The Corporate Law Section of the Delaware State Bar Association has proposed a number of amendments to the Delaware Limited Liability Company Act (the “LLC Act”) and the Delaware Revised Uniform Limited Partnership Act (the “LP Act”). If enacted (as is expected), these amendments will be effective as of August 1, 2017.
The following is a summary of the most important amendments impacting the creation, regulation, operation and dissolution of limited liability companies (“LLCs”) and limited partnerships (“LPs”). These amendments modify statutory provisions covering: (i) the power and authority to delegate management and control of LLCs and LPs, (ii) the requirements for the formation documents of LLCs and LPs, (iii) the expansion of limited partner safe harbors and (iv) the confirmation of entities which may merge, consolidation, convert and domesticate.
Power and Authority to Delegate
The proposal to amend Section 18-407 of the LLC Act and Section 17-403(c) of the LP Act is aimed at confirming and clarifying that it is within the broad power and authority of members, managers, partners, or general partners, as applicable, to delegate “any and all” of their rights, powers and duties to manage and control the business and affairs of LLCs and LPs, including core governance functions. These amendments were proposed in response to Obied v. Hogan, 2016 WL 3356857 (Del. Ch. 2016), where Vice Chancellor Laster held that members of two LLCs did not have power to delegate their authority in the context of forming a special litigation committee. Following Obied, there existed some ambiguity on the issue of delegation, and the purpose of these amendments is to confirm the broad scope of permissible delegation under the LLC Act and LP Act.
Formation Requirements – Substantial Compliance
Section 18-201 of the LLC Act and Section 17-201 of the LP Act are proposed to be amended this year with the goal of clarifying requirements for certificates of formation and certificates of limited partnership. Under the current versions of the LLC Act and the LP Act, a certificate of formation and a certificate of limited partnership must contain the address of the registered office and name and address of the registered agent of the entity. A common deficiency in these documents is the failure to designate separately an address for the registered agent or registered office and the failure to expressly designate the registered agent as such. If these amendments are enacted into law, certificates of formation and certificates of limited partnership substantially comply with Section 18-201 and Section 17-201 if they contain the name of the registered agent and the address of the registered office.
Expansion of Limited Partnership Safe Harbors
Section 17-303 of the LP Act is proposed to be amended this year with the goal of providing further guidance on limited partner liability. Under the LP Act, limited partners are generally not liable for the obligations of the LP unless they are general partners or participate in the control of the business of the LP. However, there has always been some question regarding whether owning an interest in the general partner constitutes “participating in the control of the business” of the LP. This amendment permits a limited partner to hold any type of interest in the general partner without participating in control of the business of the LP. The amendment clarifies the scope of the safe harbor and increases flexibility for creating ownership structures that minimize limited partner liability.
Confirmation of Entities which may Merge, Consolidate, Convert, and Domesticate
Sections 18-209, 18-212, 18-214 and 18-216 of the LLC Act and Sections 17-211, 17-215, 17-217 and 17-219 of the LP Act are proposed to be amended this year with the goal of confirming the various entities that may engage in transactions to merge, consolidate, convert, and domesticate. These entities include: (i) other business entities, (ii) non-United States entities, (iii) other entities (including any incorporated or unincorporated business or entity), and (iv) domestic LLCs and LPs. Similar to the amendments above, these amendments aim to clarify the ability of alternative entities to engage in these transactions in a manner that complies with the LLC Act and LP Act.