05Tax distributions
    6. 1640.06Tax distributions and charging orders
  6. ¶ 1650Redemption Rights and Their Limits
    1. 1650.01The power to redeem
    2. 1650.02Default rights to withdraw
    3. 1650.03Delaware: redemptions and § 18-607
    4. 1650.04The uniform act: redemptions expressly included
    5. 1650.05"Funds legally available."
    6. 1650.06Remedies for a failed redemption
    7. 1650.07Liability for unlawful redemptions
    8. 1650.08Redemptions and the senior lender
  7. ¶ 1660Preferred Equity and Mezzanine Debt
    1. 1660.01Two ways to fill the capital stack
    2. 1660.02Mezzanine debt
    3. 1660.03Preferred equity
    4. 1660.04Usury
    5. 1660.05Recharacterization
    6. 1660.06Blocking rights in bankruptcy
  8. ¶ 1670Pledges of LLC Interests and the UCC
    1. 1670.01The pledge
    2. 1670.02General intangible or security
    3. 1670.03Perfection and priority
    4. 1670.04Issuer restrictions on transfer
    5. 1670.05Anti-assignment provisions: §§ 9-406, 9-408 and § 18-1101(g)
    6. 1670.06Lender requirements in the operating agreement
  9. ¶ 1680Lender Remedies, Control Rights and a Tax Outline
    1. 1680.01The UCC disposition
    2. 1680.02Commercial reasonableness in practice
    3. 1680.03Admission of the purchaser
    4. 1680.04Control rights of preferred holders
    5. 1680.05Forced sales, drag-along rights and deadlock
    6. 1680.06Tax outline: allocations and guaranteed payments
    7. 1680.07Disguised payments for services
    8. 1680.08Capital accounts and the waterfall
  10. ¶ 1690Term Sheet Checklist
    1. 1690.01Purpose
    2. 1690.02Economic terms
    3. 1690.03Redemption and liquidity
    4. 1690.04Governance and protective provisions
    5. 1690.05Financing provisions
    6. 1690.06Tax provisions
    7. 1690.07Relation to later chapters

Part IV: Governance

Chapter 17Member-Managed and Manager-Managed LLCs

  1. ¶ 1701Overview
    1. 1701.01Scope of the chapter
    2. 1701.02Why the label matters less than it once did
    3. 1701.03Why the label still matters
    4. 1701.04Organization
    5. 1701.05Related chapters
  2. ¶ 1710The Two Structures and Their Defaults
    1. 1710.01The Delaware default
    2. 1710.02Manager management in Delaware
    3. 1710.03The uniform act's default
    4. 1710.04Member management under the uniform act
    5. 1710.05Manager management under the uniform act
    6. 1710.06A vacant manager position
    7. 1710.07The Delaware authority rule
  3. ¶ 1720Member Management in Practice
    1. 1720.01Who uses member management
    2. 1720.02Ordinary and extraordinary matters
    3. 1720.03Equal votes and proportional votes
    4. 1720.04Managing members
    5. 1720.05The uniform act's illustration
    6. 1720.06Deadlock
  4. ¶ 1730Managers: Selection, Tenure, Removal and Resignation
    1. 1730.01Selection
    2. 1730.02Managers need not be members
    3. 1730.03Classes and groups of managers
    4. 1730.04Tenure and removal
    5. 1730.05Resignation
    6. 1730.06Liability after departure
    7. 1730.07Contested elections and removals
    8. 1730.08Contractual consequences for managers
    9. 1730.09Compensation and reimbursement
  5. ¶ 1740Rights Reserved to Members
    1. 1740.01The problem
    2. 1740.02The uniform act's reserved list
    3. 1740.03Reserved decisions under the Delaware act
    4. 1740.04Negotiated consent rights
    5. 1740.05Information rights in a manager-managed LLC
    6. 1740.06Duties of members who do not manage
  6. ¶ 1750Entity Managers and Their Controllers
    1. 1750.01The prevalence of entity managers
    2. 1750.02The principle applied to LLCs
    3. 1750.03Change of control of the manager
    4. 1750.04The manager's own governance
  7. ¶ 1760Delegation and Management Agreements
    1. 1760.01The Delaware delegation statute
    2. 1760.02Features of the delegation power
    3. 1760.03Delegation and responsibility
    4. 1760.04The uniform act
    5. 1760.05Management agreements
    6. 1760.06Officers
    7. 1760.07Committees
    8. 1760.08Delegation and third parties
  8. ¶ 1770Consequences of the Choice
    1. 1770.01Agency
    2. 1770.02Fiduciary duties
    3. 1770.03Information
    4. 1770.04Securities
    5. 1770.05Self-employment tax
    6. 1770.06Other consequences
  9. ¶ 1780Choosing and Changing the Structure
    1. 1780.01The questions to ask
    2. 1780.02Hybrid structures
    3. 1780.03Single-member LLCs
    4. 1780.04Changing the structure
    5. 1780.05Transitional problems
  10. ¶ 1790Drafting Checklist
    1. 1790.01Use of the checklist
    2. 1790.02Common drafting errors
    3. 1790.03Relation to later chapters

Chapter 18Agency and Authority

  1. ¶ 1801Overview
    1. 1801.01Scope of the chapter
    2. 1801.02Two sources of law
    3. 1801.03Why the question matters
    4. 1801.04Organization
  2. ¶ 1810The Statutory Framework
    1. 1810.01The partnership inheritance
    2. 1810.02The Delaware rule
    3. 1810.03Management and delegation in Delaware
    4. 1810.04The uniform act: no agency by status
    5. 1810.05Managers under the uniform act
    6. 1810.06Liability preserved
    7. 1810.07Reading the statute in force
  3. ¶ 1820Actual Authority
    1. 1820.01The concept
    2. 1820.02The operating agreement as manifestation
    3. 1820.03Other manifestations
    4. 1820.04Default rules as gap-fillers
    5. 1820.05Conflicts between the agreement and a management contract
    6. 1820.06Termination of actual authority
  4. ¶ 1830Apparent Authority
    1. 1830.01The concept
    2. 1830.02Authority by position
    3. 1830.03Membership alone is not a position
    4. 1830.04Course of dealing
    5. 1830.05Lingering apparent authority
    6. 1830.06Statutes that bind by instrument
    7. 1830.07Apparent authority and the Delaware default
  5. ¶ 1840Statements of Authority and Denial
    1. 1840.01The problem the statement solves
    2. 1840.02Contents
    3. 1840.03Two realms
    4. 1840.04Statements do not govern members
    5. 1840.05Domestic LLCs only
    6. 1840.06Dissolution and post-dissolution statements
    7. 1840.07Statements of denial
    8. 1840.08Filing office
  6. ¶ 1850Knowledge and Notice
    1. 1850.01Why the rules matter
    2. 1850.02The uniform act's definitions
    3. 1850.03Deemed knowledge and notice
    4. 1850.04No special imputation rules
    5. 1850.05Imputation in Delaware
    6. 1850.06What a third party is charged with knowing
  7. ¶ 1860Extraordinary Acts and Member Consent
    1. 1860.01Ordinary and extraordinary acts
    2. 1860.02Uniform act defaults
    3. 1860.03Delaware defaults
    4. 1860.04Major-decision lists
    5. 1860.05Inquiry and extraordinary transactions
  8. ¶ 1870Unauthorized Acts, Ratification and Void Acts
    1. 1870.01The consequences of an unauthorized act
    2. 1870.02Ratification under agency law
    3. 1870.03The Delaware ratification statute
    4. 1870.04Void and voidable acts
    5. 1870.05Void provisions and the ratification statute
    6. 1870.06Ratification under the uniform act
  9. ¶ 1880Liability of the LLC and of Its Agents
    1. 1880.01Contract liability of the LLC
    2. 1880.02Tort liability of the LLC
    3. 1880.03The agent's own torts
    4. 1880.04Undisclosed and partially disclosed principals
    5. 1880.05Signature blocks
    6. 1880.06Warranty of authority
  10. ¶ 1890Due Diligence and Drafting
    1. 1890.01The third party's task
    2. 1890.02The officer's certificate
    3. 1890.03Reliance clauses
    4. 1890.04Drafting the authority provisions
    5. 1890.05Internal controls
    6. 1890.06Checklist
    7. 1890.07Relation to later chapters

Chapter 19Officers, Boards and Corporate-Style Governance

  1. ¶ 1901Overview
    1. 1901.01Scope of the chapter
    2. 1901.02Relation to other chapters
    3. 1901.03The central point
    4. 1901.04Organization
  2. ¶ 1910Why LLCs Adopt Corporate-Style Governance
    1. 1910.01The default structures and their limits
    2. 1910.02Separation of ownership and management
    3. 1910.03Familiarity
    4. 1910.04Flexibility within a familiar frame
    5. 1910.05Tax considerations
    6. 1910.06The cost of the corporate model
  3. ¶ 1920The Statutory Foundation
    1. 1920.01The manager as a defined term
    2. 1920.02Vesting management in managers
    3. 1920.03Classes, voting and procedure
    4. 1920.04Delegation
    5. 1920.05Reliance
    6. 1920.06Remedies against managers
    7. 1920.07Service of process and contested elections
    8. 1920.08The uniform act
  4. ¶ 1930The Board of Managers: Composition and Designation Rights
    1. 1930.01Creating the board
    2. 1930.02Election and designation
    3. 1930.03Unequal votes and classes
    4. 1930.04Protective provisions
    5. 1930.05Removal and vacancies
    6. 1930.06Entity managers
    7. 1930.07Observers
    8. 1930.08Managers who are also members
  5. ¶ 1940Board Procedure: Meetings, Quorum, Voting, Written Consents and Committees
    1. 1940.01The importance of procedure
    2. 1940.02Meetings and notice
    3. 1940.03Quorum and voting
    4. 1940.04Written consents
    5. 1940.05Godden v. Franco
    6. 1940.06Proxies
    7. 1940.07Minutes and records
    8. 1940.08Committees
  6. ¶ 1950Independent Managers and Conflicts Committees
    1. 1950.01Two uses of independence
    2. 1950.02The bankruptcy-remote independent manager
    3. 1950.03Conflicts committees
    4. 1950.04Defining independence
    5. 1950.05Delegation by a conflicted manager
    6. 1950.06The committee's process
    7. 1950.07Special litigation committees
    8. 1950.08Manager compensation
  7. ¶ 1960Officers: Authority and Duties
    1. 1960.01No statutory officers
    2. 1960.02Authority conferred by the agreement
    3. 1960.03Apparent authority and titles
    4. 1960.04Duties of officers
    5. 1960.05Binding officers to the agreement
    6. 1960.06Officer exculpation: the corporate and LLC rules compared
    7. 1960.07Indemnification and insurance
    8. 1960.08Removal and employment terms
    9. 1960.09Evidence of authority
  8. ¶ 1970Incorporating Corporate Law by Reference
    1. 1970.01The practice
    2. 1970.02Contractual adoption of corporate standards
    3. 1970.03Static or dynamic incorporation
    4. 1970.04Procedural provisions that do not transfer
    5. 1970.05The risk of importing unintended doctrine
    6. 1970.06Elimination of duties with corporate procedures
  9. ¶ 1980Portfolio Companies, Joint Ventures and Holding Structures
    1. 1980.01Three settings
    2. 1980.02Portfolio companies
    3. 1980.03Joint ventures
    4. 1980.04Deadlock in joint ventures
    5. 1980.05Holding structures and subsidiaries
    6. 1980.06Information flow among affiliates
  10. ¶ 1990Governance Checklist
    1. 1990.01Using the checklist
    2. 1990.02Relation to later chapters

Chapter 20Voting, Consents, Meetings and Information Rights

  1. ¶ 2001Overview
    1. 2001.01Scope of the chapter
    2. 2001.02Why the machinery matters
    3. 2001.03Organization
  2. ¶ 2010The Default Allocation of Voting Power
    1. 2010.01The Delaware default
    2. 2010.02Matters requiring the vote of all members in Delaware
    3. 2010.03The uniform act's default for member-managed LLCs
    4. 2010.04The uniform act's default for manager-managed LLCs
    5. 2010.05The consequences of the two defaults
    6. 2010.06The statutory default as a fallback
  3. ¶ 2020Classes, Groups and Voting Bases
    1. 2020.01The statutory authority
    2. 2020.02Voting bases
    3. 2020.03Non-voting interests
    4. 2020.04Blocking rights and protective provisions
    5. 2020.05Classes under the uniform act
  4. ¶ 2030Meetings
    1. 2030.01No statutory meeting requirement
    2. 2030.02Matters the agreement may regulate
    3. 2030.03Remote participation
    4. 2030.04Notice and its waiver
    5. 2030.05Quorum and record dates
    6. 2030.06Minutes and records of action
  5. ¶ 2040Action by Written Consent
    1. 2040.01The Delaware default
    2. 2040.02Form of consent
    3. 2040.03Consents effective in the future
    4. 2040.04No notice to non-consenting members
    5. 2040.05Disclosure before consent
    6. 2040.06Manager consents
  6. ¶ 2050Proxies, Voting Agreements and Delegation
    1. 2050.01Proxies
    2. 2050.02Irrevocable proxies
    3. 2050.03Voting agreements
    4. 2050.04Delegation of management rights
    5. 2050.05Reliance on reports
  7. ¶ 2060Contested Votes and Elections
    1. 2060.01The summary proceeding for managers
    2. 2060.02Other contested votes
    3. 2060.03Who is a manager for this purpose
    4. 2060.04Relation to the agreement
    5. 2060.05The uniform act
  8. ¶ 2070Information Rights Under the Delaware Act
    1. 2070.01The member's right
    2. 2070.02Comparison with the corporate right
    3. 2070.03The manager's right
    4. 2070.04Confidentiality
    5. 2070.05Demand and enforcement
    6. 2070.06Necessary and essential; expansion and restriction
    7. 2070.07The record of members and managers
  9. ¶ 2080Information Rights Under the Uniform Act
    1. 2080.01Structure
    2. 2080.02Member-managed LLCs
    3. 2080.03The duty to disclose without demand
    4. 2080.04Manager-managed LLCs
    5. 2080.05Former members and transferees
    6. 2080.06Restrictions, costs and agents
  10. ¶ 2090Electronic Records and Drafting
    1. 2090.01Electronic and distributed records
    2. 2090.02Document form, signature and delivery
    3. 2090.03The consequences for consents
    4. 2090.04Drafting the voting provisions
    5. 2090.05Drafting the information provisions
    6. 2090.06Relation to later chapters

Chapter 21Fiduciary Duties I: The Default Duties of Loyalty and Care

  1. ¶ 2101Overview
    1. 2101.01Scope of the chapter
    2. 2101.02Why default duties matter
    3. 2101.03Two models
    4. 2101.04Organization
  2. ¶ 2110Sources of the Default Duties
    1. 2110.01Delaware: equity through § 18-1104
    2. 2110.02The content of the Delaware duties
    3. 2110.03The uniform act: codified duties
    4. 2110.04The switching rule
    5. 2110.05California
    6. 2110.06New York and Texas
  3. ¶ 2120Who Owes Duties
    1. 2120.01The governing principle
    2. 2120.02Managers and managing members
    3. 2120.03Members of a member-managed LLC
    4. 2120.04Non-managing members
    5. 2120.05Controlling members
    6. 2120.06Entity managers and their controllers
    7. 2120.07The limit of controller liability: care
    8. 2120.08Officers and agents
    9. 2120.09Organizers and pre-formation conduct
  4. ¶ 2130To Whom Duties Are Owed
    1. 2130.01The company and the members
    2. 2130.02Direct and derivative claims
    3. 2130.03Creditors
    4. 2130.04Classes of members
  5. ¶ 2140Loyalty: Self-Dealing and Entire Fairness
    1. 2140.01The core of the duty
    2. 2140.02Entire fairness in Delaware
    3. 2140.03Contractual fairness standards
    4. 2140.04The uniform act: adverse dealing and the fairness defense
    5. 2140.05Authorization and ratification
    6. 2140.06Compensation
  6. ¶ 2150Company Opportunities and Competition
    1. 2150.01The opportunity doctrine
    2. 2150.02The uniform act
    3. 2150.03Opportunities in LLCs managed by sponsors
    4. 2150.04Competition
  7. ¶ 2160The Duty of Care
    1. 2160.01The standard
    2. 2160.02The evolution of the uniform standard
    3. 2160.03Is care a fiduciary duty?
    4. 2160.04The business judgment rule
    5. 2160.05Process
    6. 2160.06Exculpation and the duty of care
  8. ¶ 2170Good Faith
    1. 2170.01Two concepts
    2. 2170.02Good faith as an element of loyalty
    3. 2170.03What bad faith means
    4. 2170.04Consequences for LLC agreements
    5. 2170.05The uniform act's warning
    6. 2170.06Oversight
    7. 2170.07Good faith in member-managed LLCs
  9. ¶ 2180Disclosure, Dissociation and Winding Up
    1. 2180.01The duty of disclosure
    2. 2180.02When disclosure is required
    3. 2180.03Disclosure and the elimination of duties
    4. 2180.04Duties after dissociation
    5. 2180.05Duties in winding up
  10. ¶ 2190Remedies and Planning
    1. 2190.01The range of remedies
    2. 2190.02Fees and interest
    3. 2190.03The agreement and remedies
    4. 2190.04Planning for managers
    5. 2190.05Planning for investors
    6. 2190.06Relation to later chapters

Chapter 22Fiduciary Duties II: Modification, Elimination and the Implied Covenant

  1. ¶ 2201Overview
    1. 2201.01Scope of the chapter
    2. 2201.02Why the decisions come from partnerships
    3. 2201.03Organization
  2. ¶ 2210The Statutes Compared
    1. 2210.01Three approaches
    2. 2210.02Delaware
    3. 2210.03Nevada
    4. 2210.04Texas
    5. 2210.05New York
    6. 2210.06The uniform act
    7. 2210.07The choice of statute
  3. ¶ 2220Elimination Clauses and Their Construction
    1. 2220.01The question of power and the question of meaning
    2. 2220.02The Delaware history
    3. 2220.03The clear statement rule
    4. 2220.04Effective formulations
    5. 2220.05Partial elimination
    6. 2220.06Persons outside the clause
  4. ¶ 2230Contractual Standards of Conduct
    1. 2230.01The replacement standard
    2. 2230.02Good faith as defined
    3. 2230.03Safe harbor or affirmative obligation
    4. 2230.04Sole discretion
    5. 2230.05Fair and reasonable
    6. 2230.06Reasonable discretion and the allocation of judgment
  5. ¶ 2240Safe Harbors, Conclusive Presumptions and Conflicts Committees
    1. 2240.01The architecture
    2. 2240.02Statutory reliance protection
    3. 2240.03Enforcement as written
    4. 2240.04Designing a conflicts committee
    5. 2240.05Designing reliance provisions
    6. 2240.06Unaffiliated member approval
  6. ¶ 2250The Implied Covenant in Depth
    1. 2250.01A doctrine of interpretation
    2. 2250.02Identifying the gap
    3. 2250.03Timing
    4. 2250.04Not a substitute for fiduciary duty
    5. 2250.05Pleading
    6. 2250.06Remedies
    7. 2250.07The covenant as the price of flexibility
  7. ¶ 2260Bad Faith and the Boundary of Exculpation
    1. 2260.01The statutory boundary
    2. 2260.02Contractual exculpation clauses
    3. 2260.03Meanings of bad faith
    4. 2260.04What exculpation does not reach
    5. 2260.05Uniform-act and New York limits
  8. ¶ 2270The Uniform-Act States
    1. 2270.01The framework restated
    2. 2270.02The scarcity of decisions
    3. 2270.03Local variations
    4. 2270.04Drafting in a uniform-act state
  9. ¶ 2280Clause Types and Their Treatment
    1. 2280.01A catalogue
    2. 2280.02Interaction among clauses
  10. ¶ 2290Drafting
    1. 2290.01Purpose and audience
    2. 2290.02Checklist

