2020 Amendments to the Delaware Limited Liability Company Act, Delaware Uniform Revised Partnership Act, and Delaware Revised Uniform Limited Partnership Act

Governor John C. Carney, Jr. signed amendments to the Delaware Limited Liability Company Act, the Delaware Revised Uniform Partnership Act, and the Delaware Revised Uniform Limited Partnership Act into law in July 2020.

The following is a summary of the most important amendments impacting the operation of Delaware limited liability companies (“LLCs”), limited partnerships (“LPs”) and partnerships. As set forth in more detail below, this year’s amendments to the LLC Act, the LP Act and DRUPA generally (i) disclaim statutory appraisal rights, (ii) identify foreign entities that may serve as registered agents, (iii) clarify the rights and responsibilities of registered agents, (iv) enforce the authority of electronic signatures and permit LLCs, LPs, and partnerships to maintain books, records and other information in electronic form and (v) eliminate the Delaware Secretary of State’s certification requirements for certain transactions. In addition, the amendments to the LLC Act specifically address admission of members, the amendments to the LP Act address admission of partners and the amendments to DRUPA address naming requirements in a foreign limited liability partnership’s statement of foreign qualifications.

Appraisal Rights

The proposed amendments to Section 18-210 of the LLC Act confirm that appraisal rights are not statutorily available with respect to a limited liability company interest or another interest in a limited liability company, including in connection with the enumerated transactions unless otherwise provided for in the enumerated documents. In order to make available appraisal rights with respect to a limited liability company interest or another interest in a limited liability company, such rights must be enumerated in a limited liability company agreement or an agreement of merger or consolidation or a plan of merger or a plan of division.

In comparison, the proposed amendments to Section 17-212 of the LP Act confirm that appraisal rights are not statutorily available with respect to a partnership interest or another interest in a limited partnership. In order to make available appraisal rights with respect to a partnership interest or another interest in a limited partnership, such rights must be provided in a partnership agreement, an agreement of merger or consolidation, a plan of merger or a plan of division.

The proposed amendments to Section 15-120 of DRUPA clarify that no appraisal rights are available with respect to a partnership interest, or another interest in a partnership unless otherwise provided in certain enumerated documents (such as the partnership agreement). Likewise, the proposed amendments to DRUPA narrowed the Delaware Court of Chancery’s jurisdiction over matters concerning appraisal rights to those rights provided in a partnership agreement or an agreement of merger or consolidation or a plan of merger. Therefore, limited liability companies, limited partnerships and partnerships no longer have statutory appraisal rights and must provide for appraisal via contract.

Registered Agents

The proposed amendments to Section 18-904(e) of the LLC Act and Section 17-904(e) of the LP Act provide that a resigning registered agent of a foreign limited liability company or limited partnership that ceases to be registered pursuant to Section 18-1107(h) or 17-1109(g), respectively, need not provide a successor registered agent. Additionally, the proposed amendments in both the LLC Act and the LP Act change two procedural requirements. Particularly: (i) the Delaware Secretary of State no longer needs to issue a certified copy of any certificate filed by the registered agent changing the address of the registered office or the name of the registered agent, and (ii) the Delaware Secretary of State no longer needs to issue a certificate in connection with the resignation of the registered agent of a domestic or foreign limited liability company or limited partnership and the appointment of the successor registered agent. Further, the proposed amendments to the LLC Act and the LP Act enumerate that the conversion of the registered agent, or a division of the registered agent, which results in succession of all the registered agent’s assets and liabilities or business of such registered agent shall be deemed to be a change of name.

The proposed amendments to Sections 18-104 and 18-904(b)(2)(c) of the LLC Act identify the types of foreign entities that may be registered agents of both limited liability companies and foreign limited liability companies, respectively. Particularly, Section 18-104(a)(2)(d) of the LLC Act will read, “A foreign corporation, a foreign limited liability partnership, a foreign limited partnership (including a foreign limited liability partnership), a foreign limited liability company, or a foreign statutory trust.”

Similarly, the proposed amendments to Sections 17-104(a)(2)(d) and 17-904(b)(2)(c) of the LP Act identify the types of foreign entities that may be a registered agent of a limited partnership and a foreign limited partnership respectively. Additionally, amendments to Section 17-904(a) of the LP Act will clarify the requirements regarding the name under which a foreign limited partnership may register with the Delaware Secretary of State. The proposed language will add requirements regarding the content and form of certificate of resignation filed with the Delaware Secretary of State when the registered agent resigns without appointing a successor and provides that such information regarding the communications contact that must be included in such a certificate shall not be deemed public.

Under Section 15-111(a) of DRUPA, all Delaware partnerships must maintain a registered agent in the state. The proposed amendments to DRUPA identify that a foreign corporation, a foreign limited liability partnership, a foreign limited partnership (including a foreign limited liability limited partnership), a foreign limited liability company or a foreign statutory trust may serve as a registered agent for a partnership. In addition, the proposed amendments expand what constitutes a change of name for registered agents under Section 15-111(b) of DRUPA.

