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Larry E. Ribstein - One of the best experts on this subject based on the ideXlab platform.
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An Analysis of the Revised Uniform Limited Liability Company Act
2007Co-Authors: Larry E. RibsteinAbstract:In December, 2006, the National Conference of Commissioners on Uniform State Laws promulgated a Revised Uniform Limited Liability Company Act (RULLCA). This article analyzes RULLCA's most important changes from the prior (1994) version of the Uniform Limited Liability Company Act. In general, these provisions raise significant questions and threaten to impose substantial risks and costs on Limited Liability companies. The article concludes that there is little reason for states to adopt the Act, and that practitioners should be wary about advising clients to form under it.
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The Limited Liability Company: A Study of the Emerging Entity
2007Co-Authors: Robert R. Keatinge, Larry E. Ribstein, Susan Pace Hamill, Michael L. Gravelle, Sharon ConnaughtonAbstract:This article reflects the thinking of business and tax lawyers at the dawn of the development of Limited Liability companies. It provides a thorough discussion of the few things known and many questions that existed in 1992 when only a handful of states had LLC legislation. Many of the questions have now been resolved, some by the "check-the-box" regulations and some by the more recent Limited Liability Company legislation, but the article provides useful background in the development of what was to become a predominating business organization.
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evolution and spontaneous uniformity evidence from the evolution of the Limited Liability Company
Economic Inquiry, 1996Co-Authors: Bruce H Kobayashi, Larry E. RibsteinAbstract:The authors examine whether the unguided state-by-state evolution of Limited Liability Company statutes has led to efficient interstate uniformity. Their evidence suggests significant uniformity has been produced in cases where the net benefits of uniformity are positive and that such uniformity has not been produced by herd behavior. The authors' results are consistent with Armen Alchian's intuition about the role of market processes and suggest that the survival of efficient rules, fostered by the rational behavior of decentralized economic actors, are produced by forces beyond the control or foresight of individual lawmakers or legislatures. Copyright 1996 by Oxford University Press.
Carter G. Bishop - One of the best experts on this subject based on the ideXlab platform.
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desiderata the single member Limited Liability Company olmstead charging order statutory lacuna
Stanford Journal of Law Business & Finance, 2011Co-Authors: Carter G. BishopAbstract:Every state permits a Limited Liability Company to be formed and operated with one member (SMLLC) and every state permits a judgment creditor of that member to seek a court order charging the SMLLC ownership interest with a lien. A “charging order” requires the SMLLC to pay all future distributions to the judgment creditor until the judgment is fully satisfied. Since the member alone retains discretionary control over when and if such distributions will be made, the charging order is usually ineffective because the member simply accumulates distributions. Further judgment creditor remedies are highly diverse among states, ranging from none to a sale foreclosing the lien and terminating the member's equitable right of redemption. Even when a foreclosure sale is permitted, such statutes follow a traditional unincorporated entity anti-transfer approach in which the creditor or third-party purchaser acquires only rights to future distributions. The purchaser does not become a member unless the judgment debtor member consents. Since the debtor member traditionally will not grant the consent, the purchaser remains locked out of management and control over the timing of distributions. Paradoxically, the member remains in control and controls employment even though owning no further economic interest in the SMLLC operations while the owner of all the economic interests has no control. This creates a troublesome opportunistic structure, that courts have been forced to deal with by employing creative statutory and equitable maneuvers. For example, if the member files for personal bankruptcy, the trustee uses federal law to preempt the state law outcome and assume the management rights of the bankrupt member, liquidate the entity and sell its assets for the benefit of the bankruptcy estate. Outside of the bankruptcy realm, courts are confined to purchaser lockout by state statutes. The important case, Olmstead v. F.T.C., in Florida is the first to attack this odd paradigm using questionable statutory interpretation. 44 So. 3d 76 (Fla. 2010). Olmstead is controversial because the court fashioned a remedy not clearly intended by the legislature (full transfer without foreclosure procedural protections). This Article explores the statutory diversity regarding state law charging order remedies as well as federal bankruptcy law and suggests that a statutory solution reaching the Olmstead result is superior to the judicial solution. A statutory solution will inevitably create externalities by encouraging a second peppercorn member, thus shifting the debate to the related policy question of when a peppercorn member should be recognized as a member. Nonetheless, courts are better equipped to determine whether a peppercorn member should be disregarded than to craft unintended remedies from unambiguous statutes. Moreover, given that over twenty states have language similar to Florida and given the ease of changing the state of formation through domestication, the Olmstead case will encourage SMLLCs in Florida and other similar state language states to either add a peppercorn member or domesticate in states with a different policy such as Delaware. Under Delaware law it is clear that the charging order is the exclusive remedy and its lien may not be foreclosed. Inevitably, even this approach will eventually result in law conflicts as judgments obtained in one state seek registration in other states with different policy approaches.