Chapter 23Exculpation, Indemnification and Advancement

  1. ¶ 2301Overview
    1. 2301.01Three protections
    2. 2301.02Why the LLC setting differs
    3. 2301.03Relation to other chapters
    4. 2301.04Organization
  2. ¶ 2310Exculpation: The Statutory Basis
    1. 2310.01The Delaware provision
    2. 2310.02Four features of the Delaware text
    3. 2310.03Elimination of duty and exculpation compared
    4. 2310.04The uniform act
    5. 2310.05Other states
    6. 2310.06Amendments that add or remove exculpation
  3. ¶ 2320Construing Exculpation Clauses
    1. 2320.01Contract principles apply
    2. 2320.02Contract claims and fiduciary claims
    3. 2320.03The bad faith limit
    4. 2320.04Contractual definitions of good faith
    5. 2320.05Persons covered
    6. 2320.06Equitable relief and burdens
    7. 2320.07Exculpation and the implied covenant
  4. ¶ 2330Indemnification: The Statutory Frameworks
    1. 2330.01The Delaware LLC act
    2. 2330.02The corporate model compared
    3. 2330.03The uniform act
    4. 2330.04Reading § 408
    5. 2330.05Incorporating § 145 by reference
  5. ¶ 2340Scope and Conditions of Indemnification
    1. 2340.01The questions every provision must answer
    2. 2340.02Capacity: "by reason of the fact."
    3. 2340.03Who is an agent
    4. 2340.04Standards of conduct
    5. 2340.05Success on the merits or otherwise
    6. 2340.06Exclusions
    7. 2340.07Determination and procedure
    8. 2340.08Indemnification of members for entity liabilities
    9. 2340.09Claims by the LLC itself
  6. ¶ 2350Advancement
    1. 2350.01Function
    2. 2350.02Separate from indemnification
    3. 2350.03Mandatory and permissive advancement
    4. 2350.04Undertakings and conditions
    5. 2350.05Scope of advanced expenses
    6. 2350.06Forum
    7. 2350.07Advancement when the LLC is the adversary
  7. ¶ 2360Enforcement, Fees on Fees and Multiple Indemnitors
    1. 2360.01The enforcement problem
    2. 2360.02Fees on fees regardless of success
    3. 2360.03Multiple indemnitors
    4. 2360.04Recovery of advances
    5. 2360.05Indemnification and the implied covenant
  8. ¶ 2370Insurance
    1. 2370.01Statutory authority
    2. 2370.02Structure of management liability coverage
    3. 2370.03Exclusions of particular importance
    4. 2370.04Coordinating insurance with the agreement
    5. 2370.05Insurance and the LLC's insolvency
  9. ¶ 2380Public Policy Limits and Asset Protection
    1. 2380.01Limits outside the LLC statute
    2. 2380.02The securities laws
    3. 2380.03Exculpation, indemnification and the uniform act
    4. 2380.04Indemnification as a liability of the LLC
    5. 2380.05Indemnification rights and the member's creditors
    6. 2380.06Advancement and the covered person's assets
  10. ¶ 2390Drafting
    1. 2390.01One integrated scheme
    2. 2390.02Grant each right expressly
    3. 2390.03Address priority and vesting
    4. 2390.04Procedure
    5. 2390.05Relation to other chapters

Chapter 24Conflicts of Interest and Related-Party Transactions

  1. ¶ 2401Overview
    1. 2401.01Scope of the chapter
    2. 2401.02The central question
    3. 2401.03Organization
  2. ¶ 2410The Forms of Conflict
    1. 2410.01Direct self-dealing
    2. 2410.02Affiliate transactions
    3. 2410.03Management and fee arrangements
    4. 2410.04Financing by insiders
    5. 2410.05Opportunities and competition
    6. 2410.06Sponsor and portfolio conflicts
    7. 2410.07Dual roles in holding structures
    8. 2410.08Controllers of entity managers
  3. ¶ 2420The Statutory Framework
    1. 2420.01Delaware: permission to transact
    2. 2420.02Delaware: delegation notwithstanding a conflict
    3. 2420.03Delaware: the agreement's power over duties
    4. 2420.04DGCL § 144 does not apply
    5. 2420.05The uniform act: duties stated
    6. 2420.06The uniform act: self-interest, fairness and ratification
    7. 2420.07The uniform act: contractual procedures
  4. ¶ 2430The Default Standard of Review
    1. 2430.01Default duties in Delaware
    2. 2430.02Entire fairness
    3. 2430.03Fair dealing
    4. 2430.04Fair price
    5. 2430.05Contractual standards shift the analysis
    6. 2430.06Controllers who are not managers
    7. 2430.07The uniform act
    8. 2430.08The effect of cleansing in Delaware
  5. ¶ 2440Contractual Conflict Procedures
    1. 2440.01Why agreements address conflicts
    2. 2440.02Four common procedures
    3. 2440.03Safe harbor or affirmative obligation
    4. 2440.04Conclusive presumptions
    5. 2440.05The integrity of the process
    6. 2440.06Independence
    7. 2440.07Unaffiliated member votes
    8. 2440.08The uniform act
    9. 2440.09Fairness opinions and appraisals
    10. 2440.10Standing approvals and pre-clearance
  6. ¶ 2450Business Opportunities and Competition
    1. 2450.01The corporate opportunity doctrine
    2. 2450.02Application to LLCs
    3. 2450.03Competition
    4. 2450.04Renunciation and permitted activities
    5. 2450.05Drafting opportunity provisions
    6. 2450.06Opportunities in member-managed LLCs
    7. 2450.07Information and opportunity
  7. ¶ 2460Disclosure
    1. 2460.01Disclosure as the foundation of cleansing
    2. 2460.02What must be disclosed
    3. 2460.03Disclosure where duties are eliminated
    4. 2460.04Ongoing disclosure
    5. 2460.05Federal securities disclosure
  8. ¶ 2470Particular Settings
    1. 2470.01Family and closely held LLCs
    2. 2470.02Investment funds and sponsors
    3. 2470.03Joint ventures
    4. 2470.04Holding structures and subsidiaries
    5. 2470.05Insider financing in distress
    6. 2470.06Management fees and expense allocation
    7. 2470.07Real estate syndications
  9. ¶ 2480Remedies
    1. 2480.01The range of remedies
    2. 2480.02Injunctive relief
    3. 2480.03Rescission and rescissory damages
    4. 2480.04Damages and disgorgement
    5. 2480.05Exculpation and its limits
    6. 2480.06Claims against non-parties
    7. 2480.07Direct or derivative
    8. 2480.08Timing
    9. 2480.09Indemnification and advancement of the conflicted manager
  10. ¶ 2490Tax and Accounting; Managing Conflicts
    1. 2490.01Tax treatment of related-party transactions
    2. 2490.02Accounting disclosure
    3. 2490.03A method for managing conflicts
    4. 2490.04Relation to other chapters

Part V: The Liability Shield

Chapter 25The Liability Shield

  1. ¶ 2501Overview
    1. 2501.01Scope of the chapter
    2. 2501.02The central point
    3. 2501.03Organization
  2. ¶ 2510The Statutory Shield
    1. 2510.01The Delaware text
    2. 2510.02Agreement to be liable
    3. 2510.03The uniform act
    4. 2510.04Three differences of drafting
    5. 2510.05Other statutes
    6. 2510.06Historical setting
    7. 2510.07The shield and the entity
    8. 2510.08What the members still risk
  3. ¶ 2520Scope: "Solely by Reason of" Status
    1. 2520.01Vicarious and direct liability
    2. 2520.02The identity of the plaintiff is irrelevant
    3. 2520.03The meaning of "solely."
    4. 2520.04Participation in the tort
    5. 2520.05Contract claims against a member who performs
    6. 2520.06Managers, officers and other agents
    7. 2520.07Claims between members
  4. ¶ 2530What the Shield Does Not Cover
    1. 2530.01Five categories
    2. 2530.02Agency doctrines
    3. 2530.03Guaranties and other undertakings
    4. 2530.04Statutory role liability
    5. 2530.05Liability to the LLC under the act
    6. 2530.06Taxes
    7. 2530.07Liability assumed in the operating agreement
  5. ¶ 2540Formalities and the Shield
    1. 2540.01Why formalities matter less for LLCs
    2. 2540.02The uniform act
    3. 2540.03California's narrower proviso
    4. 2540.04Delaware
    5. 2540.05Veil piercing and the shield
    6. 2540.06Formalities the LLC should observe
  6. ¶ 2550Choice of Law
    1. 2550.01The formation state's law governs
    2. 2550.02The scope of the rule
    3. 2550.03Constitutional limits
    4. 2550.04Foreign registration and the shield
    5. 2550.05Non-U.S. LLCs
  7. ¶ 2560Dissolution and Winding Up
    1. 2560.01The shield survives dissolution
    2. 2560.02The real exposure: distributions in winding up
    3. 2560.03Delaware
    4. 2560.04Liability of recipients
    5. 2560.05The uniform act's claims procedures
    6. 2560.06Members' liability for claims not barred
    7. 2560.07After cancellation in Delaware
  8. ¶ 2570Series, Professional LLCs and Bankruptcy
    1. 2570.01Series
    2. 2570.02Professional LLCs
    3. 2570.03Bankruptcy of the LLC
    4. 2570.04Bankruptcy of a member
  9. ¶ 2580Capitalization and Insurance
    1. 2580.01No statutory capital requirement
    2. 2580.02Capitalization in veil piercing
    3. 2580.03What adequate capital means
    4. 2580.04Insurance as the first layer of protection
    5. 2580.05Segregation of risk
  10. ¶ 2590Maintaining the Shield
    1. 2590.01The purpose of maintenance
    2. 2590.02Signing in the LLC's name
    3. 2590.03Holding out
    4. 2590.04Separate property and accounts
    5. 2590.05Status and registration
    6. 2590.06Governance records
    7. 2590.07Guaranties
    8. 2590.08Relation to later chapters

Chapter 26Veil Piercing, Alter Ego and Reverse Piercing

  1. ¶ 2601Overview
    1. 2601.01Scope of the chapter
    2. 2601.02Why the subject matters for LLCs
    3. 2601.03Organization
    4. 2601.04Relation to other chapters
  2. ¶ 2610The Doctrine and Its Premises
    1. 2610.01The statutory shield
    2. 2610.02Extension of the corporate doctrine
    3. 2610.03The premises of the doctrine
    4. 2610.04Contract and tort creditors
    5. 2610.05Who may be held liable
    6. 2610.06Procedure and burden
    7. 2610.07Piercing distinguished from direct liability
  3. ¶ 2620The Common-Law Tests
    1. 2620.01Two elements
    2. 2620.02Delaware
    3. 2620.03The factors
    4. 2620.04Capitalization
    5. 2620.05Formalities
    6. 2620.06Fraud or injustice
    7. 2620.07The role of insurance
    8. 2620.08Single ownership and tax status outside Wyoming
  4. ¶ 2630Statutes Regulating Veil Piercing
    1. 2630.01Three approaches
    2. 2630.02Incorporation of corporate law
    3. 2630.03Nevada
    4. 2630.04Texas
    5. 2630.05Wyoming
    6. 2630.06Delaware and the uniform act
    7. 2630.07The limits of statutory protection
  5. ¶ 2640Wyoming: GreenHunter and the 2016 Amendment
    1. 2640.01Background
    2. 2640.02The legislative response
    3. 2640.03The statutory text
    4. 2640.04The four factors
    5. 2640.05The excluded factors
    6. 2640.06Effect on facts like GreenHunter's
    7. 2640.07Wyoming law outside Wyoming
  6. ¶ 2650Enterprise Liability and Parent-Subsidiary Claims
    1. 2650.01The structures at issue
    2. 2650.02Vertical piercing
    3. 2650.03Single business enterprise
    4. 2650.04Horizontal claims through the common owner
    5. 2650.05Substantive consolidation
  7. ¶ 2660Choice of Law
    1. 2660.01The question
    2. 2660.02The law of the jurisdiction of formation
    3. 2660.03The forum's law
    4. 2660.04Planning implications
  8. ¶ 2670Reverse Veil Piercing
    1. 2670.01The doctrine
    2. 2670.02The objections
    3. 2670.03California
    4. 2670.04Delaware
    5. 2670.05Statutes preserving the remedy
    6. 2670.06The conditions for reverse piercing
    7. 2670.07Insider reverse piercing
  9. ¶ 2680Veil Piercing in Bankruptcy and Substantive Consolidation
    1. 2680.01Piercing claims in the LLC's bankruptcy
    2. 2680.02Substantive consolidation
    3. 2680.03Relevance to LLC groups
    4. 2680.04The member's bankruptcy
  10. ¶ 2690Planning to Preserve the Shield
    1. 2690.01The primacy of conduct
    2. 2690.02Capital and insurance
    3. 2690.03Separation of finances
    4. 2690.04Dealings with third parties
    5. 2690.05Formalities the agreement requires
    6. 2690.06Co-owners
    7. 2690.07Responding to a piercing claim

Chapter 27Charging Orders and Other Creditor Remedies

  1. ¶ 2701Overview
    1. 2701.01Scope of the chapter
    2. 2701.02Relation to other chapters
    3. 2701.03The central tension
    4. 2701.04Organization
  2. ¶ 2710Origins and Function of the Charging Order
    1. 2710.01The English origin
    2. 2710.02Reception in the United States
    3. 2710.03What the order gives the creditor
    4. 2710.04What the order does not reach
    5. 2710.05The policy
    6. 2710.06The charging order and the corporation compared
  3. ¶ 2720The Statutes Compared
    1. 2720.01Three questions
    2. 2720.02The Delaware act
    3. 2720.03The uniform act
    4. 2720.04The protective statutes
    5. 2720.05Florida
    6. 2720.06Exclusivity defined
  4. ¶ 2730Obtaining and Enforcing the Order
    1. 2730.01The application
    2. 2730.02The choice of court
    3. 2730.03The order and its service
    4. 2730.04Receivers of distributions
    5. 2730.05Interim relief in the Court of Chancery
    6. 2730.06The manager's obligations
  5. ¶ 2740Foreclosure
    1. 2740.01What foreclosure changes
    2. 2740.02The uniform act
    3. 2740.03The meaning of "a reasonable time."
    4. 2740.04The purchaser's position
    5. 2740.05Single-member foreclosure under the uniform act
    6. 2740.06The Florida statute and foreign LLCs
    7. 2740.07Foreclosure barred: Delaware and the protective states
  6. ¶ 2750Tax Distributions and the Payment of a Charged Member's Taxes
    1. 2750.01The problem
    2. 2750.02The treatise's position
    3. 2750.03The statutory text
    4. 2750.04Payment to the taxing authority
    5. 2750.05The agreement cannot change the result
    6. 2750.06What the LLC may do
    7. 2750.07Payments required by law
    8. 2750.08The tax position of the creditor and the member
    9. 2750.09The consequence for the member
    10. 2750.10The Nevis statute
  7. ¶ 2760Single-Member LLCs and Bankruptcy
    1. 2760.01The single-member problem
    2. 2760.02Adding members
    3. 2760.03The member's bankruptcy
  8. ¶ 2770Other Creditor Remedies
    1. 2770.01The creditor's alternatives
    2. 2770.02Voidable transfers
    3. 2770.03Reverse veil piercing
    4. 2770.04Disguised distributions and payments outside the order
    5. 2770.05Turnover and remedies against the debtor
    6. 2770.06Claims against the manager and the other members
  9. ¶ 2780Choice of Law and Non-U.S. Statutes
    1. 2780.01Which state's charging-order statute applies
    2. 2780.02The text of the forum's statute
    3. 2780.03Reducing the choice-of-law risk
    4. 2780.04Non-U.S. statutes
    5. 2780.05Recognition by American courts
  10. ¶ 2790Planning
    1. 2790.01The objectives
    2. 2790.02Choice of jurisdiction
    3. 2790.03Members
    4. 2790.04Separateness
    5. 2790.05The operating agreement
    6. 2790.06The manager

Chapter 28Personal Liability of Members and Managers: Torts, Statutes and Taxes

  1. ¶ 2801Overview
    1. 2801.01Scope of the chapter
    2. 2801.02Two kinds of claim
    3. 2801.03Organization
    4. 2801.04Relation to other chapters
  2. ¶ 2810The Shield and the Member's Own Conduct
    1. 2810.01The text of the shield
    2. 2810.02The official explanation
    3. 2810.03The minority view and its rejection
    4. 2810.04Corporate antecedents
    5. 2810.05Direct liability and veil piercing distinguished
    6. 2810.06Statutory duties imposed on individuals
    7. 2810.07Members as such
  3. ¶ 2820Torts and the Participation Doctrine
    1. 2820.01The participation doctrine
    2. 2820.02What counts as participation
    3. 2820.03Pleading direct liability
    4. 2820.04Misrepresentation and fraud
    5. 2820.05Professional services
    6. 2820.06Torts against the LLC's counterparties
  4. ¶ 2830Contractual Undertakings
    1. 2830.01The member's own promise
    2. 2830.02Forms of guaranty
    3. 2830.03Signing without disclosing the principal
    4. 2830.04Pre-formation contracts
    5. 2830.05Personal assurances
    6. 2830.06Capital commitments and other obligations to the LLC
  5. ¶ 2840The Trust Fund Recovery Penalty
    1. 2840.01The statute
    2. 2840.02Who is a "person."
    3. 2840.03Willfulness
    4. 2840.04Procedure
    5. 2840.05Criminal exposure
  6. ¶ 2850Employment Taxes of Disregarded LLCs and State Responsible-Person Taxes
    1. 2850.01The disregarded LLC as employer
    2. 2850.02Exceptions
    3. 2850.03Before 2009
    4. 2850.04Consequences under the current rule
    5. 2850.05State sales and use taxes
    6. 2850.06Other state taxes
  7. ¶ 2860Wages and Employee Benefits
    1. 2860.01The Fair Labor Standards Act
    2. 2860.02State wage statutes: Massachusetts
    3. 2860.03Planning for wage claims
    4. 2860.04New York's ten-largest-members rule
    5. 2860.05Reach of section 609(c)
    6. 2860.06ERISA fiduciary liability
    7. 2860.07Employee contributions
  8. ¶ 2870Environmental, Securities and Criminal Liability
    1. 2870.01CERCLA: owners and operators
    2. 2870.02Environmental planning
    3. 2870.03Securities: control-person liability
    4. 2870.04Application to LLCs
    5. 2870.05Criminal liability
    6. 2870.06Other regulatory regimes
  9. ¶ 2880Liability on Dissolution
    1. 2880.01The problem
    2. 2880.02Delaware: priority and provision for claims
    3. 2880.03Delaware: liability of recipients and liquidators
    4. 2880.04The uniform act: notice procedures
    5. 2880.05The uniform act: recovery from distributees
    6. 2880.06Comparing the two approaches
  10. ¶ 2890Managing the Risk
    1. 2890.01The method
    2. 2890.02Roles and authority
    3. 2890.03Compliance for trust obligations
    4. 2890.04Documentation of capacity
    5. 2890.05Allocation among members
    6. 2890.06Insurance
    7. 2890.07Dissolution protocol

