First state update case law developments and updates to delaware llc act

Sept 28, 2016

First State Update: Case Law Developments and Updates to Delaware’s LLC ActPresented by: Matthew J. O’Toole, Christopher N. Kelly, and Michael P. Maxwell of Potter Anderson & Corroon LLP

in partnership with LexisNexis®

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Introduction | Meet the Presenters

Matthew J. O’ToolePotter Anderson & Corroon

[email protected]

m(302) 984-6114

-Legal Advisor to CSC® Publishing

Christopher N. KellyPotter Anderson & Corroon LLP

[email protected](302) 984-6178

-

Michael P. MaxwellPotter Anderson & Corroon

[email protected]

om(302) 984-6121

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Introduction

Case Law Developments

1. In re Carlisle Etcetera LLC (equitable dissolution; required formalities)

2. Obeid v. Hogan (authority to delegate)

Notable 2016 Amendments to Delaware Limited Liability Company Act

1. Service of process upon a series of a Delaware limited liability company

2. Other series matters

3. Manner in which members and managers may take action

4. Admission of an assignee as a member

5. Continued membership of a member

6. Effective date

Q&A

Concluding Remarks

Agenda

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In re Carlisle Etcetera LLC, 114 A.3d 592 (Del. Ch. 2015).Background

• Multimember LLC• Transfer of interest• Petition for judicial dissolution

Assignments of LLC Interests and Admission of Members• Effect of assignment and admission of members• Formality of affirmative vote or written consent

Equitable Judicial Dissolution• Section 18-802 is not exclusive means to obtain dissolution


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Obeid v. Hogan, C.A. No. 11900-VCL (Del. Ch. June 10, 2016). Background

• Corporate / manager-managed LLC• Litigation• Special litigation committee comprised of non-director

Delegation of Management Rights• Analogies to corporate law committee delegations• Intent to imitate corporate structure by LLC resulted in application of

corporate law principles to the LLC agreement


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2016 Amendments to Delaware Limited Liability Company Act

(the “Act”)

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Section 18-105 of the Act, as amended, provides for service of legal process upon a series of a Delaware limited liability company.

Service of process shall be made by:delivering a copy personally to any manager of the limited liability company in the State of Delaware;delivering a copy personally to the registered agent of the limited liability company in the State of Delaware;leaving it at the dwelling house or usual place of abode in the State of Delaware of any such manager or registered agent (if the registered agent be an individual); or leaving it at the registered office or other place of business of the limited liability company in the State of Delaware.

Service of process upon a series of a Delaware limited liability company

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If service of legal process is made upon the registered agent of the limited liability company in the State of Delaware on behalf of any such series, such process shall include the name of the limited liability company and the name of such series.

If legal process cannot by due diligence be served in any of the manners set forth above, it shall be lawful to serve process against any series of a limited liability company upon the Secretary of State of the State of Delaware, which shall include the name of the limited liability company and the series.

Service of process upon a series of a Delaware limited liability company (continued)

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The 2016 amendments to Section 18-215(b) of the Act confirm and clarify that neither the first sentence of Section 18-215(b), nor any language in a limited liability company agreement or certificate of formation that is included pursuant to that first sentence, shall be construed as restricting a series, or a limited liability company on behalf of a series, from agreeing to be liable for any or all of the debts, liabilities, obligations or expenses incurred, contracted for or otherwise existing with respect to the limited liability company generally or any other series thereof, or restricting a limited liability company from agreeing to be liable for any or all of the debts, liabilities, obligations or expenses incurred, contracted for or otherwise existing with respect to a series.