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the next generation the revised uniform Limited Liability Company act
2006Co-Authors: Daniel S Kleinberger, Carter G. BishopAbstract:In July, 2006, the National Conference of Commissioners on Uniform State Laws approved Re-ULLCA - the Revised Uniform Limited Liability Company Act. The product of a three-year drafting process, heavily influenced by 13 advisors appointed by the ABA, the new Act brings major innovations to the law of Limited Liability companies. This article, written by the two co-reporters for the drafting committee: (i) explains why the Conference decided to draft a new LLC statute, reviews the process through which the Conference produced and approved the new Act, and describes the Act's basic architecture; (ii) highlights the Act's major innovations; and (iii) provides a roadmap through the Act's intricate and all-important provisions concerning the operating agreement. The following specific topics are addressed: the operating agreement; the decision to deviate from RUPA and un-cabin fiduciary duty; returning good faith and fair dealing to the concept's contract law moorings; the question of an owner's legitimate self-interest; reformulating the duty of care; the question of the shelf LLC; statutory apparent authority (de-codifying apparent authority by position); statements of authority by position; templates for management structure; charging orders; a remedy for oppressive conduct; derivative claims and special litigation committees; organic transactions - mergers, conversions, and domestications; the decision to eschew the series LLC; and the lot of mere transferees.
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Treatment of Members Upon Their Death and Withdrawal from a Limited Liability Company: The Case for a Uniform Paradigm
2006Co-Authors: Carter G. BishopAbstract:Continuing an international trend, Wyoming initiated a national movement in 1977 by adopting the first Limited Liability Company act in the United States. The movement began slowly, as the Internal Revenue Service (Service) took more than ten years to announce that a Wyoming Limited Liability Company would be taxed like a partnership. [FN4] Since that time, a total of forty-seven states and the District of Columbia adopted Limited Liability Company legislation and the National Conference of Commissioners on Uniform State Laws (Conference) adopted the Uniform Limited Liability Company Act (ULLCA). The allure of the Limited Liability Company is a unique statutory structure that combines the two most critical features of all of the other business organizations in a single business organization -- a corporate-styled Liability shield and the pass-through tax benefits of a partnership. General and Limited partnerships do not extend their partners a corporate-styled Liability shield. Corporations, including those having made a Subchapter S election, do not provide their shareholders all the pass-through tax benefits of a partnership. All state Limited Liability Company acts contain provisions to assure the presence of a corporate-like Liability shield and partnership tax status. Generally, a Limited Liability Company will be taxed like a partnership unless it possesses three or more of the four corporate characteristics including continuity of life, centralized management, Limited Liability, and free transferability of interests. Since most Limited Liability companies possess Limited Liability, they are classified as partnerships because they lack at least two of the remaining three characteristics -- generally, continuity of life and free transferability of interests. Despite the commonality of the Liability shield and partnership tax themes, state acts reflect a dazzling array of diversity. Unfortunately, this lack of uniformity manifests itself in basic but fundamentally important questions. Arguably, the most important issue relates to the treatment of dissociated members. State laws accord vastly different treatment to the effect of member dissociation on the dissociating member (purchase of interest and management rights) and its separate effect on the business continuity of the Limited Liability Company (dissolution). Because each state act is an amalgam of general and Limited partnership and corporate laws, the results are far from uniform. Shareholder events such as death, bankruptcy, retirement or resignation of employment, incapacity, and share transfers generally do not require the Company to purchase the dissociated shareholder's interest absent an agreement to the contrary. Also, these events do not affect the corporation's perpetual business continuity. Partnership law is different. A dissociating partner is usually entitled to either force the partnership to liquidate or to purchase that partner's interest. Most state Limited Liability Company acts are designed to have the entity taxed like a partnership because it lacks the corporate characteristics of continuity of life and free transferability of interests. Therefore, in most respects the acts adopt the partnership rather than the corporate paradigm regarding the effect of member dissociation on that member's right to be bought out by the Company and to cause a liquidation of the entity. Unfortunately, because of the Service's view on specific aspects of its tax classification regulations, important details of these state laws are extremely varied and inconsistent as state legislatures cope with how much uncertainty their Limited Liability law should tolerate. The Service itself has publicly recognized these limitations and endorses radical change in its tax classification regulations that should ultimately stabilize state legislation. Widely divergent rules on the effects of member dissociation will ultimately create confusion and inhibit the development of uniform case law. As a result, case law will have little precedential value from state to state.
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The Uniform Limited Liability Company Act: Summary & Analysis
2006Co-Authors: Carter G. BishopAbstract:The National Conference of Commissioners on Uniform State Laws (Conference) adopted the Uniform Limited Liability Company Act (ULLCA) in 1994. To coordinate with subsequent developments in federal tax guidelines regarding manager-managed Limited Liability companies (LLCs), the Conference adopted minor changes to ULLCA's dissolution provisions in 1995. More recently, the Internal Revenue Service (IRS) announced a proposal to release all unincorporated business organizations from the burden of complying with its federal tax classification regulations distinguishing partnerships from corporations. Because state LLC laws were drafted to comply with the soon to be anachronistic classification regulations, every state will eventually consider whether to amend its laws to accommodate this new flexibility. Given the obvious advantages of uniform state laws governing interstate business activities of LLCs, the ULLCA will receive important consideration during this review process. This Article is intended only as a summary of the ULLCA's primary provisions.