Part VI: Changes in Ownership and Structure

Chapter 29Transfers of Interests: Transferees, Assignees and Admission

  1. ¶ 2901Overview
    1. 2901.01Scope of the chapter
    2. 2901.02The organizing principle
    3. 2901.03Why the subject matters
    4. 2901.04Terminology
  2. ¶ 2910The Nature of the LLC Interest
    1. 2910.01Personal property, with no interest in specific assets
    2. 2910.02Economic rights and governance rights
    3. 2910.03Ott v. Monroe
    4. 2910.04The partnership inheritance
    5. 2910.05Two reasons for the default rule
    6. 2910.06Transfers among members
    7. 2910.07Indirect transfers
  3. ¶ 2920Delaware Default Rules on Assignment
    1. 2920.01Assignability as the default
    2. 2920.02The three defaults of § 18-702(b)
    3. 2920.03Consequences of the cessation rule
    4. 2920.04Pledges do not cause cessation
    5. 2920.05Certificates
    6. 2920.06Liability of assignees
    7. 2920.07Repurchase by the company
    8. 2920.08Assignment before dissolution
    9. 2920.09Becoming a member: the three routes
    10. 2920.10Death and incapacity
  4. ¶ 2930The Uniform Acts and Other States
    1. 2930.01The 2013 uniform act: what a "transfer" is
    2. 2930.02Section 502: the rules of transfer
    3. 2930.03The transferor remains a member
    4. 2930.04Transferees who become members
    5. 2930.05The 1996 uniform act
    6. 2930.06Texas
    7. 2930.07Virginia
    8. 2930.08Comparing the defaults
    9. 2930.09A note on the last two rows
  5. ¶ 2940Transfer Restrictions and Their Enforcement
    1. 2940.01The kinds of restriction
    2. 2940.02Validity
    3. 2940.03The consequences of a breach: three possibilities
    4. 2940.04CompoSecure
    5. 2940.05Absalom
    6. 2940.06Holifield
    7. 2940.07Section 18-106(e): ratification of void acts
    8. 2940.08What the amended statute changes
    9. 2940.09The uniform act: notice
    10. 2940.10Securities under Article 8
  6. ¶ 2950Rights of a Transferee
    1. 2950.01The "bare naked assignee."
    2. 2950.02Distributions and allocations
    3. 2950.03Allocations without distributions
    4. 2950.04Information
    5. 2950.05Information on death
    6. 2950.06Litigation rights
    7. 2950.07Fiduciary duties
    8. 2950.08The transferor's continuing obligations
    9. 2950.09Transferees in winding up
  7. ¶ 2960Admission of Transferees and New Members
    1. 2960.01Two kinds of admission
    2. 2960.02The uniform act
    3. 2960.03Members without economic interests
    4. 2960.04Admission by the agreement
    5. 2960.05Admission and liability
    6. 2960.06The company that has no members
    7. 2960.07Record of admission
  8. ¶ 2970Pledges and Security Interests
    1. 2970.01Why members pledge
    2. 2970.02Article 8 or Article 9
    3. 2970.03Why lenders ask for the opt-in
    4. 2970.04Anti-assignment overrides in Article 9
    5. 2970.05Delaware's response
    6. 2970.06What the secured party acquires on enforcement
    7. 2970.07Lender protections in the operating agreement
    8. 2970.08Commercial reasonableness
  9. ¶ 2980Transfers by Operation of Law
    1. 2980.01The general rule
    2. 2980.02Death: Delaware
    3. 2980.03Death: the uniform act and Virginia
    4. 2980.04Death and divorce: Texas
    5. 2980.05Divorce: the uniform act
    6. 2980.06Bankruptcy of a member
    7. 2980.07Transfers into trust
    8. 2980.08Charging orders distinguished
  10. ¶ 2990Tax Consequences, Drafting and Checklist
    1. 2990.01The seller
    2. 2990.02The partnership: no technical termination
    3. 2990.03The buyer: §§ 743(b) and 754
    4. 2990.04Varying interests and withholding
    5. 2990.05Drafting the transfer article
    6. 2990.06Documenting a transfer
    7. 2990.07Checklist
    8. 2990.08Conclusion

Chapter 30Buy-Sell Agreements, Rights of First Refusal, Drag-Along and Tag-Along

  1. ¶ 3001Overview
    1. 3001.01Scope of the chapter
    2. 3001.02Why the agreement matters
    3. 3001.03Organization
    4. 3001.04Relation to other chapters
    5. 3001.05Terminology
  2. ¶ 3010Purposes and Statutory Setting
    1. 3010.01The purposes of a buy-sell agreement
    2. 3010.02The pick-your-partner principle
    3. 3010.03The limits of the statutory protection
    4. 3010.04No default right to be bought out
    5. 3010.05Consequences of silence
    6. 3010.06Statutory authority for purchase and restriction
    7. 3010.07The corporate analogy
    8. 3010.08Where the provisions belong
  3. ¶ 3020Triggering Events
    1. 3020.01The catalogue
    2. 3020.02Death
    3. 3020.03Disability
    4. 3020.04Divorce
    5. 3020.05Bankruptcy and insolvency
    6. 3020.06Termination of employment
    7. 3020.07Retirement and voluntary withdrawal
    8. 3020.08Deadlock
    9. 3020.09Breach and creditor process
    10. 3020.10Entity members
  4. ¶ 3030Structure of the Obligation
    1. 3030.01Redemption, cross-purchase and hybrid agreements
    2. 3030.02Choosing between them
    3. 3030.03Mandatory and optional purchases
    4. 3030.04Effect on estate tax value
    5. 3030.05The interest to be purchased
    6. 3030.06Closing mechanics
    7. 3030.07Specific performance
    8. 3030.08Forfeiture and reduced-price calls
    9. 3030.09Puts and the company's capacity to pay
  5. ¶ 3040Price and Valuation
    1. 3040.01The importance of the price term
    2. 3040.02Fixed price and periodic certificates
    3. 3040.03Formula prices
    4. 3040.04Appraisal
    5. 3040.05Fair market value and fair value
    6. 3040.06Choosing the standard
    7. 3040.07Treatment of insurance proceeds, debt and cash
    8. 3040.08Appraisal disputes and the scope of the appraiser's mandate
    9. 3040.09Negative and nominal prices
    10. 3040.10Payment terms
  6. ¶ 3050Funding the Purchase
    1. 3050.01Sources of funds
    2. 3050.02Life insurance
    3. 3050.03Connelly v. United States
    4. 3050.04The holding
    5. 3050.05The rejection of Blount
    6. 3050.06The circular-valuation problem and the drafting response
    7. 3050.07Transfer-for-value and employer-owned insurance
    8. 3050.08Distribution limits and creditors
    9. 3050.09Disability buyout insurance and sinking funds
  7. ¶ 3060Transfer-Tax Valuation: Section 2703
    1. 3060.01The question
    2. 3060.02The statute
    3. 3060.03The regulations
    4. 3060.04The non-family safe harbor
    5. 3060.05The pre-1990 requirements and Estate of True
    6. 3060.06Substantial modification and Blount
    7. 3060.07Bona fide business arrangement and Holman
    8. 3060.08Planning implications
  8. ¶ 3070Rights of First Refusal and First Offer
    1. 3070.01The two forms
    2. 3070.02Choosing between them
    3. 3070.03The triggering transfer
    4. 3070.04Exempt transfers
    5. 3070.05Matching and the terms of the offer
    6. 3070.06Conflicts between preemptive rights and later agreements
    7. 3070.07The rule against perpetuities
    8. 3070.08Restraints on alienation
    9. 3070.09Commercial Code and bankruptcy overrides
    10. 3070.10Enforcement
  9. ¶ 3080Shotgun Clauses, Drag-Along and Tag-Along Rights
    1. 3080.01The shotgun clause
    2. 3080.02Variants
    3. 3080.03The fairness problem
    4. 3080.04Guaranties and other obligations
    5. 3080.05Drag-along rights
    6. 3080.06Drag-along rights and appraisal waivers
    7. 3080.07Compliance with the drag-along procedure
    8. 3080.08Fiduciary and implied-covenant constraints
    9. 3080.09Tag-along rights
    10. 3080.10Relation among the rights
  10. ¶ 3090Tax Notes, Interplay and Drafting
    1. 3090.01Scope
    2. 3090.02Redemption and cross-purchase compared for income tax
    3. 3090.03Consequences for planning
    4. 3090.04Corporate-taxed LLCs
    5. 3090.05Interplay with transfer restrictions
    6. 3090.06Interplay with deadlock and oppression remedies
    7. 3090.07Drafting checklist
    8. 3090.08Sample clause: death purchase
    9. 3090.09Sample clause: right of first refusal
    10. 3090.10Sample clause: drag-along
    11. 3090.11Review and maintenance

Chapter 31Dissociation, Withdrawal and Expulsion

  1. ¶ 3101Overview
    1. 3101.01Scope of the chapter
    2. 3101.02Vocabulary
    3. 3101.03The two questions
    4. 3101.04Organization
    5. 3101.05Relation to other chapters
  2. ¶ 3110Origins: From Dissolution at Will to Dissociation
    1. 3110.01The partnership inheritance
    2. 3110.02The first LLC statutes
    3. 3110.03Withdrawal and the fair-value payment
    4. 3110.04The 1996 uniform act
    5. 3110.05The move away from buyouts
    6. 3110.06Delaware's 1996 amendment
    7. 3110.07The valuation litigation
    8. 3110.08The revised uniform act
    9. 3110.09Silence under the older statutes
  3. ¶ 3120The Statutory Frameworks
    1. 3120.01Three families
    2. 3120.02Delaware
    3. 3120.03Delaware's continuation rule
    4. 3120.04The revised uniform act
    5. 3120.05What the agreement may change
    6. 3120.06The non-uniform states
    7. 3120.07Choosing among the frameworks
  4. ¶ 3130Voluntary Withdrawal and Resignation
    1. 3130.01Power and right
    2. 3130.02Why the uniform act preserves the power
    3. 3130.03The Delaware position
    4. 3130.04When withdrawal takes effect
    5. 3130.05Wrongful withdrawal
    6. 3130.06Damages
    7. 3130.07Withdrawal and pending claims
    8. 3130.08Withdrawal of managers
  5. ¶ 3140Expulsion by Agreement and by the Members
    1. 3140.01No inherent power to expel
    2. 3140.02Expulsion under the agreement
    3. 3140.03Expulsion without cause
    4. 3140.04The good-faith limit
    5. 3140.05What the implied covenant reaches
    6. 3140.06Forfeiture
    7. 3140.07Expulsion by the members under the uniform act
    8. 3140.08Delaware compared
  6. ¶ 3150Judicial Expulsion
    1. 3150.01The statutory grounds
    2. 3150.02Standing
    3. 3150.03Varying the remedy
    4. 3150.04Wrongful conduct and breach: Millsap
    5. 3150.05Other examples
    6. 3150.06The "not reasonably practicable" ground: IE Test
    7. 3150.07The IE Test factors
    8. 3150.08Delaware
  7. ¶ 3160Death, Incapacity, Bankruptcy and Entity Termination
    1. 3160.01Death of an individual member
    2. 3160.02Death under the Delaware act
    3. 3160.03Death in other states
    4. 3160.04Incapacity
    5. 3160.05Bankruptcy events: the statutes
    6. 3160.06The Bankruptcy Code
    7. 3160.07Executory or not
    8. 3160.08Delaware: Milford Power
    9. 3160.09Drafting in light of the cases
    10. 3160.10Trusts, estates and entity members
  8. ¶ 3170Consequences of Dissociation
    1. 3170.01The uniform-act rules
    2. 3170.02Loss of governance rights
    3. 3170.03Lingering apparent authority under the older acts
    4. 3170.04The economic interest
    5. 3170.05Distribution limits on buyouts
    6. 3170.06Fiduciary duties after dissociation
    7. 3170.07Contractual obligations that survive
    8. 3170.08Amendments after dissociation
    9. 3170.09Effect on the LLC
    10. 3170.10Tax consequences
  9. ¶ 3180The Last Member
    1. 3180.01The problem
    2. 3180.02Delaware
    3. 3180.03The uniform act
    4. 3180.04Voluntary transfer by a sole member
    5. 3180.05Springing members and special-purpose entities
    6. 3180.06Estate-planning provisions
    7. 3180.07Foreclosure on a sole member's interest
  10. ¶ 3190Planning and Drafting
    1. 3190.01Start with the statute
    2. 3190.02Withdrawal
    3. 3190.03Expulsion
    4. 3190.04Judicial expulsion
    5. 3190.05Death, incapacity and bankruptcy
    6. 3190.06Economic consequences
    7. 3190.07Duties after departure
    8. 3190.08Managers
    9. 3190.09Notice and records

Chapter 32Deadlock, Oppression and Minority Protection

  1. ¶ 3201Overview
    1. 3201.01Scope of the chapter
    2. 3201.02The legislative choice
    3. 3201.03Organization
    4. 3201.04Relation to other chapters
  2. ¶ 3210The Minority Problem in the Closely Held LLC
    1. 3210.01Lock-in
    2. 3210.02No statutory right to withdraw in Delaware
    3. 3210.03Dissociation without payout under the uniform act
    4. 3210.04The tools of exclusion
    5. 3210.05Why the LLC differs from the close corporation
    6. 3210.06The majority's perspective
  3. ¶ 3220Deadlock: Forms and Causes
    1. 3220.01Meaning of deadlock
    2. 3220.02Equal ownership and equal representation
    3. 3220.03Supermajority and unanimity requirements
    4. 3220.04Deadlock of purpose
    5. 3220.05Deadlock in name only
    6. 3220.06Why deadlock persists
  4. ¶ 3230Judicial Dissolution in Delaware Under Section 18-802
    1. 3230.01The statute
    2. 3230.02Standing
    3. 3230.03A discretionary remedy granted sparingly
    4. 3230.04The analogy to section 273
    5. 3230.05The exit mechanism and the personal guaranty
    6. 3230.06The three circumstances
    7. 3230.07A put right held by the petitioner
    8. 3230.08Purpose and the purpose clause
    9. 3230.09Fiduciary claims and dissolution
    10. 3230.10A deadlock procedure that fails
    11. 3230.11Equitable dissolution
    12. 3230.12Waiver of judicial dissolution
    13. 3230.13Remedies after a decree
    14. 3230.14Exclusive jurisdiction and forum clauses
    15. 3230.15The forum as a planning variable
  5. ¶ 3240The Uniform Act: Section 701(a)(4), Oppression and Alternative Remedies
    1. 3240.01The text
    2. 3240.02Mandatory grounds
    3. 3240.03The not-reasonably-practicable ground
    4. 3240.04Expulsion as an alternative
    5. 3240.05The oppression ground
    6. 3240.06Reasonable expectations measured against the agreement
    7. 3240.07The comment's illustration
    8. 3240.08Alternative remedies
    9. 3240.09State variations
  6. ¶ 3250Oppression Doctrine and Its Migration to LLCs
    1. 3250.01The close corporation origins
    2. 3250.02The legitimate business purpose test
    3. 3250.03Reasonable expectations under the dissolution statutes
    4. 3250.04The uniform act's reception
    5. 3250.05New York: no importation
    6. 3250.06Texas: a narrow definition
    7. 3250.07California and North Carolina: statutory buyouts
    8. 3250.08States with the not-reasonably-practicable standard alone
  7. ¶ 3260Fiduciary, Contract and Implied-Covenant Routes
    1. 3260.01Claims short of dissolution
    2. 3260.02Breach of the operating agreement
    3. 3260.03Fiduciary duties
    4. 3260.04The implied covenant
    5. 3260.05Information as a predicate
    6. 3260.06Arbitration clauses
    7. 3260.07Choosing among remedies
  8. ¶ 3270Contractual Deadlock Breakers
    1. 3270.01The case for private ordering
    2. 3270.02Escalation and negotiation
    3. 3270.03Mediation and arbitration
    4. 3270.04Tie-breaking directors and independent managers
    5. 3270.05Default rules for specific deadlocks
    6. 3270.06Shotgun and divide-and-choose provisions
    7. 3270.07Guaranties, credit support and the closing
    8. 3270.08Puts, calls and forced sales
    9. 3270.09Contractual dissolution
    10. 3270.10Valuation
  9. ¶ 3280Planning for Minority and Majority Members
    1. 3280.01The negotiation
    2. 3280.02Protections for the minority member
    3. 3280.03Protections for the majority member
    4. 3280.04Choice of formation state
  10. ¶ 3290Drafting Checklist
    1. 3290.01Use of the checklist
    2. 3290.02Governing statute and forum
    3. 3290.03Governance and deadlock
    4. 3290.04Making the exit work
    5. 3290.05Minority protections
    6. 3290.06Majority protections

Chapter 33Dissolution, Winding Up and Termination

  1. ¶ 3301Overview
    1. 3301.01Scope of the chapter
    2. 3301.02Three stages
    3. 3301.03Why the stages matter
    4. 3301.04Vocabulary across the statutes
    5. 3301.05The default rules and the agreement
    6. 3301.06Organization
  2. ¶ 3310Events of Dissolution
    1. 3310.01From fragile entity to perpetual existence
    2. 3310.02The Delaware list
    3. 3310.03The members' vote and the 2015 change
    4. 3310.04Other statutes on the members' vote
    5. 3310.05Events specified in the agreement
    6. 3310.06No members: the 90-day window
    7. 3310.07The no-member rule elsewhere
    8. 3310.08Judicial and administrative events
    9. 3310.09Dissolution of a series
  3. ¶ 3320Judicial and Administrative Dissolution, Forfeiture and Reinstatement
    1. 3320.01Judicial dissolution in outline
    2. 3320.02Which court may dissolve
    3. 3320.03Delaware: no administrative dissolution
    4. 3320.04Delaware revival
    5. 3320.05What revival does not reach
    6. 3320.06The uniform act: administrative dissolution
    7. 3320.07The uniform act: reinstatement
    8. 3320.08Florida
    9. 3320.09Wyoming
    10. 3320.10Nevada
    11. 3320.11Texas: forfeiture under the Tax Code
    12. 3320.12Acts during the gap
  4. ¶ 3330Revocation of Dissolution and Continuation
    1. 3330.01The problem
    2. 3330.02Delaware § 18-806
    3. 3330.03Limits on Delaware revocation
    4. 3330.04The uniform act § 703
    5. 3330.05Retroactive amendment
    6. 3330.06The single-member case
  5. ¶ 3340Winding Up: Who Winds Up, With What Powers and Under What Duties
    1. 3340.01The work of winding up
    2. 3340.02Who winds up in Delaware
    3. 3340.03Who winds up elsewhere
    4. 3340.04Authority to bind the company after dissolution
    5. 3340.05How long winding up may take
    6. 3340.06Duties of the persons winding up
    7. 3340.07Court-supervised winding up in Delaware
    8. 3340.08Court supervision under the uniform act and elsewhere
  6. ¶ 3350Claims Against a Dissolving Delaware LLC: Section 18-804
    1. 3350.01The design of the statute
    2. 3350.02Known claims
    3. 3350.03Pending actions
    4. 3350.04Claims not yet made or not yet arisen
    5. 3350.05No court-approved procedure
    6. 3350.06Flexibility and its limits
    7. 3350.07"To the extent of assets."
    8. 3350.08What counts as an asset
    9. 3350.09The lesson of Reinz for planners
    10. 3350.10Timing: the duty arises on dissolution
    11. 3350.11Members and managers as creditors
  7. ¶ 3360Notice-and-Bar Procedures Under the Uniform Act and Other States
    1. 3360.01The corporate model
    2. 3360.02Known claims under the uniform act
    3. 3360.03Other claims: publication
    4. 3360.04Enforcement of unbarred claims
    5. 3360.05Court proceedings for security
    6. 3360.06Florida's procedure
    7. 3360.07Texas: a three-year survival period
    8. 3360.08California: four years against members
    9. 3360.09Nevada: two and three years
  8. ¶ 3370Distribution of Remaining Assets, Liability of Distributees and Tax Notes
    1. 3370.01The Delaware order of distribution
    2. 3370.02The uniform act and Wyoming
    3. 3370.03Older orders of priority
    4. 3370.04Distributions in kind
    5. 3370.05Charging orders in liquidation
    6. 3370.06Liability of distributees in Delaware
    7. 3370.07Tax: when the partnership ends
    8. 3370.08Tax: liquidating distributions to members
    9. 3370.09The liquidating trust
  9. ¶ 3380Cancellation, Termination, Nullification and Receivers
    1. 3380.01The certificate of cancellation
    2. 3380.02The effect of cancellation
    3. 3380.03Correction of an erroneous filing
    4. 3380.04Judicial nullification
    5. 3380.05Receivers and trustees under § 18-805
    6. 3380.06The good cause standard
    7. 3380.07Two decisions compared
    8. 3380.08Timeliness
    9. 3380.09Interested non-parties
    10. 3380.10The forum in practice
    11. 3380.11Termination elsewhere
    12. 3380.12State-law wind-down or bankruptcy
  10. ¶ 3390Planning, State Comparison and Wind-Up Checklist
    1. 3390.01Drafting the dissolution provisions
    2. 3390.02Succession for single-member LLCs
    3. 3390.03The winding-up provisions
    4. 3390.04Choosing the state for an orderly exit
    5. 3390.05Wind-up checklist
    6. 3390.06Concluding observation