Other series matters

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(b) Notwithstanding anything to the contrary set forth in this chapter or under other applicable law, in the event that a limited liability company agreement establishes or provides for the establishment of 1 or more series, and if the records maintained for any such series account for the assets associated with such series separately from the other assets of the limited liability company, or any other series thereof, and if the limited liability company agreement so provides, and if notice of the limitation on liabilities of a series as referenced in this subsection is set forth in the certificate of formation of the limited liability company, then the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular series shall be enforceable against the assets of such series only, and not against the assets of the limited liability company generally or any other series thereof, and, unless otherwise provided in the limited liability company agreement, none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the limited liability company generally or any other series thereof shall be enforceable against the assets of such series. Neither the preceding sentence nor any provision pursuant thereto in a limited liability company agreement or certificate of formation shall (i) restrict a series or limited liability company on behalf of a series from agreeing in the limited liability company agreement or otherwise that any or all of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the limited liability company generally or any other series thereof shall be enforceable against the assets of such series or (ii) restrict a limited liability company from agreeing in the limited liability company agreement or otherwise that any or all of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a series shall be enforceable against the assets of the limited liability company generally.

Other Series Matters (continued)

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Sections 18-302(d) and 18-404(d) of the Act were amended to confirm that those provisions are intended to be enabling and are not intended to restrict the way in which members and managers may vote on, consent to or approve any matter.

18-302(d): Unless otherwise provided in a limited liability company agreement, on any matter that is to be voted on, consented to or approved by members, the members may take such action without a meeting, without prior notice and without a vote if consented to or approved, in writing or, by electronic transmission or by any other means permitted by law, by members having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all members entitled to vote thereon were present and voted.

Manner in which members and managers may take action

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18-404(d): Unless otherwise provided in a limited liability company agreement, on any matter that is to be voted on, consented to or approved by managers, the managers may take such action without a meeting, without prior notice and without a vote if consented to or approved, in writing or, by electronic transmission or by any other means permitted by law, by managers having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all managers entitled to vote thereon were present and voted.

Manner in which members and managers may take action (continued)

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As amended, those Sections provide as a default rule that on any matter that is to be voted on, consented to or approved by members or managers, they may take such action without a meeting, without prior notice and without a vote if consented to or approved by any means permitted by law (including in writing or by electronic transmission) by members or managers having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all members or managers entitled to vote thereon were present and voted.Similarly, amendments to Sections 18-215(k), 18-304, 18-702(a), 18-704(a), 18-801 and 18-806 of the Act eliminated requirements that certain votes be “affirmative” and that certain consents or agreements be in written form.

Manner in which members and managers may take action (continued)

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A new subsection (3) has been added to Section 18-704(a) of the Act to provide that upon a permitted, voluntary assignment by the sole member of a limited liability company of all of the limited liability company interests in the company to a single assignee, the assignee is admitted as a member of the limited liability company unless otherwise provided in connection with such assignment or otherwise provided in the limited liability company agreement by a specific reference to Section 18-704(a)(3). The new provision states that an assignment is voluntary for its purposes if it is consented to by the member at the time of the assignment and is not effected by foreclosure or other similar legal process.

Admission of an assignee as a member

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18-704(a)(3): (a) An assignee of a limited liability company interest may become becomes a member…(3) Unless otherwise provided in the limited liability company agreement by a specific reference to this subsection or otherwise provided in connection with the assignment, upon the voluntary assignment by the sole member of the limited liability company of all of the limited liability company interests in the limited liability company to a single assignee. An assignment will be voluntary for purposes of this subsection if it is consented to by the member at the time of the assignment and is not effected by foreclosure or other similar legal process.

Admission of an assignee as a member (continued)

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The 2016 amendment to Section 18-801(b) of the Act eliminates any implication regarding which events terminate the continued membership of a member of a limited liability company.

18-801(b): Unless otherwise provided in a limited liability company agreement, the death, retirement, resignation, expulsion, bankruptcy or dissolution of any member or the occurrence of any other an event that terminates the continued membership of any member shall not cause the limited liability company to be dissolved or its affairs to be wound up, and upon the occurrence of any such event, the limited liability company shall be continued without dissolution.

Continued membership of a member

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Amendments became effective August 1, 2016.

Effective date

Sept 28, 2016

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