Storage and Execution of Documents

The proposed amendments to the LLC Act, the LP Act and DRUPA seek to allow more flexibility in the storage and execution of entity documents. Particularly, the proposed amendments to Section 18-305(d) of the LLC Act, Section 17-305(c) of the LP Act and Section 15-403 of DRUPA confirm that limited liability companies, limited partnerships and partnerships may maintain books, records and other information in a form other than paper (including electronic form) if such alternate form is capable of being converted into paper form within a reasonable period of time. Further, proposed amendments to Section 18-113(a)(2) of the LLC Act, Section 17-113(a)(2) of the LP Act and Section 15-124 of DRUPA will clarify that a person may execute a document by using a manual, facsimile, conformed or electronic signature.

Concerning the division of an entity, the proposed amendments to Section 18-217(h) of the LLC Act and Section 17-220(h) of the LP Act each add language which offer limited liability companies and limited partnerships, respectively, the flexibility to state additional information in a certificate of division beyond what was previously allowed. Additionally, amendments to Section 18-218(d)(4) of the LLC Act and Section 17-221(d)(4) of the LP Act each add language which confirm that if the certificate of registered series no longer complies with the requirements of Section 18-218(e)(1) and Section 17-221(e)(1), respectively, the certificate of registered series must be promptly amended.

Elimination of Certification Requirements

The proposed amendments to Sections 18-213(c), 18-216(f) and 18-220(f) of the LLC Act eliminate the requirement that the Delaware Secretary of State certify that the limited liability company has filed all documents and paid all fees required. Instead, the updates provide that a copy of the certificate of transfer and domestic continuance (18-213(c)), a copy of the certificate of conversion (18-216(f)), or a copy of the certificate of conversion of registered series to protected series (18-220(f)) shall each be prima facie evidence of such limited liability company’s transfer to or domestication or continuance in another jurisdiction and its continuance as a limited liability company in the State of Delaware, the conversion by such limited liability company out of the State of Delaware, and the conversion by such registered series to a protected series of such limited liability company, respectively.

Similarly, the proposed amendments to Sections 17-216(c), 17-219(f) and 17-223(f) of the LP Act each eliminate the requirement that the Delaware Secretary of State certify that the limited partnership has filed all documents and paid all fees required. Instead, the LP Act provisions propose the following: (i) Section 17-216(c) will allow that a copy of a certificate of transfer and domestic continuance constitute prima facie evidence of such limited partnership’s transfer to or domestication or continuance in another jurisdiction and its continuance as a limited partnership in the State of Delaware, (ii) Section 17-219(f) will allow that a certificate of conversion to non-Delaware entity constitutes prima facie evidence of the conversion by such limited partnership, and (iii) Section 17-223(f) will allow that a certificate of conversion of registered series to protected series constitutes prima facie evidence of the conversion by such registered series to a protected series of such limited partnerships.

In addition, Section 15-903(f) of DRUPA addresses when a Delaware partnership converts to a non-Delaware entity. Section 15-905(c) of DRUPA addresses when a Delaware partnership transfers to, domesticates or continues in another jurisdiction.  Both Sections 15-903(f) and 15-905(c) require the Delaware Secretary of State to certify that the partnership filed all documents and paid all fees in connection with the transaction. The 2020 amendments to DRUPA, however, eliminate the Delaware Secretary of State’s certification requirements under Sections 15-903(f) and 15-905(c). Instead, the amended Section 15-903(f) provides that a copy of the certificate of conversion to a non-Delaware entity certified by the Delaware Secretary of State shall be prima facie evidence of the conversion by such partnership out of the State of Delaware. Similarly, the amended Section 15-905(c) provides that a copy of the certificate of transfer and domestic continuance certified by the Delaware Secretary of State shall be prima facie evidence of such partnership’s transfer to or domestication or continuance in another jurisdiction and its continuance as a partnership in the State of Delaware.

Admission of Members and Partners

The proposed amendments to Section 18-301 of the LLC Act seek to accomplish three goals related to the admission of members of limited liability companies. First, the addition of language to Section 18-301(a)(2) of the LLC Act confirms that, in addition to records, a limited liability company agreement itself may provide for the admission of members in connection with formation. Second, an update to the language of Section 18-301(b)(1) of the LLC Act eliminates any statutory requirement that would otherwise subject a member’s admission after formation to such admission being reflected in the records of the limited liability company. Third, the elimination of language in Section 18-301(b)(2) of the LLC Act clarifies that an assignee of a limited liability company interest is admitted as a member as provided for in Section 18-704(a) of the LLC Act.

Similarly, the 2020 proposed amendments to Section 17-301 of the LP Act seek to accomplish three goals related to the admission of limited partners. First, the addition of language to Section 17-301(a)(2) of the LP Act will confirm that, in addition to records, a partnership agreement itself may provide for the admission of partners in connection with the formation of a limited partnership. Second, an update to the language of Section 17-301(b)(1) of the LP Act will eliminate any statutory requirement that a partner's admission after formation be reflected in the records of the limited partnership. Third, the elimination of language in Section 17-301(b)(2) of the LP Act will clarify that an assignee of a partnership interest is admitted as a partner as provided for in Section 17-704(a).

Foreign Limited Liability Partnership

Before doing business in Delaware, Section 15-1102 of DRUPA requires foreign limited liability partnerships to register with the Delaware Secretary of State by filing (i) a statement of foreign qualification and (ii) a certificate, as of a date not earlier than 6 months prior to the filing date, issued by an authorized officer of the jurisdiction of its formation evidencing its existence. The proposed amendments to DRUPA confirm that the name of a foreign limited liability partnership set forth in its statement of foreign qualification must comply with Sections 15-108(c) and 15-108(d) of DRUPA.

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