Chapter 34Mergers, Conversions, Domestications and Divisions

  1. ¶ 3401Overview
    1. 3401.01Scope of the chapter
    2. 3401.02Why the form matters
    3. 3401.03Organization
    4. 3401.04Relation to other chapters
  2. ¶ 3410The Statutory Framework
    1. 3410.01Organic transactions as statutory privileges
    2. 3410.02The Delaware provisions
    3. 3410.03Article 10 of the uniform act
    4. 3410.04Two premises of the uniform act
    5. 3410.05Florida and Texas
    6. 3410.06Nonexclusivity
    7. 3410.07The role of the operating agreement
  3. ¶ 3420Mergers, Consolidations and Interest Exchanges
    1. 3420.01Merger and consolidation distinguished
    2. 3420.02Direct and triangular forms
    3. 3420.03Consideration
    4. 3420.04The agreement of merger and the certificate
    5. 3420.05Effectiveness and cancellation
    6. 3420.06The plan under the uniform act
    7. 3420.07Short-form merger of a corporate subsidiary
    8. 3420.08Interest exchanges
    9. 3420.09Mergers of series
  4. ¶ 3430Approval, Agreement Overrides and Appraisal Rights
    1. 3430.01The Delaware default
    2. 3430.02Agreement overrides
    3. 3430.03The merger as an amendment
    4. 3430.04The uniform act's default
    5. 3430.05Florida and Texas
    6. 3430.06No statutory appraisal in Delaware
    7. 3430.07The uniform act
    8. 3430.08Florida's statutory appraisal
    9. 3430.09Waivers of contractual appraisal
  5. ¶ 3440Fiduciary and Contractual Review of LLC Mergers
    1. 3440.01Two questions
    2. 3440.02Default duties and entire fairness
    3. 3440.03Contractual standards and the conclusive presumption
    4. 3440.04Safe harbors and the implied covenant
    5. 3440.05Bad faith under a contractual standard
    6. 3440.06The conclusive presumption enforced
    7. 3440.07Safe harbors as permission
    8. 3440.08Corporate developments
    9. 3440.09Remedies
  6. ¶ 3450Conversions, Domestications and Transfers Out
    1. 3450.01Conversion defined
    2. 3450.02Conversion into a Delaware LLC
    3. 3450.03Conversion out of a Delaware LLC
    4. 3450.04Choice of law for prior matters
    5. 3450.05Domestication of non-U.S. entities
    6. 3450.06Transfer or continuance out of Delaware
    7. 3450.07Foreign continuance statutes
    8. 3450.08Conversions out of Delaware in practice
    9. 3450.09Review of a conversion out of Delaware
    10. 3450.10Conversion and the operating agreement
  7. ¶ 3460Effects on Property, Liabilities and Contracts
    1. 3460.01Vesting by operation of law
    2. 3460.02Liabilities follow the assets
    3. 3460.03Pending litigation
    4. 3460.04No dissolution
    5. 3460.05Members' personal liability
    6. 3460.06Contracts and anti-assignment clauses
    7. 3460.07Reverse triangular mergers
    8. 3460.08Divisions and the non-assignment rule
    9. 3460.09Federal licenses and intellectual property
    10. 3460.10Permits, registrations and tax accounts
  8. ¶ 3470Divisions
    1. 3470.01The transaction
    2. 3470.02Delaware § 18-217: authorization and approval
    3. 3470.03The plan and the certificate
    4. 3470.04Effects
    5. 3470.05Creditor protection in Delaware
    6. 3470.06Texas
    7. 3470.07Pennsylvania
    8. 3470.08Arizona
    9. 3470.09The divisional merger and bankruptcy
    10. 3470.10The Third Circuit's holding
    11. 3470.11Legitimate uses
  9. ¶ 3480Federal Income Tax Overview
    1. 3480.01State form and tax characterization
    2. 3480.02Partnership mergers
    3. 3480.03Partnership divisions
    4. 3480.04Repeal of the technical termination
    5. 3480.05Conversion of a partnership into an LLC
    6. 3480.06Conversion of an LLC taxed as a partnership into a corporation
    7. 3480.07Changes in the number of members
    8. 3480.08Reorganizations of corporations through LLCs
    9. 3480.09State taxes and transfer taxes
  10. ¶ 3490Choosing the Form and Drafting Checklist
    1. 3490.01Choosing among the forms
    2. 3490.02Provisions of the operating agreement
    3. 3490.03Transaction checklist

Part VII: Litigation

Chapter 35Direct and Derivative Claims

  1. ¶ 3501Overview
    1. 3501.01Scope of the chapter
    2. 3501.02Why the question matters more in an LLC
    3. 3501.03Organization
    4. 3501.04Relation to other chapters
    5. 3501.05Sources
  2. ¶ 3510The Distinction and Its Function
    1. 3510.01Two kinds of injury
    2. 3510.02Functions of the distinction
    3. 3510.03Consequences of the characterization
    4. 3510.04The member's strategic preference
  3. ¶ 3520Tooley, Brookfield and Their Application to LLCs
    1. 3520.01The tests before Tooley
    2. 3520.02The Tooley questions
    3. 3520.03The Gentile exception
    4. 3520.04Brookfield overrules Gentile
    5. 3520.05Tooley applies to LLCs
    6. 3520.06Claims that are usually direct
    7. 3520.07Claims that are usually derivative
  4. ¶ 3530Claims Under the Operating Agreement
    1. 3530.01The problem
    2. 3530.02NAF Holdings
    3. 3530.03Brinckerhoff limits NAF
    4. 3530.04The resulting rule in Delaware
    5. 3530.05The uniform act
    6. 3530.06Florida's separate-duty alternative
    7. 3530.07Can the agreement decide?
  5. ¶ 3540Statutory Standing: Members, Assignees, Transferees and Creditors
    1. 3540.01Derivative standing is statutory
    2. 3540.02Delaware: members and assignees
    3. 3540.03The uniform act and the states that follow it: members only
    4. 3540.04Texas and California
    5. 3540.05Creditors: CML V v. Bax
    6. 3540.06Consequences of CML V for lenders
    7. 3540.07Charging order holders
    8. 3540.08Continuous ownership
  6. ¶ 3550Demand, Futility and Special Litigation Committees
    1. 3550.01The demand requirement
    2. 3550.02The Zuckerberg test
    3. 3550.03Applying the test to LLCs
    4. 3550.04Universal demand
    5. 3550.05California's pleading and security rules
    6. 3550.06Texas's closely held LLC exception
    7. 3550.07Special litigation committees
    8. 3550.08The standard of review
    9. 3550.09Contractual variation of the committee procedure
  7. ¶ 3560Mergers, Double Derivative Claims and Loss of Standing
    1. 3560.01The continuous ownership rule and mergers
    2. 3560.02Brinckerhoff: the rule applies to alternative entities
    3. 3560.03Challenging the merger directly
    4. 3560.04Conversions and domestications
    5. 3560.05Double derivative claims
    6. 3560.06Double derivative claims in LLC structures
    7. 3560.07Planning around loss of standing
  8. ¶ 3570Recovery, Settlement and Fees
    1. 3570.01The recovery belongs to the company
    2. 3570.02The problem of the controlled company
    3. 3570.03Statutory flexibility in Texas
    4. 3570.04Court approval of settlement and dismissal
    5. 3570.05The plaintiff's fees
    6. 3570.06The defendants' fees
    7. 3570.07Fee-shifting provisions
    8. 3570.08Exculpation and the value of derivative claims
  9. ¶ 3580Contractual Ordering of Member Litigation; the Forum
    1. 3580.01The scope for private ordering
    2. 3580.02What the uniform act permits
    3. 3580.03Delaware's forum limit
    4. 3580.04Limits on derivative suits in Delaware agreements
    5. 3580.05Arbitration of derivative claims
    6. 3580.06Ownership thresholds and other procedural limits
    7. 3580.07The forum
  10. ¶ 3590State Survey and Pleading Checklist
    1. 3590.01Survey of the principal statutes
    2. 3590.02Before filing
    3. 3590.03Pleading direct claims
    4. 3590.04Pleading derivative claims
    5. 3590.05For the defense

Chapter 36Books-and-Records Actions

  1. ¶ 3601Overview
    1. 3601.01Scope of the chapter
    2. 3601.02The litigation setting
    3. 3601.03The corporate analogy
    4. 3601.04Organization
    5. 3601.05Relation to other chapters
  2. ¶ 3610The Inspection Action in LLC Litigation
    1. 3610.01A statutory and contractual right
    2. 3610.02Three functions
    3. 3610.03A summary proceeding
    4. 3610.04Burden
    5. 3610.05The manager's right
    6. 3610.06Why resistance is costly
  3. ¶ 3620Standing and the Demand
    1. 3620.01Members
    2. 3620.02Assignees and transferees
    3. 3620.03Personal representatives
    4. 3620.04Records predating membership
    5. 3620.05Former members
    6. 3620.06The demand: form
    7. 3620.07The demand: content
    8. 3620.08Supplementing the demand
    9. 3620.09The response period
    10. 3620.10Where to send the demand
  4. ¶ 3630Proper Purpose
    1. 3630.01The statutory test
    2. 3630.02Primary and secondary purposes
    3. 3630.03Valuation
    4. 3630.04Investigating mismanagement and wrongdoing
    5. 3630.05What the credible basis requires
    6. 3630.06No need to prove actionability
    7. 3630.07Other proper purposes
    8. 3630.08Improper purposes
  5. ¶ 3640Scope: The Necessary and Essential Limit
    1. 3640.01The statutory rule
    2. 3640.02The corporate formulation
    3. 3640.03Category by category
    4. 3640.04Murfey and the 2021 amendment
    5. 3640.05Contracting around the limit
    6. 3640.06Electronic and informal records
    7. 3640.07Limits on informal records
    8. 3640.08Creating documents
    9. 3640.09Records of others
    10. 3640.10Tax returns and other members' information
  6. ¶ 3650Contractual Expansion, Restriction and Confidentiality
    1. 3650.01The power to contract
    2. 3650.02Reasonable standards
    3. 3650.03How far restriction may go
    4. 3650.04Restrictions and the implied covenant
    5. 3650.05The manager's confidentiality right
    6. 3650.06Independent contractual rights
    7. 3650.07Forum and arbitration clauses
    8. 3650.08Contractual fee provisions
  7. ¶ 3660Procedure in the Court of Chancery
    1. 3660.01The complaint
    2. 3660.02A summary trial
    3. 3660.03Defenses
    4. 3660.04Conditions on production
    5. 3660.05Confidentiality
    6. 3660.06Use restrictions
    7. 3660.07Incorporation by reference
    8. 3660.08Fees
    9. 3660.09Section 220 after 2025
    10. 3660.10The LLC Act was not amended
  8. ¶ 3670Other States: The Uniform Act and a State Survey
    1. 3670.01Two models
    2. 3670.02The uniform act: member-managed companies
    3. 3670.03The uniform act: manager-managed companies
    4. 3670.04Dissociated members, transferees and agents
    5. 3670.05Restrictions under the uniform act
    6. 3670.06Wyoming
    7. 3670.07Florida
    8. 3670.08New York
    9. 3670.09California
    10. 3670.10Texas
    11. 3670.11Nevada
  9. ¶ 3680Using the Fruits of Inspection
    1. 3680.01The tools at hand
    2. 3680.02Pleading with inspection documents
    3. 3680.03Use outside Delaware
    4. 3680.04Use in dissolution and buyout disputes
    5. 3680.05Valuation and the sale of the interest
    6. 3680.06Transferees
    7. 3680.07Creditors
    8. 3680.08Members who are also litigants
  10. ¶ 3690Practice Guide
    1. 3690.01Before the demand
    2. 3690.02Elements of the demand
    3. 3690.03The company's response
    4. 3690.04Litigation checklist
    5. 3690.05Drafting the information provisions
    6. 3690.06Choosing a form of provision
    7. 3690.07Relation to later chapters

Chapter 37Jurisdiction, Forum Selection and Arbitration

  1. ¶ 3701Overview
    1. 3701.01Scope of the chapter
    2. 3701.02Relation to other chapters
    3. 3701.03Why the questions matter
    4. 3701.04The Delaware framework in summary
    5. 3701.05Terminology
  2. ¶ 3710Subject-Matter Jurisdiction in Delaware
    1. 3710.01The Court of Chancery
    2. 3710.02Who is a "manager" for this purpose
    3. 3710.03The specific grants
    4. 3710.04Grants that are permissive
    5. 3710.05Equitable jurisdiction outside the statutory grants
    6. 3710.06The Court of Chancery and juries
    7. 3710.07Foreign LLCs in Delaware courts
  3. ¶ 3720Federal Jurisdiction: Citizenship, Pleading and Removal
    1. 3720.01Federal courts and LLC disputes
    2. 3720.02The rule of Carden
    3. 3720.03Application to LLCs
    4. 3720.04Tracing through tiers
    5. 3720.05Pleading citizenship
    6. 3720.06Class actions
    7. 3720.07Removal and the forum-defendant rule
    8. 3720.08Federal jurisdiction over arbitration proceedings
  4. ¶ 3730Personal Jurisdiction over Managers: Section 18-109
    1. 3730.01Two requirements
    2. 3730.02The text of section 18-109(a)
    3. 3730.03Two clauses
    4. 3730.04Formal managers and acting managers
    5. 3730.05Material participation
    6. 3730.06No formal role required
    7. 3730.07Due process
    8. 3730.08The limits of the statute
    9. 3730.09Mechanics of service
    10. 3730.10Former managers and liquidating trustees
  5. ¶ 3740Jurisdiction over Members, the LLC and Foreign LLCs
    1. 3740.01Members who are not managers
    2. 3740.02Consent in the agreement
    3. 3740.03The long-arm statute
    4. 3740.04The LLC itself
    5. 3740.05Foreign LLCs registered in Delaware
    6. 3740.06Consent by registration after Mallory
    7. 3740.07Unregistered foreign LLCs
    8. 3740.08Service outside the state and abroad
  6. ¶ 3750Forum Selection Clauses in LLC Agreements
    1. 3750.01Elf Atochem
    2. 3750.02The holdings
    3. 3750.03The legislative response
    4. 3750.04The scope of the protection
    5. 3750.05Capacity: Li v. loanDepot
    6. 3750.06Timing: Stanco v. Rallye Motors
    7. 3750.07Dissolution and foreign forum clauses
    8. 3750.08Comparison with the corporate statute and with Texas
    9. 3750.09Non-signatories
    10. 3750.10Enforcement in federal court
  7. ¶ 3760Choice of Law
    1. 3760.01Two sources of governing law
    2. 3760.02Formation-state law in other states' courts
    3. 3760.03Section 2708
    4. 3760.04Delaware law in a foreign forum
    5. 3760.05The scope of the clause
    6. 3760.06Choosing a different law for the internal affairs
    7. 3760.07Arbitration and choice of law
  8. ¶ 3770Arbitration of LLC Disputes
    1. 3770.01Delaware's policy
    2. 3770.02Which arbitration statute applies
    3. 3770.03Who decides arbitrability: Willie Gary
    4. 3770.04Carve-outs after Willie Gary
    5. 3770.05Henry Schein
    6. 3770.06Arbitration of dissolution claims
    7. 3770.07Arbitration of books-and-records claims
    8. 3770.08Derivative claims and claims by the LLC
    9. 3770.09Stays, appeals and review
    10. 3770.10International arbitration
  9. ¶ 3780The Court of Chancery as a Chosen Forum
    1. 3780.01The question for the drafter
    2. 3780.02The decisions in summary
    3. 3780.03What the decisions show
    4. 3780.04The alternatives
    5. 3780.05Limits on moving disputes out of Delaware
  10. ¶ 3790Drafting the Dispute-Resolution Article
    1. 3790.01The decisions to be made
    2. 3790.02Scope
    3. 3790.03A Delaware court clause
    4. 3790.04A foreign court clause
    5. 3790.05An arbitration clause
    6. 3790.06Jury waiver and other terms
    7. 3790.07Who is bound
    8. 3790.08Checklist

Chapter 38Remedies: Injunctions, Receivers, Rescission and Damages

  1. ¶ 3801Overview
    1. 3801.01Scope of the chapter
    2. 3801.02Relation to other chapters
    3. 3801.03The contractual setting
    4. 3801.04The equitable setting
    5. 3801.05Timing
    6. 3801.06The forum
  2. ¶ 3810Preliminary Relief: Restraining Orders, Injunctions and Status Quo Orders
    1. 3810.01Why interim relief matters in LLC disputes
    2. 3810.02The preliminary injunction standard
    3. 3810.03Temporary restraining orders
    4. 3810.04Irreparable harm in LLC disputes
    5. 3810.05Stipulated irreparable harm
    6. 3810.06Drafting the stipulation
    7. 3810.07Status quo orders
    8. 3810.08The limits of a status quo order in a summary proceeding
    9. 3810.09Security
    10. 3810.10Mandatory interim relief
  3. ¶ 3820Summary Proceedings: Sections 18-110 and 18-111
    1. 3820.01The statute
    2. 3820.02Who is a manager
    3. 3820.03Parties and service
    4. 3820.04The in rem character of the proceeding
    5. 3820.05Notice: the HREF decision
    6. 3820.06Scope: what the proceeding decides
    7. 3820.07Combining summary and plenary claims
    8. 3820.08Member status
    9. 3820.09Contractual displacement
    10. 3820.10Other states
  4. ¶ 3830Specific Performance and Mandatory Relief
    1. 3830.01The remedy
    2. 3830.02The elements
    3. 3830.03A valid and definite contract
    4. 3830.04Ready, willing and able
    5. 3830.05The balance of equities
    6. 3830.06Specific performance clauses
    7. 3830.07Buy-sell, drag-along and tag-along rights
    8. 3830.08Consent rights
    9. 3830.09Admission and transfer
    10. 3830.10Information rights
  5. ¶ 3840Receivers, Custodians and Liquidating Trustees
    1. 3840.01The remedies distinguished
    2. 3840.02The Delaware statute
    3. 3840.03Liquidating trustees after judicial dissolution
    4. 3840.04Receivers after cancellation
    5. 3840.05The uniform act
    6. 3840.06Florida
    7. 3840.07Other states
    8. 3840.08Receivers over real estate
    9. 3840.09Receivers and the charging order
  6. ¶ 3850Rescission and Rescissory Damages
    1. 3850.01The remedy
    2. 3850.02Restoring the status quo
    3. 3850.03Rescission of an investment
    4. 3850.04Contractual limits on rescission
    5. 3850.05Rescission of company transactions
    6. 3850.06Rescissory damages
    7. 3850.07Rescissory damages in the LLC setting
    8. 3850.08Election of remedies
  7. ¶ 3860Damages
    1. 3860.01Two measures
    2. 3860.02Expectation damages for breach of the agreement
    3. 3860.03Reasonable certainty
    4. 3860.04Lost profits
    5. 3860.05Fiduciary damages
    6. 3860.06Disgorgement
    7. 3860.07Contractual limits on damages
    8. 3860.08Damages to the company and to the member
    9. 3860.09Prejudgment interest
  8. ¶ 3870Attorneys' Fees and Costs
    1. 3870.01The American Rule
    2. 3870.02Contractual fee-shifting
    3. 3870.03The LLC and corporate rules contrasted
    4. 3870.04Drafting points
    5. 3870.05The jurisdictional trap in summary proceedings
    6. 3870.06The bad-faith exception
    7. 3870.07Bad conduct underlying the claim
    8. 3870.08Corporate benefit and control disputes
    9. 3870.09Indemnification and advancement
  9. ¶ 3880Constructive Trusts, Equitable Liens, Accountings, Reformation and Declaratory Relief
    1. 3880.01Equitable remedies generally
    2. 3880.02Constructive trust
    3. 3880.03Equitable lien
    4. 3880.04Accounting
    5. 3880.05Reformation
    6. 3880.06Declaratory judgment
    7. 3880.07Declaratory relief in LLC disputes
  10. ¶ 3890Enforcement, Transferees and Remedies Planning
    1. 3890.01Contempt
    2. 3890.02Enforcing a money judgment against a member
    3. 3890.03Remedies against transferees
    4. 3890.04Remedies against non-parties
    5. 3890.05Remedies matched to claims
    6. 3890.06Litigation checklist

Part VIII: Taxation

Chapter 39Entity Classification and the Check-the-Box Regulations

  1. ¶ 3901Overview
    1. 3901.01Scope of the chapter
    2. 3901.02Why classification comes first
    3. 3901.03Organization
    4. 3901.04Relation to other chapters
    5. 3901.05Sources
  2. ¶ 3910From Morrissey to Check-the-Box
    1. 3910.01The statutory definitions
    2. 3910.02Morrissey
    3. 3910.03Kintner and the 1960 regulations
    4. 3910.04Larson
    5. 3910.05The LLC rulings
    6. 3910.06Notice 95-14 and the 1996 regulations
    7. 3910.07Validity of the elective regime
    8. 3910.08After Loper Bright
  3. ¶ 3920The Threshold Question: Is There a Separate Entity?
    1. 3920.01Federal law decides
    2. 3920.02Joint undertakings
    3. 3920.03Tenancy-in-common arrangements
    4. 3920.04Spouses
    5. 3920.05Entities not recognized
    6. 3920.06Bona fide owners
  4. ¶ 3930Trusts and Business Entities
    1. 3930.01The two categories
    2. 3930.02Ordinary trusts
    3. 3930.03Business trusts
    4. 3930.04Investment trusts
    5. 3930.05The Delaware statutory trust ruling
    6. 3930.06Why an LLC cannot be used the same way
    7. 3930.07Liquidating and other special trusts
    8. 3930.08Trusts that own LLC interests
  5. ¶ 3940Per Se Corporations
    1. 3940.01Corporations by definition
    2. 3940.02Categories that reach LLCs
    3. 3940.03The foreign per se list
    4. 3940.04Amendments to the list
    5. 3940.05The grandfather rule
    6. 3940.06Entities with multiple charters
    7. 3940.07Publicly traded LLCs
  6. ¶ 3950Eligible Entities and Default Classification
    1. 3950.01The elective framework
    2. 3950.02Domestic defaults
    3. 3950.03Foreign defaults
    4. 3950.04Why the foreign default differs
    5. 3950.05When classification is relevant
    6. 3950.06Entities in existence before 1997
    7. 3950.07Uncertainty about the number of owners
  7. ¶ 3960Making and Changing Elections
    1. 3960.01Form 8832
    2. 3960.02Attaching the election to returns
    3. 3960.03Who signs
    4. 3960.04Effective date
    5. 3960.05The sixty-month limitation
    6. 3960.06Deemed elections
    7. 3960.07A partnership becoming an S corporation
    8. 3960.08Relief for late elections
    9. 3960.09Consent to the dual consolidated loss rules
  8. ¶ 3970Consequences of a Change in Classification
    1. 3970.01A change is a transaction
    2. 3970.02The four deemed transactions
    3. 3970.03Timing
    4. 3970.04Tiered entities and section 338
    5. 3970.05Formless conversions
    6. 3970.06Changes in the number of members
    7. 3970.07From one member to two
    8. 3970.08From two members to one
    9. 3970.09The sixty-month rule is unaffected
  9. ¶ 3980The Disregarded Entity: Scope and Limits
    1. 3980.01What disregard means
    2. 3980.02Federal tax liabilities and refunds
    3. 3980.03Employment taxes
    4. 3980.04Excise taxes
    5. 3980.05Foreign-owned single-member LLCs
    6. 3980.06Disregarded payments and dual consolidated losses
    7. 3980.07Banks
    8. 3980.08Purposes outside the regulations
  10. ¶ 3990Special Settings, Planning and Checklist
    1. 3990.01Series LLCs
    2. 3990.02Non-U.S. LLCs
    3. 3990.03Reporting for foreign disregarded entities and partnerships
    4. 3990.04Hybrid entities
    5. 3990.05Disregarded entities inside controlled foreign corporations
    6. 3990.06DAO LLCs
    7. 3990.07State classification
    8. 3990.08Choosing a classification
    9. 3990.09Election checklist

Chapter 40Partnership Taxation I: Formation, Basis and Allocations

  1. ¶ 4001Overview
    1. 4001.01Scope of the chapter
    2. 4001.02Why the subject belongs in an LLC treatise
    3. 4001.03Relation to other chapters
    4. 4001.04Organization
    5. 4001.05A note on sources and terms
  2. ¶ 4010The LLC under Subchapter K
    1. 4010.01The basic rule of pass-through taxation
    2. 4010.02Aggregate and entity
    3. 4010.03The flexibility of subchapter K
    4. 4010.04Why LLCs fit subchapter K
    5. 4010.05State law and federal tax
  3. ¶ 4020Contributions: Section 721 and Its Exceptions
    1. 4020.01The general rule
    2. 4020.02The policy of deferral
    3. 4020.03What is property
    4. 4020.04The investment company exception
    5. 4020.05Transfers to partnerships with foreign partners
    6. 4020.06Character of gain on contributed property: section 724
    7. 4020.07Built-in loss property: section 704(c)(1)(C)
    8. 4020.08Contributions of services
    9. 4020.09Contribution or something else
  4. ¶ 4030Outside and Inside Basis: Sections 722, 723 and 705
    1. 4030.01Two bases
    2. 4030.02Outside basis on contribution: section 722
    3. 4030.03Inside basis on contribution: section 723
    4. 4030.04Outside basis after formation: section 705
    5. 4030.05The alternative rule
    6. 4030.06Basis and capital accounts distinguished
    7. 4030.07Tax capital
    8. 4030.08When basis must be computed
  5. ¶ 4040Disguised Sales and Disguised Payments: Section 707(a)(2)
    1. 4040.01The problem
    2. 4040.02The general test
    3. 4040.03The two-year presumptions
    4. 4040.04Exceptions for ordinary distributions
    5. 4040.05Liabilities
    6. 4040.06The 2016 and 2019 regulations
    7. 4040.07Debt-financed distributions
    8. 4040.08Disguised payments for services and property: section 707(a)(2)(A)
    9. 4040.09Planning
  6. ¶ 4050LLC Liabilities under Section 752
    1. 4050.01The statutory scheme
    2. 4050.02What is a liability
    3. 4050.03Recourse and nonrecourse
    4. 4050.04Economic risk of loss: the constructive liquidation
    5. 4050.05Guarantees and member loans
    6. 4050.06Bottom dollar payment obligations
    7. 4050.07Disregarded entities and the net worth problem
    8. 4050.08Nonrecourse liabilities: the three tiers
    9. 4050.09The tiers in practice
  7. ¶ 4060Loss Limitations: Sections 704(d), 465, 469 and 461(l)
    1. 4060.01Four limitations in sequence
    2. 4060.02The basis limitation: section 704(d)
    3. 4060.03The at-risk limitation: section 465
    4. 4060.04The at-risk limitation outside real estate
    5. 4060.05The passive activity limitation: section 469
    6. 4060.06LLC members and the limited partner rule
    7. 4060.07The 2011 proposed regulations
    8. 4060.08Rental activities and real estate professionals
    9. 4060.09The excess business loss limitation: section 461(l)
  8. ¶ 4070Allocations under Section 704(b)
    1. 4070.01The statutory rule
    2. 4070.02The fundamental principle
    3. 4070.03The three requirements
    4. 4070.04The capital accounting rules
    5. 4070.05The alternate test and the qualified income offset
    6. 4070.06Economic effect equivalence
    7. 4070.07Substantiality
    8. 4070.08Two limits on the transitory test
    9. 4070.09The partners' interest in the partnership
    10. 4070.10Target allocations
    11. 4070.11Nonrecourse deductions
    12. 4070.12The LLC point
    13. 4070.13Credits and other items
  9. ¶ 4080Contributed and Revalued Property: Section 704(c); Varying Interests; Interests Created by Gift
    1. 4080.01The purpose of section 704(c)
    2. 4080.02Section 704(c) property and the reasonable method requirement
    3. 4080.03The traditional method and the ceiling rule
    4. 4080.04Curative and remedial allocations
    5. 4080.05The choice of method in drafting
    6. 4080.06Section 704(c) on distribution and sale
    7. 4080.07Revaluations and reverse section 704(c)
    8. 4080.08Why LLC agreements book up
    9. 4080.09Varying interests: section 706(d)
    10. 4080.10Interests created by gift: section 704(e)
  10. ¶ 4090Anti-Abuse Rules, Basis Shifting, Compliance, Summary Table and Checklist
    1. 4090.01The partnership anti-abuse rule
    2. 4090.02Economic substance
    3. 4090.03The basis-shifting guidance of 2024 and its partial withdrawal
    4. 4090.04Practical consequences for LLCs
    5. 4090.05The return and the Schedule K-1
    6. 4090.06Tax capital reporting
    7. 4090.07Schedules K-2 and K-3
    8. 4090.08Summary table
    9. 4090.09Checklist for counsel

Chapter 41Partnership Taxation II: Distributions, Transfers and Liquidation

  1. ¶ 4101Overview
    1. 4101.01Scope of the chapter
    2. 4101.02Two competing models
    3. 4101.03Inside and outside basis
    4. 4101.04The transactions covered
    5. 4101.05The role of the operating agreement
    6. 4101.06Organization
  2. ¶ 4110Current Distributions
    1. 4110.01Current and liquidating distributions
    2. 4110.02The general rule of nonrecognition
    3. 4110.03Reduction of outside basis
    4. 4110.04Timing: advances and draws
    5. 4110.05Deemed distributions under section 752(b)
    6. 4110.06Marketable securities treated as money
    7. 4110.07Character of distributed property
    8. 4110.08Distributions to transferees
  3. ¶ 4120Basis of Distributed Property
    1. 4120.01Carryover basis in a current distribution
    2. 4120.02The outside-basis limitation
    3. 4120.03Basis in a liquidating distribution
    4. 4120.04Allocation among distributed assets
    5. 4120.05The transferee's special basis under section 732(d)
    6. 4120.06Corporate members and distributed stock
    7. 4120.07Holding period
  4. ¶ 4130Disproportionate Distributions and Hot Assets
    1. 4130.01The problem section 751(b) addresses
    2. 4130.02The assets: unrealized receivables and inventory items
    3. 4130.03Substantial appreciation
    4. 4130.04Exceptions
    5. 4130.05The mechanics under the existing regulations
    6. 4130.06The 2014 proposed regulations
    7. 4130.07Practice
  5. ¶ 4140The Anti-Mixing-Bowl Rules
    1. 4140.01The transaction the rules target
    2. 4140.02Section 704(c)(1)(B): distribution of contributed property to another member
    3. 4140.03Exceptions under the regulations
    4. 4140.04Section 737: distribution of other property to the contributing member
    5. 4140.05Interaction with disguised sales
    6. 4140.06Planning within the seven-year window
  6. ¶ 4150Liquidating Distributions and Section 734(b) Adjustments
    1. 4150.01Gain on liquidation
    2. 4150.02Loss on liquidation
    3. 4150.03The member's position compared with the LLC's
    4. 4150.04When section 734(b) applies
    5. 4150.05The adjustments
    6. 4150.06Allocation under section 755
    7. 4150.07Summary of the distribution rules
    8. 4150.08Liquidation of the entire LLC
  7. ¶ 4160Payments to Retiring and Deceased Members
    1. 4160.01Scope of section 736
    2. 4160.02The two classes of payment
    3. 4160.03Receivables and goodwill
    4. 4160.04The 1993 limitation
    5. 4160.05Is an LLC member a general partner?
    6. 4160.06Timing and allocation of installment payments
    7. 4160.07Classification summarized
    8. 4160.08Redemption compared with cross-purchase
    9. 4160.09Deceased members
  8. ¶ 4170Sales and Exchanges of Interests
    1. 4170.01The entity rule
    2. 4170.02Amount realized and liabilities
    3. 4170.03Section 751(a): ordinary income on a sale
    4. 4170.04Look-through capital gain
    5. 4170.05Holding period
    6. 4170.06The seller's share of income for the year of sale
    7. 4170.07The buyer's basis and section 743(b)
    8. 4170.08Installment sales
    9. 4170.09The section 754 election
    10. 4170.10Related-party basis shifting
  9. ¶ 4180Death of a Member, Termination, Conversions and Charging Orders
    1. 4180.01Basis of an interest acquired from a decedent
    2. 4180.02Income in respect of a decedent
    3. 4180.03The inside step-up
    4. 4180.04Closing of the year on death
    5. 4180.05Termination of the LLC
    6. 4180.06Mergers and divisions
    7. 4180.07Conversion to a corporation
    8. 4180.08Transferees and charging creditors
    9. 4180.09Gifts and transfers to trusts
  10. ¶ 4190Foreign Transferors, Withholding and Planning
    1. 4190.01Grecian Magnesite and the 2017 legislation
    2. 4190.02Section 864(c)(8)
    3. 4190.03Withholding by the transferee under section 1446(f)
    4. 4190.04Exceptions and reduced withholding
    5. 4190.05The LLC's backup obligation
    6. 4190.06Planning points
    7. 4190.07Checklist for a distribution, redemption or transfer

Chapter 42Disregarded Entities

  1. ¶ 4201Overview
    1. 4201.01Scope of the chapter
    2. 4201.02Why disregarded status needs its own chapter
    3. 4201.03Relation to other chapters
    4. 4201.04Organization
    5. 4201.05Terminology
  2. ¶ 4210The Meaning of Disregarded Status
    1. 4210.01The regulatory text
    2. 4210.02An entity that exists for tax purposes
    3. 4210.03The regulations before 2009
    4. 4210.04Validity: Littriello and McNamee
    5. 4210.05Validity after Loper Bright
    6. 4210.06The limit of the activities rule: Pierre
    7. 4210.07The entity under state law
  3. ¶ 4220Owners and Their Reporting
    1. 4220.01Individual owners
    2. 4220.02Corporate owners
    3. 4220.03S corporation owners
    4. 4220.04Partnership owners
    5. 4220.05Trusts and estates as owners
    6. 4220.06Two members, one owner
    7. 4220.07Spouses
    8. 4220.08Tax-exempt owners
    9. 4220.09Qualified subchapter S subsidiaries and qualified REIT subsidiaries
  4. ¶ 4230Where the Entity Is Regarded: Employment, Excise and Prior-Period Liabilities
    1. 4230.01The exceptions in outline
    2. 4230.02Employment taxes: the rule
    3. 4230.03The owner is not an employee
    4. 4230.04Who is liable for unpaid employment taxes
    5. 4230.05Backup withholding
    6. 4230.06Excise taxes
    7. 4230.07Liabilities from periods in which the entity was regarded
    8. 4230.08Refunds
  5. ¶ 4240Identification and Information Reporting
    1. 4240.01Taxpayer identification numbers
    2. 4240.02Form W-9
    3. 4240.03Information returns and backup withholding
    4. 4240.04Foreign-owned disregarded entities: the reporting rule
    5. 4240.05What the foreign-owned entity must report
    6. 4240.06Penalties
    7. 4240.07Withholding certificates
    8. 4240.08FIRPTA certifications
    9. 4240.09Beneficial-ownership reporting
  6. ¶ 4250Collection: Liens, Levies and Transferee Liability
    1. 4250.01State law defines the property
    2. 4250.02The owner's taxes and the LLC's property
    3. 4250.03What the Service may reach
    4. 4250.04The alter ego theory
    5. 4250.05Reverse piercing and the Wyoming statute
    6. 4250.06Nominee liens
    7. 4250.07Transferee liability
    8. 4250.08Naming the taxpayer
  7. ¶ 4260Changes in Membership and Classification; Mergers and Sales
    1. 4260.01Automatic changes
    2. 4260.02Disregarded entity to partnership: Rev. Rul. 99-5
    3. 4260.03Partnership to disregarded entity: Rev. Rul. 99-6
    4. 4260.04Elective changes
    5. 4260.05Membership change and election together
    6. 4260.06Identification numbers on a change
    7. 4260.07Mergers into and out of disregarded entities
    8. 4260.08Sales of disregarded entities
    9. 4260.09Like-kind exchanges
  8. ¶ 4270Estate and Gift Planning
    1. 4270.01The planning pattern
    2. 4270.02Pierre: the facts
    3. 4270.03Pierre: the holding
    4. 4270.04Lessons from Pierre
    5. 4270.05Income tax consequences of the first gift
    6. 4270.06Transfers to grantor trusts
    7. 4270.07Death of the owner
  9. ¶ 4280International Aspects
    1. 4280.01Two directions
    2. 4280.02Foreign owners of domestic disregarded entities
    3. 4280.03Dispositions by foreign owners
    4. 4280.04United States owners of foreign entities: default classification
    5. 4280.05Withholding on payments to foreign disregarded entities
    6. 4280.06Reporting by United States owners of foreign disregarded entities
    7. 4280.07Hybrid entities
  10. ¶ 4290State Taxation, Bankruptcy, Summary and Checklist
    1. 4290.01State income taxes
    2. 4290.02Other state taxes
    3. 4290.03Bankruptcy of the entity
    4. 4290.04Bankruptcy of the owner
    5. 4290.05Summary table
    6. 4290.06Checklist

Chapter 43The S Corporation Election

  1. ¶ 4301Overview
    1. 4301.01Scope of the chapter
    2. 4301.02Why the subject belongs in an LLC treatise
    3. 4301.03Relation to other chapters
    4. 4301.04Terminology
  2. ¶ 4310How an LLC Becomes an S Corporation
    1. 4310.01Two classifications in sequence
    2. 4310.02The deemed association election
    3. 4310.03Shareholder consent
    4. 4310.04Timing
    5. 4310.05Late election relief
    6. 4310.06Conversion of an existing partnership LLC
    7. 4310.07The conversion as a planning event
  3. ¶ 4320Eligibility: The Corporation and Its Shareholders
    1. 4320.01The statutory requirements
    2. 4320.02Domestic corporation
    3. 4320.03Ineligible corporations
    4. 4320.04The 100-shareholder limit
    5. 4320.05Permitted shareholders
    6. 4320.06Nonresident aliens
    7. 4320.07Grantor trusts and estates
    8. 4320.08Qualified subchapter S trusts
    9. 4320.09Electing small business trusts
    10. 4320.10The tax year
  4. ¶ 4330The One-Class-of-Stock Requirement and the Operating Agreement
    1. 4330.01The rule
    2. 4330.02Governing provisions
    3. 4330.03Rights and payments distinguished
    4. 4330.04Liquidation in accordance with capital accounts
    5. 4330.05Default state law
    6. 4330.06Preferred returns, waterfalls and catch-ups
    7. 4330.07Profits interests and equity compensation
    8. 4330.08Tax distributions
    9. 4330.09Buy-sell, redemption and transfer restrictions
    10. 4330.10Member loans and other instruments
    11. 4330.11Management and voting differences
  5. ¶ 4340Conforming the Operating Agreement; Corrective Relief
    1. 4340.01The drafting task
    2. 4340.02Economic provisions
    3. 4340.03Allocations
    4. 4340.04Tax distributions
    5. 4340.05Equity compensation
    6. 4340.06Transfer provisions
    7. 4340.07Termination safeguards
    8. 4340.08Retroactive correction under Rev. Proc. 2022-19
    9. 4340.09Limits of the procedure
  6. ¶ 4350Pass-Through Taxation, Stock Basis and Debt Basis
    1. 4350.01The pass-through
    2. 4350.02Stock basis
    3. 4350.03The loss limitation
    4. 4350.04No basis for entity debt
    5. 4350.05Guarantees
    6. 4350.06Back-to-back loans and disregarded lenders
    7. 4350.07Reduction and restoration of debt basis
    8. 4350.08Other differences from partnership treatment
  7. ¶ 4360Distributions, the Accumulated Adjustments Account and the Corporate-Level Taxes
    1. 4360.01Distributions by an LLC that has always been an S corporation
    2. 4360.02Distributions by an LLC with C corporation history
    3. 4360.03Distributions of property
    4. 4360.04The built-in gains tax
    5. 4360.05Built-in gain and the LLC that never was a C corporation
    6. 4360.06The passive investment income tax
    7. 4360.07Termination for excess passive income
  8. ¶ 4370Members Who Work for the LLC: Reasonable Compensation and Fringe Benefits
    1. 4370.01Why the issue arises
    2. 4370.02Watson
    3. 4370.03McAlary
    4. 4370.04Setting the salary
    5. 4370.05Related considerations
    6. 4370.06Fringe benefits and 2-percent shareholders
  9. ¶ 4380Termination, Inadvertent Termination Relief, Revocation and Re-Election
    1. 4380.01The three ways an election ends
    2. 4380.02Effective date and the S termination year
    3. 4380.03The LLC after termination
    4. 4380.04Inadvertent termination relief
    5. 4380.05Procedures that avoid a ruling
    6. 4380.06Revocation
    7. 4380.07Re-election
  10. ¶ 4390Exits, State Recognition, Comparison and Checklist
    1. 4390.01Sale of units
    2. 4390.02Section 338(h)(10) and section 336(e) elections
    3. 4390.03The F reorganization and LLC conversion
    4. 4390.04Liquidation and conversion back to partnership status
    5. 4390.05States and cities that do not follow the federal election
    6. 4390.06Qualified small business stock
    7. 4390.07When the election fits
    8. 4390.08Checklist

Chapter 44The Centralized Partnership Audit Regime

  1. ¶ 4401Overview
    1. 4401.01Scope of the chapter
    2. 4401.02Why the regime matters to LLC law
    3. 4401.03Terms used in this chapter
    4. 4401.04The sequence of an examination
  2. ¶ 4410From TEFRA to the Bipartisan Budget Act
    1. 4410.01The problem the regimes address
    2. 4410.02The TEFRA rules
    3. 4410.03The Bipartisan Budget Act of 2015
    4. 4410.04Effective date and early election
    5. 4410.05The 2015 and 2018 amendments
    6. 4410.06The regulations
  3. ¶ 4420Scope of the Regime and the Election Out
    1. 4420.01Every partnership required to file
    2. 4420.02What the regime covers
    3. 4420.03The election out: requirements
    4. 4420.04Counting to 100
    5. 4420.05Eligible and ineligible partners
    6. 4420.06Consequences for LLC planning
    7. 4420.07Making the election
    8. 4420.08Effect of electing out
  4. ¶ 4430The Partnership Representative
    1. 4430.01The statutory role
    2. 4430.02Who may serve
    3. 4430.03Designation, resignation and revocation
    4. 4430.04Sole authority and the operating agreement
    5. 4430.05Duties under state law
    6. 4430.06Drafting the partnership representative provisions
  5. ¶ 4440Consistent Treatment and Administrative Adjustment Requests
    1. 4440.01The duty of consistency
    2. 4440.02Notice of inconsistent treatment
    3. 4440.03The bar on amended Schedules K-1
    4. 4440.04The administrative adjustment request
    5. 4440.05Filing mechanics
    6. 4440.06Favorable adjustments
  6. ¶ 4450The Imputed Underpayment and Its Modification
    1. 4450.01The basic rule
    2. 4450.02Computation
    3. 4450.03What the computation ignores
    4. 4450.04The modification procedures
    5. 4450.05The principal modifications
    6. 4450.06Members' cooperation
    7. 4450.07Timing interaction
  7. ¶ 4460The Push-Out Election and Tiered Structures
    1. 4460.01The election
    2. 4460.02Statements to reviewed-year partners
    3. 4460.03How the partner takes the adjustment into account
    4. 4460.04Penalties and interest after a push-out
    5. 4460.05Tiered structures
    6. 4460.06Choosing between payment and push-out
    7. 4460.07Effect on the operating agreement
  8. ¶ 4470Proceedings, Limitations, Judicial Review and Collection
    1. 4470.01The three notices
    2. 4470.02The period of limitations
    3. 4470.03Assessment
    4. 4470.04Judicial review
    5. 4470.05Interest and penalties when the LLC pays
    6. 4470.06Collection from members when the LLC does not pay
    7. 4470.07Partnerships that cease to exist
    8. 4470.08Bankruptcy and special enforcement matters
  9. ¶ 4480Who Bears the Cost: Members, Former Members and Transactions
    1. 4480.01The mismatch
    2. 4480.02Tax treatment of the payment
    3. 4480.03Contractual tools for current members
    4. 4480.04Reaching former members
    5. 4480.05The push-out as the default answer
    6. 4480.06Acquisitions of LLC interests
    7. 4480.07Asset acquisitions and conversions
  10. ¶ 4490State Conformity, Enforcement, Model Provisions and Checklist
    1. 4490.01State conformity
    2. 4490.02The enforcement climate
    3. 4490.03Choosing the policy for the LLC
    4. 4490.04Comments on the model provisions
    5. 4490.05Cooperation covenants
    6. 4490.06Checklist for counsel

Chapter 45Self-Employment Tax, Section 199A and the Net Investment Income Tax

  1. ¶ 4501Overview
    1. 4501.01Scope of the chapter
    2. 4501.02Why the LLC form matters
    3. 4501.03The relationship among the three regimes
    4. 4501.04Relation to other chapters
    5. 4501.05Figures used in this chapter
  2. ¶ 4510The Self-Employment Tax Framework
    1. 4510.01The tax and its rates
    2. 4510.02Net earnings from self-employment
    3. 4510.03Which LLCs are partnerships for this purpose
    4. 4510.04Single-member LLCs
    5. 4510.05Members are not employees
    6. 4510.06Guaranteed payments
    7. 4510.07Computation
    8. 4510.08Rental and investment LLCs
  3. ¶ 4520The Limited Partner Exclusion
    1. 4520.01The text
    2. 4520.02Origin in 1977
    3. 4520.03The IRS's early definition
    4. 4520.04The 1994 and 1997 proposed regulations
    5. 4520.05The moratorium and its aftermath
    6. 4520.06Why the LLC member is the hard case
    7. 4520.07Burden of proof
  4. ¶ 4530The Case Law
    1. 4530.01Renkemeyer
    2. 4530.02Riether
    3. 4530.03Hardy and Castigliola
    4. 4530.04Soroban in the Tax Court
    5. 4530.05The Fifth Circuit's first opinion
    6. 4530.06The substitute opinion in K Alain
    7. 4530.07The Second Circuit in Soroban
    8. 4530.08Where the courts now stand
  5. ¶ 4540Applying § 1402(a)(13) to LLC Members
    1. 4540.01The governing question
    2. 4540.02Member-managed LLCs
    3. 4540.03Manager-managed LLCs with investor members
    4. 4540.04The sponsor's members
    5. 4540.05Professional and service LLCs
    6. 4540.06Converting the LLC to a limited partnership
    7. 4540.07Guaranteed payments and the reasonableness question
  6. ¶ 4550Section 199A After Public Law 119-21
    1. 4550.01Permanence and the 2025 amendments
    2. 4550.02The deduction
    3. 4550.03Qualified business income
    4. 4550.04The W-2 wage and capital limit
    5. 4550.05Thresholds and phase-in
    6. 4550.06Specified service trades or businesses
    7. 4550.07The minimum deduction
  7. ¶ 4560Section 199A Planning for LLCs
    1. 4560.01Guaranteed payments and allocations
    2. 4560.02Partnership or S corporation
    3. 4560.03Aggregation
    4. 4560.04Rental real estate
    5. 4560.05Separating specified services from other activities
    6. 4560.06Illustration
    7. 4560.07Trusts
    8. 4560.08Reporting by the LLC
  8. ¶ 4570The Net Investment Income Tax
    1. 4570.01The tax
    2. 4570.02Net investment income
    3. 4570.03The passive activity linkage
    4. 4570.04Recharacterized income
    5. 4570.05Self-charged interest
    6. 4570.06The self-employment income exclusion
    7. 4570.07Traders
    8. 4570.08Trusts and material participation
  9. ¶ 4580Dispositions, Trusts and the Interaction of the Regimes
    1. 4580.01Sale of an LLC interest: net investment income
    2. 4580.02Sale of an LLC interest: self-employment tax and § 199A
    3. 4580.03Retirement payments
    4. 4580.04The interaction summarized
    5. 4580.05The members who pay neither tax
    6. 4580.06State law and the federal tests
    7. 4580.07Foreign members
  10. ¶ 4590Planning Summary and Checklist
    1. 4590.01Reporting positions after 2026
    2. 4590.02Penalties and disclosure
    3. 4590.03Coordinating the operating agreement
    4. 4590.04Checklist

Chapter 46State Taxation, Withholding and Foreign Members

  1. ¶ 4601Overview
    1. 4601.01Scope of the chapter
    2. 4601.02Why these rules belong in an LLC treatise
    3. 4601.03Relationship to other chapters
    4. 4601.04A note on figures
  2. ¶ 4610State Classification and Conformity
    1. 4610.01The general rule of conformity
    2. 4610.02Why conformity is incomplete
    3. 4610.03Conformity to the Internal Revenue Code generally
    4. 4610.04Series and protected series
    5. 4610.05Conformity to the centralized partnership audit regime
  3. ¶ 4620Entity-Level State Taxes on LLCs
    1. 4620.01The categories
    2. 4620.02California
    3. 4620.03Texas
    4. 4620.04Tennessee
    5. 4620.05Illinois
    6. 4620.06New York City
    7. 4620.07The District of Columbia
    8. 4620.08Nevada
    9. 4620.09Delaware
    10. 4620.10Florida and Wyoming
  4. ¶ 4630Nexus: When a State May Tax the LLC and Its Members
    1. 4630.01Two questions
    2. 4630.02Entity nexus after Wayfair
    3. 4630.03Public Law 86-272
    4. 4630.04Member nexus: the distributive share
    5. 4630.05Member nexus: the filing obligation and the minimum tax
    6. 4630.06Member nexus: gain on sale of the interest
    7. 4630.07Planning Note
  5. ¶ 4640Nonresident Members: Composite Returns and State Withholding
    1. 4640.01The collection problem
    2. 4640.02Withholding
    3. 4640.03Composite and group returns
    4. 4640.04Consents to jurisdiction
    5. 4640.05Tiered structures
    6. 4640.06Withholding as a distribution and the economic burden
    7. 4640.07Comment
  6. ¶ 4650Pass-Through Entity Taxes and the SALT Limitation
    1. 4650.01The federal limitation
    2. 4650.02The 2025 amendments
    3. 4650.03The entity-level response
    4. 4650.04Notice 2020-75
    5. 4650.05Survival after 2025
    6. 4650.06Representative state regimes
    7. 4650.07Effects that differ among members
    8. 4650.08Allocation of the tax and the deduction
    9. 4650.09Planning Note
  7. ¶ 4660Sales of Interests and Single-Member LLCs at the State Level
    1. 4660.01The sourcing of gain
    2. 4660.02Look-through statutes
    3. 4660.03Ordinary income items
    4. 4660.04Business income of a corporate seller
    5. 4660.05Planning for sales
    6. 4660.06Single-member LLCs
    7. 4660.07Single-member LLCs owned by nonresidents
  8. ¶ 4670Foreign Members: Effectively Connected Income and Section 1446
    1. 4670.01The two regimes for foreign persons
    2. 4670.02The attribution rule of section 875
    3. 4670.03The withholding tax
    4. 4670.04The tax is due whether or not the LLC distributes
    5. 4670.05Reducing the installments
    6. 4670.06The withholding as a deemed distribution
    7. 4670.07Determining foreign status
    8. 4670.08Disregarded and tiered members
  9. ¶ 4680FDAP, FIRPTA, Treaties, Portfolio Interest and FATCA
    1. 4680.01Withholding on FDAP income allocable to foreign members
    2. 4680.02Foreign LLCs and foreign partnerships as payees
    3. 4680.03Portfolio interest
    4. 4680.04FIRPTA and the disposition of real property by the LLC
    5. 4680.05FIRPTA and the sale of the interest
    6. 4680.06Treaty access through a fiscally transparent LLC
    7. 4680.07The branch profits tax
    8. 4680.08Chapter 4
  10. ¶ 4690Cross-Border Structures, Drafting and Checklist
    1. 4690.01Domestic LLCs owned by nonresidents
    2. 4690.02Reporting gaps and their limits
    3. 4690.03Foreign LLCs owned by United States persons
    4. 4690.04Drafting: what the operating agreement should contain
    5. 4690.05Checklist

Part IX: Regulation and Special Settings

Chapter 47Securities Law and LLC Interests

  1. ¶ 4701Overview
    1. 4701.01Scope of the chapter
    2. 4701.02Why the question is unsettled for LLCs
    3. 4701.03Why the question matters
    4. 4701.04Approach of the chapter
  2. ¶ 4710The Statutory Definition: Stock, Transferable Shares and State Definitions
    1. 4710.01The federal definitions
    2. 4710.02Stock
    3. 4710.03LLC interests are not stock
    4. 4710.04Calling the interest "shares."
    5. 4710.05Transferable shares and profit-sharing agreements
    6. 4710.06State definitions
    7. 4710.07Consequences of the state definitions
  3. ¶ 4720The Howey Test
    1. 4720.01The formulation
    2. 4720.02Investment of money
    3. 4720.03Common enterprise
    4. 4720.04Expectation of profits
    5. 4720.05Efforts of others
    6. 4720.06Substance over form
    7. 4720.07Time of the determination
  4. ¶ 4730Efforts of Others: Williamson and the LLC Cases
    1. 4730.01The partnership background
    2. 4730.02The Williamson factors
    3. 4730.03Keith: the member-managed LLC
    4. 4730.04Robinson: the negotiated control investor
    5. 4730.05Robinson's refusal to adopt a categorical rule
    6. 4730.06Leonard: documents that overstate control
    7. 4730.07Merchant Capital and Shields: illusory powers
    8. 4730.08Avenue Capital and Nelson: control defeats the claim
    9. 4730.09Synthesis
  5. ¶ 4740Exempt Offerings I: Section 4(a)(2) and Regulation D
    1. 4740.01The registration requirement
    2. 4740.02Section 4(a)(2)
    3. 4740.03Regulation D: structure
    4. 4740.04Accredited investors
    5. 4740.05Accredited investor issues peculiar to LLCs
    6. 4740.06Rule 506(b)
    7. 4740.07Rule 506(c)
    8. 4740.08Rule 504
    9. 4740.09Bad actor disqualification
    10. 4740.10Form D and resale limits
  6. ¶ 4750Exempt Offerings II: Integration, Regulation A, Crowdfunding, Rule 701, Resales and State Law
    1. 4750.01Integration
    2. 4750.02Regulation A
    3. 4750.03Crowdfunding
    4. 4750.04Rule 701 and compensatory interests
    5. 4750.05Resales: Rule 144 and section 4(a)(7)
    6. 4750.06State law
  7. ¶ 4760Investment Company Act, Advisers Act and Exchange Act Registration
    1. 4760.01Why holding LLCs face the Investment Company Act
    2. 4760.02The 40 percent test
    3. 4760.03Section 3(c)(1)
    4. 4760.04Section 3(c)(7)
    5. 4760.05Knowledgeable employees
    6. 4760.06Advisers Act
    7. 4760.07Exchange Act registration under section 12(g)
  8. ¶ 4770Liability: Rescission, Rule 10b-5, Control Persons, Brokers and Finders
    1. 4770.01Rescission for unregistered sales
    2. 4770.02Who is a seller
    3. 4770.03Section 12(a)(2) and private offerings
    4. 4770.04Rule 10b-5
    5. 4770.05Buyouts among members
    6. 4770.06Control person liability
    7. 4770.07Brokers and finders
    8. 4770.08State-law remedies
  9. ¶ 4780Tokens, DAOs and Digital Membership Interests
    1. 4780.01The DAO Report
    2. 4780.02The 2026 interpretation
    3. 4780.03Application to LLC interests represented by tokens
    4. 4780.04DAO LLCs
    5. 4780.05Practical consequences
  10. ¶ 4790Drafting, Model Provisions and Checklist
    1. 4790.01The characterization decision
    2. 4790.02Subscription agreements and investor representations
    3. 4790.03Legends and transfer restrictions
    4. 4790.04Bad actor and broker provisions
    5. 4790.05Information covenants and disclosure
    6. 4790.06Preserving the non-security position
    7. 4790.07Checklist

Chapter 48Beneficial-Ownership Reporting and Transparency

  1. ¶ 4801Overview
    1. 4801.01Scope of the chapter
    2. 4801.02Three layers of collection
    3. 4801.03The federal position as of this edition
    4. 4801.04Terms used in this chapter
  2. ¶ 4810The Corporate Transparency Act
    1. 4810.01Enactment
    2. 4810.02Reporting company
    3. 4810.03Beneficial owner
    4. 4810.04Applicants
    5. 4810.05Information reported
    6. 4810.06The exemptions
    7. 4810.07The Secretary's exemptive authority
    8. 4810.08Confidentiality and access
    9. 4810.09Penalties
  3. ¶ 4820The Reporting Rule as Issued
    1. 4820.01The 2022 rule
    2. 4820.02Information about the company
    3. 4820.03Substantial control
    4. 4820.04Substantial control in an LLC
    5. 4820.05Ownership interests in an LLC
    6. 4820.06Trusts and intermediary entities
    7. 4820.07Company applicants
    8. 4820.08Timing and updates
  4. ¶ 4830The Constitutional Litigation
    1. 4830.01Overview of the challenges
    2. 4830.02National Small Business United v. Yellen
    3. 4830.03Texas Top Cop Shop and the nationwide injunction
    4. 4830.04Smith v. Department of the Treasury
    5. 4830.05The Eleventh Circuit's decision
    6. 4830.06What the litigation settles
    7. 4830.07Comment
  5. ¶ 4840The Narrowed Rule: Foreign Reporting Companies Only
    1. 4840.01The Treasury announcement
    2. 4840.02The 2025 interim final rule
    3. 4840.03The 2026 final rule
    4. 4840.04Scale
    5. 4840.05Information already filed
    6. 4840.06Who reports now
    7. 4840.07The non-U.S. LLC
    8. 4840.08Comment
  6. ¶ 4850State Disclosure Regimes
    1. 4850.01The traditional position
    2. 4850.02Records the LLC and its agent must keep
    3. 4850.03The New York LLC Transparency Act
    4. 4850.04Operation of the New York statute
    5. 4850.05Other states
    6. 4850.06Public records outside the LLC statutes
  7. ¶ 4860Other Federal Collection of Beneficial Ownership
    1. 4860.01Why the narrowing of the reporting rule changes less than it seems
    2. 4860.02The customer due diligence rule
    3. 4860.03The CDD rule after the reporting rule's narrowing
    4. 4860.04The residential real estate rule
    5. 4860.05Geographic targeting orders
    6. 4860.06Investment advisers
    7. 4860.07Internal Revenue Service reporting
    8. 4860.08FATCA and the Common Reporting Standard
  8. ¶ 4870International Registers and Standards
    1. 4870.01The FATF standard
    2. 4870.02The European Union
    3. 4870.03The United Kingdom
    4. 4870.04The offshore LLC jurisdictions
    5. 4870.05Consequences for U.S. planning
  9. ¶ 4880Privacy, Planning and Compliance for LLC Groups
    1. 4880.01Privacy and confidentiality distinguished
    2. 4880.02Lawful techniques of privacy
    3. 4880.03Nominees
    4. 4880.04Privacy and asset protection
    5. 4880.05Compliance programs for LLC groups
    6. 4880.06Triggers for review
  10. ¶ 4890Drafting Provisions and Compliance Checklist
    1. 4890.01Why the operating agreement should address reporting
    2. 4890.02Elements of a reporting provision
    3. 4890.03Representations in acquisition and investment documents
    4. 4890.04Checklist

Chapter 49LLCs in Bankruptcy

  1. ¶ 4901Overview
    1. 4901.01Scope of the chapter
    2. 4901.02Federal and state law
    3. 4901.03Relation to other chapters
    4. 4901.04Plan of the chapter
    5. 4901.05The principal tensions
    6. 4901.06Terminology
  2. ¶ 4910The LLC as Debtor: Eligibility and the Choice of Chapter
    1. 4910.01The LLC as a "corporation."
    2. 4910.02The available chapters
    3. 4910.03Subchapter V and its debt limit
    4. 4910.04No discharge for an LLC in chapter 7
    5. 4910.05The automatic stay and the members
    6. 4910.06Single asset real estate
    7. 4910.07Involuntary petitions
  3. ¶ 4920Authority to File
    1. 4920.01The rule of Price v. Gurney
    2. 4920.02Default rules: member-managed LLCs
    3. 4920.03Default rules: manager-managed LLCs
    4. 4920.04The consequence of a defective authorization
    5. 4920.05Members in their own bankruptcies
    6. 4920.06Trustees as members
    7. 4920.07Owners who reserve the decision to themselves
  4. ¶ 4930Blocking Provisions, Golden Shares and Independent Managers
    1. 4930.01Why lenders seek control of the filing decision
    2. 4930.02The rule against absolute waivers
    3. 4930.03Independent directors and managers
    4. 4930.04The special member without duties: Lake Michigan Beach
    5. 4930.05The golden share: Intervention Energy
    6. 4930.06Lexington Hospitality
    7. 4930.07The bona fide equity holder who is also a creditor
    8. 4930.08Synthesis
    9. 4930.09The Delaware question
    10. 4930.10Planning Note
  5. ¶ 4940LLC Groups: Consolidation, Insiders, Duties in Insolvency and Alter-Ego Claims
    1. 4940.01Groups of LLCs in bankruptcy
    2. 4940.02The standards for consolidation
    3. 4940.03Separateness in practice
    4. 4940.04Insiders and affiliates
    5. 4940.05Duties in insolvency
    6. 4940.06Managers who are guarantors
    7. 4940.07Alter-ego and reverse-piercing claims
  6. ¶ 4950The Member's Bankruptcy: The Interest as Property of the Estate
    1. 4950.01The estate takes the debtor's interest
    2. 4950.02What the interest comprises
    3. 4950.03Statutory dissociation on bankruptcy
    4. 4950.04Garrison-Ashburn: economic rights only
    5. 4950.05Klingerman: the conversion is itself a forbidden modification
    6. 4950.06Milford Power: the Delaware Court of Chancery's approach
    7. 4950.07Reconciling the decisions
  7. ¶ 4960The Operating Agreement as an Executory Contract
    1. 4960.01Why the characterization matters
    2. 4960.02The definition
    3. 4960.03Ehmann: the agreement without obligations
    4. 4960.04Daugherty and DeLuca: executory agreements, opposite results
    5. 4960.05Economic rights survive
    6. 4960.06Factors that make an agreement executory
  8. ¶ 4970Single-Member LLCs and the Trustee's Control
    1. 4970.01The trustee as sole member
    2. 4970.02First Protection
    3. 4970.03Nevada's exclusive charging order does not bind the trustee
    4. 4970.04The trustee may revive and file
    5. 4970.05Why the charging order gives no protection
    6. 4970.06Florida
    7. 4970.07Co-members change the analysis
  9. ¶ 4980Avoidance, Denial of Discharge, Divisive Mergers and Tax
    1. 4980.01Transfers into an LLC as avoidable transfers
    2. 4980.02Value received for a contribution
    3. 4980.03The ten-year rule of section 548(e)
    4. 4980.04Denial of the individual member's discharge
    5. 4980.05Reverse piercing
    6. 4980.06Divisive mergers and mass-tort bankruptcy
    7. 4980.07Third-party releases after Purdue
    8. 4980.08Tax consequences
  10. ¶ 4990Planning, Drafting and Checklist
    1. 4990.01Drafting the authority to file
    2. 4990.02Bankruptcy-remote LLCs
    3. 4990.03Provisions on a member's bankruptcy
    4. 4990.04Single-member LLCs
    5. 4990.05Model provision
    6. 4990.06Outcomes in the principal scenarios
    7. 4990.07Checklist

Chapter 50Estate and Succession Planning with LLCs

  1. ¶ 5001Overview
    1. 5001.01Scope of the chapter
    2. 5001.02Relation to other chapters
    3. 5001.03Why the LLC
    4. 5001.04Organization
  2. ¶ 5010The Family LLC: Purposes and Structure
    1. 5010.01Purposes
    2. 5010.02Manager-managed structure
    3. 5010.03Classes of units
    4. 5010.04Transfer restrictions
    5. 5010.05Assets suited to a family LLC
    6. 5010.06Choice of state
  3. ¶ 5020The Transfer Tax Framework
    1. 5020.01The unified system
    2. 5020.02The basic exclusion amount after 2025
    3. 5020.03Effect on family LLC planning
    4. 5020.04The annual exclusion
    5. 5020.05Valuation for transfer tax purposes
    6. 5020.06Reporting
  4. ¶ 5030Annual Exclusion Gifts of LLC Interests
    1. 5030.01The present interest requirement
    2. 5030.02Hackl v. Commissioner
    3. 5030.03Price and Fisher
    4. 5030.04Wimmer and the income stream test
    5. 5030.05Drafting for the exclusion
    6. 5030.06Tension with the valuation and section 2036 objectives
  5. ¶ 5040Valuation Discounts and Defined Value Transfers
    1. 5040.01The source of the discounts
    2. 5040.02Measuring the discounts
    3. 5040.03Family attribution and the swing vote
    4. 5040.04Discounts at death
    5. 5040.05Defined value transfers
    6. 5040.06McCord and Petter
    7. 5040.07Wandry and Nelson
    8. 5040.08Drafting a defined value clause
  6. ¶ 5050Chapter 14: Sections 2701, 2703 and 2704
    1. 5050.01Purpose of chapter 14
    2. 5050.02Section 2701
    3. 5050.03Section 2701 in family LLC design
    4. 5050.04Section 2703
    5. 5050.05Section 2704(a): lapsing voting and liquidation rights
    6. 5050.06Section 2704(b): applicable restrictions
    7. 5050.07The 2016 proposed regulations and their withdrawal
  7. ¶ 5060Section 2036: The Principal Risk
    1. 5060.01The statute
    2. 5060.02The three elements
    3. 5060.03The bona fide sale exception
    4. 5060.04Section 2036(a)(1): retained enjoyment by implied agreement
    5. 5060.05Bongard: one structure, two results
    6. 5060.06Section 2036(a)(2): retained right to designate
    7. 5060.07The amount included: section 2043 and Powell
    8. 5060.08Estate of Fields
    9. 5060.09The taxpayer victories
  8. ¶ 5070Operating the Family LLC to Withstand Scrutiny
    1. 5070.01The record is made at formation
    2. 5070.02Timing
    3. 5070.03Assets retained outside
    4. 5070.04Formalities
    5. 5070.05No personal use, no commingling
    6. 5070.06Management and fiduciary duties
    7. 5070.07Contributions by other members
    8. 5070.08Penalties
    9. 5070.09Planning Note
  9. ¶ 5080Income Tax Basis and Transfer Techniques
    1. 5080.01Formation
    2. 5080.02Basis at death and the cost of lifetime gifts
    3. 5080.03The section 754 election at death
    4. 5080.04Sales to intentionally defective grantor trusts
    5. 5080.05No basis adjustment for grantor trust assets
    6. 5080.06Grantor retained annuity trusts
    7. 5080.07Generation-skipping transfer tax
    8. 5080.08Charitable planning
  10. ¶ 5090Succession, Family Law and Checklist
    1. 5090.01Management succession
    2. 5090.02Trusts as members
    3. 5090.03Death of a member and of a sole member
    4. 5090.04Community property
    5. 5090.05Divorce
    6. 5090.06Elective share
    7. 5090.07State estate and inheritance taxes
    8. 5090.08Checklist for forming and operating a family LLC

Chapter 51Real Estate LLCs

  1. ¶ 5101Overview
    1. 5101.01Scope of the chapter
    2. 5101.02Relation to other chapters
    3. 5101.03Why real estate gravitated to the LLC
    4. 5101.04Pass-through taxation
    5. 5101.05Contractual flexibility
    6. 5101.06The lender's preference
    7. 5101.07Terminology
  2. ¶ 5110Ownership Structures
    1. 5110.01The single-property LLC
    2. 5110.02Holding company and property subsidiaries
    3. 5110.03The tiers
    4. 5110.04Series LLCs
    5. 5110.05Tenancy in common
    6. 5110.06The LLC's place in a tenancy-in-common structure
    7. 5110.07Delaware statutory trusts
    8. 5110.08The trust and the LLC compared
    9. 5110.09Operating partnership units
  3. ¶ 5120Conveyancing: Moving Property Into and Out of an LLC
    1. 5120.01The contribution deed
    2. 5120.02Authority to convey out of the LLC
    3. 5120.03Sales by transfer of interests
    4. 5120.04Title insurance and the transfer to one's own LLC
    5. 5120.05Due-on-sale clauses and the Garn-St Germain Act
    6. 5120.06Leases, insurance and permits
    7. 5120.07Homestead protection
    8. 5120.08Conveyances out of the LLC
  4. ¶ 5130Transfer Taxes, Controlling-Interest Taxes and Reassessment
    1. 5130.01The problem
    2. 5130.02New York State
    3. 5130.03New York City
    4. 5130.04Pennsylvania
    5. 5130.05Florida
    6. 5130.06New Jersey
    7. 5130.07Delaware
    8. 5130.08California reassessment
    9. 5130.09Table 51-1
    10. 5130.10Planning observations
  5. ¶ 5140Mortgage Financing: Nonrecourse Loans and Their Carve-Outs
    1. 5140.01The nonrecourse loan
    2. 5140.02Two kinds of carve-out
    3. 5140.03Liability or liquidated damages
    4. 5140.04Solvency covenants as springing recourse
    5. 5140.05The Michigan statute
    6. 5140.06Transfer provisions
    7. 5140.07Negotiating the carve-outs
    8. 5140.08Table 51-2
  6. ¶ 5150Single-Purpose Covenants and Mezzanine Finance
    1. 5150.01The single-purpose borrower
    2. 5150.02Independent managers and springing members
    3. 5150.03The mezzanine loan
    4. 5150.04Article 8 and the LLC interest
    5. 5150.05Disposition after default
    6. 5150.06The New York decisions
    7. 5150.07Intercreditor agreements
    8. 5150.08Preferred equity
  7. ¶ 5160Real Estate Joint Ventures
    1. 5160.01The programmatic joint venture
    2. 5160.02Major decisions
    3. 5160.03Capital calls
    4. 5160.04Dilution
    5. 5160.05Dilution outside Delaware
    6. 5160.06Removal of the sponsor
    7. 5160.07Exit
    8. 5160.08Affiliate fees and conflicts
  8. ¶ 5170Federal Income Tax Issues Peculiar to Real Estate LLCs
    1. 5170.01Section 1031 after 2017
    2. 5170.02The disregarded LLC as exchanger
    3. 5170.03The LLC as exchanger
    4. 5170.04Drop and swap
    5. 5170.05Reducing the risk
    6. 5170.06Carried interests in real estate
    7. 5170.07Opportunity zones after 2025
    8. 5170.08Foreign members
  9. ¶ 5180Liability, Members' Creditors and Transparency
    1. 5180.01Premises liability and the shield
    2. 5180.02Environmental liability
    3. 5180.03Insurance
    4. 5180.04Creditors of the members
    5. 5180.05Personal use and reverse piercing
    6. 5180.06Anonymity and reporting
  10. ¶ 5190Drafting and the Acquisition Checklist
    1. 5190.01The property LLC agreement
    2. 5190.02The joint venture agreement
    3. 5190.03Model provision
    4. 5190.04Checklist for acquiring property in an LLC

Chapter 52Joint Ventures, Private Funds and Holding Structures

  1. ¶ 5201Overview
    1. 5201.01Scope of the chapter
    2. 5201.02Why the LLC is used
    3. 5201.03The three settings compared
    4. 5201.04Relationship to other chapters
    5. 5201.05Delaware as the usual jurisdiction
    6. 5201.06A note on terminology
  2. ¶ 5210Forming the Joint Venture LLC
    1. 5210.01Contractual and entity ventures
    2. 5210.02The formation documents
    3. 5210.03Contributions and valuation
    4. 5210.04Premerger notification on formation
    5. 5210.05The 2026 thresholds
    6. 5210.06The notification form
    7. 5210.07Other regulatory approvals
  3. ¶ 5220Governance of the Venture
    1. 5220.01The board of designated managers
    2. 5220.02Reserved matters
    3. 5220.03Officers and management
    4. 5220.04Budgets and the default budget
    5. 5220.05Deadlock mechanics
    6. 5220.06Information and access
  4. ¶ 5230Fiduciary Duties of Parents and Designated Managers
    1. 5230.01The default position
    2. 5230.02The dual fiduciary problem
    3. 5230.03Modifying the duties
    4. 5230.04Contractual duties in place of fiduciary duties
    5. 5230.05Related-party transactions
    6. 5230.06The corporate safe harbors compared
    7. 5230.07Planning Note
  5. ¶ 5240Restrictive Covenants, Intellectual Property and Antitrust
    1. 5240.01Why ventures use restrictive covenants
    2. 5240.02The reasonableness test
    3. 5240.03Blue penciling
    4. 5240.04Forfeiture for competition
    5. 5240.05Exclusivity and the venture's field
    6. 5240.06Intellectual property
    7. 5240.07Antitrust constraints on the venture
  6. ¶ 5250Exit from the Venture
    1. 5250.01The need for an exit plan
    2. 5250.02Lock-up and permitted transfers
    3. 5250.03Change of control of a parent
    4. 5250.04Puts, calls and buy-sell provisions
    5. 5250.05Initial public offering and sale of the venture
    6. 5250.06Dissolution and distribution in kind
    7. 5250.07Tax consequences of exit
  7. ¶ 5260Private Funds
    1. 5260.01The structure of a private fund
    2. 5260.02Why the fund vehicle is usually a limited partnership
    3. 5260.03The general partner and the management company
    4. 5260.04The carry vehicle
    5. 5260.05Co-investment and special purpose vehicles
    6. 5260.06Side letters
    7. 5260.07Key person, removal and the advisory committee
    8. 5260.08Continuation vehicles
  8. ¶ 5270The Regulatory Overlay for Fund and Holding LLCs
    1. 5270.01The Investment Company Act
    2. 5270.02The investment adviser
    3. 5270.03The private fund adviser rules
    4. 5270.04ERISA plan assets
    5. 5270.05Tax-exempt investors and blockers
    6. 5270.06Non-United States investors
  9. ¶ 5280Holding Structures
    1. 5280.01Purposes of a holdco LLC
    2. 5280.02Separateness within the group
    3. 5280.03The series alternative
    4. 5280.04Tax treatment of the group
    5. 5280.05The Up-C structure
    6. 5280.06Tax receivable agreements in litigation
    7. 5280.07Family office LLCs
    8. 5280.08Cross-border holding LLCs
  10. ¶ 5290Drafting the Joint Venture LLC Agreement
    1. 5290.01Reading the agreement as a whole
    2. 5290.02A model provision
    3. 5290.03Comment on the model provision
    4. 5290.04Checklist for a joint venture LLC agreement

Chapter 53The DAO LLC: Wyoming, the Marshall Islands and Algorithmic Management

  1. ¶ 5301Overview
    1. 5301.01Scope of the chapter
    2. 5301.02The central question
    3. 5301.03Relation to other chapters
    4. 5301.04Organization
  2. ¶ 5310The DAO and the Unwrapped Organization
    1. 5310.01What a DAO is
    2. 5310.02The DAO of 2016
    3. 5310.03The default rule: general partnership
    4. 5310.04Sarcuni v. bZx DAO
    5. 5310.05Samuels v. Lido DAO
    6. 5310.06CFTC v. Ooki DAO
    7. 5310.07The lesson of the cases
  3. ¶ 5320The Wyoming Supplement of 2021
    1. 5320.01Enactment
    2. 5320.02A supplement to the LLC Act
    3. 5320.03Election of DAO status
    4. 5320.04Formation and registered agent
    5. 5320.05The smart contract identifier
    6. 5320.06What the articles and smart contracts govern
    7. 5320.07The binary of 2021
    8. 5320.08Difficulties with the binary
    9. 5320.09No foreign DAOs
  4. ¶ 5330The 2022 Amendments and Algorithmic Management
    1. 5330.01The 2022 act
    2. 5330.02What was repealed
    3. 5330.03The statement of management in the articles
    4. 5330.04The management section
    5. 5330.05The upgradeability mandate
    6. 5330.06The members' control of the algorithm
    7. 5330.07The operating agreement may be a smart contract
    8. 5330.08Control by a natural person
    9. 5330.09Preemption and its carve-out
    10. 5330.10Amendment of the articles
    11. 5330.11The state of the register
  5. ¶ 5340Membership, Voting, Information, Duties, Withdrawal and Dissolution
    1. 5340.01Membership interests
    2. 5340.02Default voting rules
    3. 5340.03Becoming a member
    4. 5340.04Information rights
    5. 5340.05Fiduciary duties
    6. 5340.06Withdrawal
    7. 5340.07Events of dissolution
    8. 5340.08The one-year inactivity rule
    9. 5340.09Winding up
    10. 5340.10The dissolution vote
  6. ¶ 5350The Marshall Islands DAO LLC
    1. 5350.01The legislation
    2. 5350.02An LLC under the 1996 Act
    3. 5350.03For-profit and non-profit DAOs
    4. 5350.04Management
    5. 5350.05Conflicts between code and documents
    6. 5350.06Tokens, tax and beneficial ownership
    7. 5350.07Choosing between Wyoming and the Marshall Islands
  7. ¶ 5360Other Statutes: Utah, Tennessee, Vermont and the Wyoming DUNA
    1. 5360.01Three approaches
    2. 5360.02Utah
    3. 5360.03Utah's formation requirements
    4. 5360.04Utah's liability rules
    5. 5360.05Tennessee
    6. 5360.06Vermont
    7. 5360.07The Wyoming DUNA
    8. 5360.08DUNA or DAO LLC
  8. ¶ 5370The Liability Shield, Veil Piercing and Litigation
    1. 5370.01The shield
    2. 5370.02The limits of the shield
    3. 5370.03Veil piercing under the Wyoming statute
    4. 5370.04The statute applied to DAOs
    5. 5370.05Recognition in other states and countries
    6. 5370.06Doing business elsewhere
    7. 5370.07Service and appearance
    8. 5370.08Claims among members
  9. ¶ 5380Securities, Tax, Banking and Reporting
    1. 5380.01Securities
    2. 5380.02Commodities and sanctions
    3. 5380.03Federal tax classification
    4. 5380.04Banking and know-your-customer requirements
    5. 5380.05State filings
  10. ¶ 5390Drafting the DAO LLC: Articles, Operating Agreement and Smart Contracts
    1. 5390.01Three documents
    2. 5390.02The articles
    3. 5390.03The statement of management
    4. 5390.04Identifiers, versions and amendments
    5. 5390.05The operating agreement
    6. 5390.06Reconciling code and documents
    7. 5390.07Emergency powers and upgrade governance
    8. 5390.08Checklist

Chapter 54Non-U.S. LLC Statutes and Cross-Border Use

  1. ¶ 5401Overview
    1. 5401.01Scope of the chapter
    2. 5401.02Why these four
    3. 5401.03Relation to other chapters
    4. 5401.04Organization
  2. ¶ 5410Common Features of Non-U.S. LLC Statutes
    1. 5410.01Two families
    2. 5410.02The charging order abroad
    3. 5410.03The fraudulent-transfer rule
    4. 5410.04Separate personality and the shield
    5. 5410.05Continuation and redomiciliation
    6. 5410.06Tax neutrality and its decline
  3. ¶ 5420Nevis
    1. 5420.01The statute
    2. 5420.02Formation
    3. 5420.03The operating agreement
    4. 5420.04Management
    5. 5420.05Members and transfers
    6. 5420.06The liability shield
    7. 5420.07The charging order
    8. 5420.08Capital calls and tax payments
    9. 5420.09Avoidance of fraud
    10. 5420.10The bond
    11. 5420.11Redomiciliation
    12. 5420.12Nevis taxation
  4. ¶ 5430Belize
    1. 5430.01The statute and its renaming
    2. 5430.02The 2023 reforms
    3. 5430.03Formation and duration
    4. 5430.04The liability shield
    5. 5430.05No veil piercing
    6. 5430.06The charging order
    7. 5430.07Fraudulent conveyance
    8. 5430.08Foreign judgments
    9. 5430.09Taxation after 2023
    10. 5430.10Transfer of domicile
  5. ¶ 5440The Cook Islands
    1. 5440.01The statute
    2. 5440.02The charging order
    3. 5440.03No fraudulent-transfer rule of its own
    4. 5440.04The trust-and-LLC structure
    5. 5440.05Formation and administration
    6. 5440.06Proposed amendments
    7. 5440.07Definitions and change of control
    8. 5440.08Operating agreement, protectors and governing law
    9. 5440.09Protection from interference
    10. 5440.10Allocations, distributions and tax payments
    11. 5440.11A fraudulent-transfer rule for LLCs
    12. 5440.12Certificates, assignment, expulsion and series
  6. ¶ 5450The Marshall Islands
    1. 5450.01The statute
    2. 5450.02A Delaware statute abroad
    3. 5450.03Resident and non-resident LLCs
    4. 5450.04Separate entity and shield
    5. 5450.05The charging order
    6. 5450.06Domestication, transfer, conversion and series
    7. 5450.07Uses
  7. ¶ 5460Other Jurisdictions and a Comparison
    1. 5460.01Other statutes
    2. 5460.02Choosing among the four
  8. ¶ 5470Paying Members' Taxes While a Charging Order Is in Force
    1. 5470.01The problem
    2. 5470.02The American statutes
    3. 5470.03What the LLC may do
    4. 5470.04The Nevis statute
    5. 5470.05The elements of section 60(18)
    6. 5470.06Effect and limits
  9. ¶ 5480Federal Tax Classification and Reporting
    1. 5480.01Eligible entities
    2. 5480.02Default classification
    3. 5480.03Reporting
    4. 5480.04Local tax and U.S. tax interaction
  10. ¶ 5490Cross-Border Use and the Treatment of Non-U.S. LLCs by American Courts
    1. 5490.01The governing law of the interest
    2. 5490.02Jurisdiction over the LLC
    3. 5490.03Orders directed to the member
    4. 5490.04Contempt and impossibility
    5. 5490.05No full faith and credit abroad
    6. 5490.06Assets in the United States
    7. 5490.07Recognition of the shield
    8. 5490.08Planning checklist

Chapter 55Asset Protection Planning with LLCs

  1. ¶ 5501Overview
    1. 5501.01Scope of the chapter
    2. 5501.02Relation to the companion treatise
    3. 5501.03The two problems compared
    4. 5501.04Timing
    5. 5501.05Organization
  2. ¶ 5510The Charging Order as the Core of Outside Protection
    1. 5510.01The remedy
    2. 5510.02Exclusivity
    3. 5510.03Foreclosure states
    4. 5510.04The single-member LLC
    5. 5510.05The Florida statute and foreign LLCs
    6. 5510.06Wyoming
    7. 5510.07Distributions and the manager's discretion
    8. 5510.08Phantom income
  3. ¶ 5520The Limits of Outside Protection
    1. 5520.01Five routes around the charging order
    2. 5520.02Voidable transfers
    3. 5520.03Reverse veil piercing
    4. 5520.04Bankruptcy of the member
    5. 5520.05The forum
    6. 5520.06Orders against the member
    7. 5520.07Tax payments under a charging order
  4. ¶ 5530Structuring the LLC for Outside Protection
    1. 5530.01Genuine co-owners
    2. 5530.02Trusts as members
    3. 5530.03Management
    4. 5530.04Transfer restrictions and redemption
    5. 5530.05Distribution provisions
    6. 5530.06The choice of formation state
  5. ¶ 5540Protecting the LLC's Assets from Its Own Creditors
    1. 5540.01The statutory shield
    2. 5540.02What the shield does not cover
    3. 5540.03Veil piercing
    4. 5540.04The Wyoming statute
    5. 5540.05The 2016 amendment
    6. 5540.06Other statutory limits
    7. 5540.07Capitalization and insurance
    8. 5540.08Formalities and separateness
  6. ¶ 5550Segregation and Structure
    1. 5550.01The principle
    2. 5550.02Holding and operating companies
    3. 5550.03Upstream protection
    4. 5550.04Series LLCs
    5. 5550.05Bankruptcy-remote entities
    6. 5550.06Insurance across the structure
  7. ¶ 5560Delaware LLCs and the Court of Chancery
    1. 5560.01The statute
    2. 5560.02Interim relief
    3. 5560.03Reverse piercing and other routes
    4. 5560.04Equitable dissolution
    5. 5560.05The fraudulent transfer statute
    6. 5560.06The forum
    7. 5560.07Relevance to asset protection
  8. ¶ 5570Nevis, Belize and the Cook Islands
    1. 5570.01Why look offshore
    2. 5570.02Nevis: the charging order
    3. 5570.03Nevis: fraudulent transfers and the bond
    4. 5570.04Belize
    5. 5570.05The Cook Islands
    6. 5570.06How the offshore statutes help
    7. 5570.07Tax classification
  9. ¶ 5580The Planning Matrix
    1. 5580.01Matching the structure to the threat
    2. 5580.02Reading the matrix
    3. 5580.03Selecting the formation jurisdiction
    4. 5580.04Costs and maintenance
  10. ¶ 5590Checklist
    1. 5590.01Outside protection
    2. 5590.02Inside protection
    3. 5590.03Offshore layers
    4. 5590.04Relation to other chapters

Chapter 56Drafting the Operating Agreement: A Clause-by-Clause Guide

  1. ¶ 5601Overview
    1. 5601.01Purpose of the chapter
    2. 5601.02Why the order of the agreement matters
    3. 5601.03The two reference statutes
    4. 5601.04What the agreement may and may not do
    5. 5601.05Method
    6. 5601.06Organization
    7. 5601.07Defined terms used in the model provisions
    8. 5601.08A note on forms
  2. ¶ 5610The Drafting Process and the Preliminary Articles
    1. 5610.01The sequence of work
    2. 5610.02Timing of the agreement
    3. 5610.03Parties and persons bound
    4. 5610.04Recitals
    5. 5610.05Name
    6. 5610.06Purpose
    7. 5610.07Powers
    8. 5610.08Registered office and agent
    9. 5610.09Term
    10. 5610.10The definitions article
    11. 5610.11Planning Note
    12. 5610.12Negotiation with investors
    13. 5610.13Conforming the certificate and the tax filings
  3. ¶ 5620Members, Units, Admission and Capital
    1. 5620.01The members schedule
    2. 5620.02Units or percentages
    3. 5620.03Classes and series of interests
    4. 5620.04Admission of new members
    5. 5620.05Contributions
    6. 5620.06Additional capital
    7. 5620.07Default remedies
    8. 5620.08Member loans
    9. 5620.09Preemptive rights
  4. ¶ 5630Allocations, Tax Provisions and Distributions
    1. 5630.01Two articles that must be read together
    2. 5630.02The defaults
    3. 5630.03Layered allocations
    4. 5630.04Target allocations
    5. 5630.05Contributed property and revaluations
    6. 5630.06Tax distributions
    7. 5630.07The partnership representative
    8. 5630.08The waterfall
    9. 5630.09Limitations on distributions
    10. 5630.10Distributions in kind
  5. ¶ 5640Management, Voting and Information
    1. 5640.01The first choice: member management or manager management
    2. 5640.02Authority to bind
    3. 5640.03Member-managed defaults
    4. 5640.04Manager-managed defaults
    5. 5640.05A board of managers
    6. 5640.06Officers and delegation
    7. 5640.07Reserved matters
    8. 5640.08Voting, meetings and written consents
    9. 5640.09Information rights
    10. 5640.10Example 56-2
  6. ¶ 5650Duties, Conflicts, Exculpation and Indemnification
    1. 5650.01Three approaches to fiduciary duties
    2. 5650.02Who owes duties
    3. 5650.03Elimination and its limits
    4. 5650.04Contractual standards and safe harbors
    5. 5650.05Conflict procedures where duties remain
    6. 5650.06Business opportunities and competition
    7. 5650.07Exculpation
    8. 5650.08Indemnification and advancement
    9. 5650.09Insurance and reliance
    10. 5650.10Public policy limits
  7. ¶ 5660Transfers, Exit and Deadlock
    1. 5660.01The default rules on transfer
    2. 5660.02Drafting the restriction
    3. 5660.03Rights of first refusal and first offer
    4. 5660.04Drag-along and tag-along rights
    5. 5660.05Buy-sell provisions
    6. 5660.06Withdrawal and resignation
    7. 5660.07Expulsion
    8. 5660.08Death, incapacity and bankruptcy of a member
    9. 5660.09Deadlock
    10. 5660.10Example 56-3
  8. ¶ 5670Dissolution, Entity Transactions, Disputes and Remedies
    1. 5670.01Events of dissolution
    2. 5670.02Continuation after the last member
    3. 5670.03Winding up
    4. 5670.04Distribution of assets
    5. 5670.05Mergers, conversions and divisions
    6. 5670.06Governing law and forum
    7. 5670.07Arbitration, jury waivers and fees
    8. 5670.08Remedies
  9. ¶ 5680Creditor-Protection Provisions and Variations
    1. 5680.01What the agreement can and cannot do for a member's creditors
    2. 5680.02Provisions that matter
    3. 5680.03Tax payments while a charging order is in force
    4. 5680.04Florida
    5. 5680.05The single-member LLC
    6. 5680.06The series LLC
    7. 5680.07The DAO LLC
    8. 5680.08The LLC taxed as an S corporation
    9. 5680.09The real estate LLC
  10. ¶ 5690General Provisions, Summary Table and Pre-Signing Checklist
    1. 5690.01Amendment
    2. 5690.02Entire agreement and side letters
    3. 5690.03Severability
    4. 5690.04Counterparts and electronic signatures
    5. 5690.05Spousal consents
    6. 5690.06Notices, construction and third parties
    7. 5690.07Summary
    8. 5690.08Pre-signing checklist

Appendices

Appendix AFifty-State Statutory Survey

  1. ¶ A01Introduction and Method
    1. A01.01Purpose
    2. A01.02The five surveys
    3. A01.03Sources and as-of date
    4. A01.04How to read the tables
    5. A01.05Default management
  2. ¶ A10The Statutes
    1. A10.01The survey
    2. A10.02The pattern
    3. A10.03Transition dates
    4. A10.04Professional LLCs
  3. ¶ A20Series and Protected Series
    1. A20.01The survey
    2. A20.02Jurisdictions without a series statute
    3. A20.03Recognition elsewhere
  4. ¶ A30Charging Orders and Creditor Remedies
    1. A30.01The survey
    2. A30.02Reading the table
    3. A30.03Florida
    4. A30.04Statutes with no exclusivity language
  5. ¶ A40Judicial Dissolution and Modification of Fiduciary Duties
    1. A40.01The survey
    2. A40.02Two lines of statute
    3. A40.03Fiduciary duties
    4. A40.04Delaware as a forum
  6. ¶ A50Annual Reports, Fees and Entity-Level Charges
    1. A50.01The survey
    2. A50.02Sources
    3. A50.03The cost of a two-state structure
  7. ¶ A60Notes on Selected States
    1. A60.01Delaware
    2. A60.02Wyoming
    3. A60.03Nevada
    4. A60.04Texas
    5. A60.05Florida
    6. A60.06New York
    7. A60.07California
    8. A60.08South Dakota
    9. A60.09Tennessee
    10. A60.10Recent replacements
  8. ¶ A70Territories
    1. A70.01Puerto Rico
    2. A70.02Guam and the U.S. Virgin Islands
    3. A70.03Non-U.S. statutes

Appendix BUniform Act Comparison Tables

  1. ¶ B01Introduction
    1. B01.01Purpose of the appendix
    2. B01.02Why the 1996 Act still matters
    3. B01.03Texts used and citation conventions
    4. B01.04How to read a row
    5. B01.05Variation among adopting states
  2. ¶ B10The Acts and Their Versions
    1. B10.01Chronology
    2. B10.02The 2006 and 2013 numbering of the Revised Uniform Act
    3. B10.03The 2013 numbering of winding up
    4. B10.04Delaware's structure
  3. ¶ B20Nature, Formation and the Operating Agreement
    1. B20.01Scope of the table
    2. B20.02The mandatory rules compared
    3. B20.03Practical effect
  4. ¶ B30Management, Agency, Liability and Duties
    1. B30.01Scope of the table
    2. B30.02Voting by profits interest
    3. B30.03The manager-managed company under the Revised Uniform Act
  5. ¶ B40Contributions and Distributions
    1. B40.01Scope of the table
    2. B40.02The equal-shares default
    3. B40.03The solvency test
  6. ¶ B50Transfers, Admission and Charging Orders
    1. B50.01Scope of the table
    2. B50.02Foreclosure and the single-member company
    3. B50.03Florida
  7. ¶ B60Dissociation, Dissolution and Winding Up
    1. B60.01Scope of the table
    2. B60.02Contracting around judicial dissolution
    3. B60.03Old Delaware LLCs
  8. ¶ B70Entity Transactions, Foreign LLCs and Member Actions
    1. B70.01Scope of the table
    2. B70.02Unanimity and entity transactions
    3. B70.03Delaware forum
  9. ¶ B80Protected Series: The Uniform Act and Delaware
    1. B80.01Scope of the table
    2. B80.02Section 404 of the uniform act
    3. B80.03Enactments
  10. ¶ B90Adopting Jurisdictions and Using the Tables
    1. B90.01Enactments
    2. B90.02Other jurisdictions
    3. B90.03Using the tables in practice

Appendix CModel Operating Agreements

  1. ¶ C01Introduction and Use
    1. C01.01Purpose
    2. C01.02Governing law
    3. C01.03Conventions
    4. C01.04How the models are built
    5. C01.05The models
    6. C01.06What the models do not address
  2. ¶ C10Model A: Single-Member LLC Agreement
    1. C10.01Use
    2. C10.02Choices made
    3. C10.03The special-purpose rider
    4. C10.04Creditor protection
    5. C10.05Model A
  3. ¶ C20Model B: Manager-Managed LLC Agreement
    1. C20.01Use
    2. C20.02Management
    3. C20.03Economics
    4. C20.04Capital calls and default
    5. C20.05Tax provisions
    6. C20.06Duties and their limits
    7. C20.07Exits and disputes
    8. C20.08Model B, Articles 1 to 6
    9. C20.09Model B, Articles 7 to 14
  4. ¶ C30Model C: Family LLC Agreement
    1. C30.01Use
    2. C30.02Voting and Nonvoting Units
    3. C30.03The Manager's discretion
    4. C30.04Restrictions on liquidation and transfer
    5. C30.05Operating the company
    6. C30.06Model C
  5. ¶ C40Rider D: Creditor-Protection Provisions
    1. C40.01Use
    2. C40.02The Delaware rules the rider restates
    3. C40.03Tax distributions and a charged member
    4. C40.04Florida
    5. C40.05Rider D
  6. ¶ C50Rider E: S Corporation Conformity
    1. C50.01Use
    2. C50.02What the rider replaces
    3. C50.03Why the defaults must be displaced
    4. C50.04Distributions that differ in timing
    5. C50.05Eligible shareholders
    6. C50.06Rider E
  7. ¶ C60Model F: Wyoming DAO LLC Provisions
    1. C60.01Use
    2. C60.02The statement of management
    3. C60.03Human control and dissolution
    4. C60.04Precedence
    5. C60.05Duties and information
    6. C60.06Part 1: provisions for the articles of organization
    7. C60.07Part 2: provisions for the operating agreement
  8. ¶ C70Execution, Schedules and Conforming Documents
    1. C70.01Schedules
    2. C70.02Joinder
    3. C70.03Spousal consent
    4. C70.04Signature blocks
    5. C70.05Conforming the certificate of formation
    6. C70.06Before signing

Appendix DForms: Certificates, Consents, Assignments and Resolutions

  1. ¶ D01Introduction and Use
    1. D01.01The forms
    2. D01.02Conventions
    3. D01.03Filings and private instruments
    4. D01.04Execution and electronic signatures
    5. D01.05Table of forms
    6. D01.06Relation to the model agreements
  2. ¶ D10Delaware Filings
    1. D10.01Use of the filing forms
    2. D10.02Form D-1: purpose
    3. D10.03Form D-2: purpose
    4. D10.04Form D-3: purpose
    5. D10.05Form D-4: purpose
    6. D10.06Form D-5: purpose
    7. D10.07Form D-6: purpose
  3. ¶ D20Wyoming DAO LLC Articles and Foreign Registration
    1. D20.01Form D-7: purpose
    2. D20.02The statement of management
    3. D20.03Form D-8: purpose
  4. ¶ D30Organizational and Governance Consents
    1. D30.01Action without a meeting
    2. D30.02Form D-9: purpose
    3. D30.03Form D-10: purpose
    4. D30.04Form D-11: purpose
    5. D30.05Form D-12: purpose
    6. D30.06Form D-13: purpose
  5. ¶ D40Related-Party Approval, Partnership Representative and Classification
    1. D40.01Form D-14: purpose
    2. D40.02Form D-15: purpose
    3. D40.03Form D-16: purpose
  6. ¶ D50Assignments, Admissions, Spousal Consents and the Article 8 Opt-In
    1. D50.01Form D-17: purpose
    2. D50.02Form D-18: purpose
    3. D50.03Form D-19: purpose
    4. D50.04Form D-20: purpose
  7. ¶ D60Creditor and Litigation Forms
    1. D60.01Form D-21: purpose
    2. D60.02Form D-22: purpose
    3. D60.03Form D-23: purpose
  8. ¶ D70Dissolution
    1. D70.01Form D-24: purpose
    2. D70.02Form D-25: purpose
    3. D70.03Form D-26: purpose
  9. ¶ D80Officer's Certificate, Good Standing and Beneficial Ownership Information
    1. D80.01Form D-27: purpose
    2. D80.02Form D-28: purpose
    3. D80.03Form D-29: purpose
    4. D80.04Keeping the forms current

Appendix ETax Elections and Reporting Calendar

  1. ¶ E01Introduction and Use
    1. E01.01Purpose of the appendix
    2. E01.02How the deadlines are stated
    3. E01.03Extensions
    4. E01.04Currency of the information
    5. E01.05Organization
  2. ¶ E10Classification and S Corporation Elections
    1. E10.01The classification election
    2. E10.02The S election
    3. E10.03Trust shareholders
  3. ¶ E20Partnership-Level Elections
    1. E20.01The § 754 election
    2. E20.02The election out of the centralized audit regime
    3. E20.03Designating the partnership representative
    4. E20.04The push-out election and the modification period
    5. E20.05Methods under § 704(c)
  4. ¶ E30Member-Level Elections and Periods
    1. E30.01The § 83(b) election
    2. E30.02Like-kind exchange periods
    3. E30.03Gift tax returns and GST allocation
    4. E30.04Section 199A aggregation
    5. E30.05State pass-through entity tax elections
  5. ¶ E40The Federal Calendar for a Calendar-Year LLC
    1. E40.01Returns of an LLC taxed as a partnership
    2. E40.02Returns of an LLC taxed as a corporation
    3. E40.03Members' estimated tax
    4. E40.04Employment and information returns
  6. ¶ E50State Annual Reports and Entity-Level Taxes
    1. E50.01Delaware
    2. E50.02Wyoming
    3. E50.03California
    4. E50.04Texas
    5. E50.05New York
  7. ¶ E60Foreign Members, Foreign-Owned LLCs and Information Returns
    1. E60.01Withholding on foreign members under § 1446
    2. E60.02The foreign-owned disregarded LLC
    3. E60.03Foreign financial accounts
    4. E60.04Beneficial ownership information
  8. ¶ E70Figures for 2026
    1. E70.01Sources
    2. E70.02Figures that change in later years

Appendix FChecklists: Formation, Admission, Transfer, Dissolution

  1. ¶ F01Introduction and Use
    1. F01.01Purpose
    2. F01.02Cross-references
    3. F01.03Conventions
    4. F01.04Relation to the chapter checklists
  2. ¶ F10Choice of Jurisdiction and Entity
    1. F10.01When the checklist applies
    2. F10.02The checklist
  3. ¶ F20Formation
    1. F20.01When the checklist applies
    2. F20.02Before filing
    3. F20.03At formation
    4. F20.04After formation
  4. ¶ F30Operating Agreement Review
    1. F30.01When the checklist applies
    2. F30.02The checklist
  5. ¶ F40Admission of a New Member
    1. F40.01When the checklist applies
    2. F40.02Approval and offering
    3. F40.03Admission
    4. F40.04Capital and tax
  6. ¶ F50Transfer of an Interest
    1. F50.01When the checklist applies
    2. F50.02Authority and restrictions
    3. F50.03Documentation
    4. F50.04Tax
  7. ¶ F60Pledges and Financing of Interests
    1. F60.01When the checklist applies
    2. F60.02The checklist
  8. ¶ F70Creditor Events, Bankruptcy, Death and Divorce
    1. F70.01When the checklist applies
    2. F70.02A charging order is served
    3. F70.03A member files for bankruptcy
    4. F70.04A member dies
    5. F70.05A member divorces
  9. ¶ F80Dissociation and Expulsion
    1. F80.01When the checklist applies
    2. F80.02Withdrawal or resignation
    3. F80.03Expulsion
    4. F80.04After dissociation
  10. ¶ F90Dissolution, Winding Up and Termination
    1. F90.01When the checklist applies
    2. F90.02Dissolution
    3. F90.03Winding up
    4. F90.04Tax
    5. F90.05Termination
  11. ¶ F95Conversions and Mergers; Annual Compliance Review
    1. F95.01When the checklists apply
    2. F95.02Conversions and mergers
    3. F95.03Annual compliance review

Appendix GGlossary

  1. ¶ G01Introduction and Conventions
    1. G01.01Scope
    2. G01.02Conventions
    3. G01.03Florida terms
  2. ¶ G10A–B
  3. ¶ G20C
  4. ¶ G30D–E
  5. ¶ G40F–I
  6. ¶ G50J–M
  7. ¶ G60N–P
  8. ¶ G70Q–R
  9. ¶ G80S
  10. ¶ G90T–Z

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