Bruce H Kobayashi - One of the best experts on this subject based on the ideXlab platform.
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evolution and spontaneous uniformity evidence from the evolution of the Limited Liability Company
Economic Inquiry, 1996Co-Authors: Bruce H Kobayashi, Larry E. RibsteinAbstract:The authors examine whether the unguided state-by-state evolution of Limited Liability Company statutes has led to efficient interstate uniformity. Their evidence suggests significant uniformity has been produced in cases where the net benefits of uniformity are positive and that such uniformity has not been produced by herd behavior. The authors' results are consistent with Armen Alchian's intuition about the role of market processes and suggest that the survival of efficient rules, fostered by the rational behavior of decentralized economic actors, are produced by forces beyond the control or foresight of individual lawmakers or legislatures. Copyright 1996 by Oxford University Press.
Daniel S Kleinberger - One of the best experts on this subject based on the ideXlab platform.
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a myth deconstructed the emperor s new clothes on the low profit Limited Liability Company
2010Co-Authors: Daniel S KleinbergerAbstract:This article was previously titled, “The Snare and Delusion of the L3C”.In 2008, the Vermont legislature enacted and Vermont’s governor signed into the law the first “low profit Limited Liability Company” statute. Since that time, four other states have followed, and institutions as diverse as the Federal Reserve, the ABA’s Real Property, Probate and Trust Section, and the Vermont Law School have given credence to the notion that the “L3C” is a socially beneficial add-on to the law of Limited Liability companies. Indeed, L3C proponents have touted the device as: (i) a break-through in charitable giving, enabling “socially beneficial enterprises” to leverage foundation money to attract market-rate investors through “tranched investing;” (ii) a simple, wise, and useful development in the law of Limited Liability companies; and (iii) a method destined to be fast-tracked for special treatment under the provisions of the Internal Revenue Code (“Code” or “IRC”) dealing with “Program Related Investments” (“PRI”) by charitable foundations.Unfortunately, these glowing characterizations are each flatly wrong. The “L3C” is an unnecessary and unwise contrivance, and its very existence is inherently misleading. Due to technical flaws, the L3C legislation adopted to date is nonsensical and useless. Moreover, the notion that an L3C should have privileged status under the Code is inescapably at odds with the key policies that underpin the relevant Code sections. The L3C is not on track (let alone a fast track) to any special status under the Code.Debunking “the emperor’s new clothes” should be done painstakingly, and this article therefore proceeds through several parts: (1) summarizing the L3C concept and the claims of its proponents; (2) providing background information on the Limited Liability Company and highlighting the aspects of LLC statutes that are relevant to a discussion of L3Cs; (3) explaining the concept of the Program Related Investments; and (4) critiquing the L3C construct and exposing its fundamental flaws under several different areas of law, including the law of Limited Liability companies, securities regulations, and PRIs.The article concludes that L3C legislation is no “friendly amendment” to a state LLC statute. Using foundation funds to offer market-rate returns to “tranched” investors is at best a complicated device, not appropriate for “branding” and simplistic appeals to social conscience. When a foundation contemplates making a program related investment, the matter requires careful, individualized, professional assessment, not reliance on a branded template.
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A Myth Deconstructed: The 'Emperor’s New Clothes' on the Low Profit Limited Liability Company
SSRN Electronic Journal, 2010Co-Authors: Daniel S KleinbergerAbstract:This article was previously titled, “The Snare and Delusion of the L3C”.In 2008, the Vermont legislature enacted and Vermont’s governor signed into the law the first “low profit Limited Liability Company” statute. Since that time, four other states have followed, and institutions as diverse as the Federal Reserve, the ABA’s Real Property, Probate and Trust Section, and the Vermont Law School have given credence to the notion that the “L3C” is a socially beneficial add-on to the law of Limited Liability companies. Indeed, L3C proponents have touted the device as: (i) a break-through in charitable giving, enabling “socially beneficial enterprises” to leverage foundation money to attract market-rate investors through “tranched investing;” (ii) a simple, wise, and useful development in the law of Limited Liability companies; and (iii) a method destined to be fast-tracked for special treatment under the provisions of the Internal Revenue Code (“Code” or “IRC”) dealing with “Program Related Investments” (“PRI”) by charitable foundations.Unfortunately, these glowing characterizations are each flatly wrong. The “L3C” is an unnecessary and unwise contrivance, and its very existence is inherently misleading. Due to technical flaws, the L3C legislation adopted to date is nonsensical and useless. Moreover, the notion that an L3C should have privileged status under the Code is inescapably at odds with the key policies that underpin the relevant Code sections. The L3C is not on track (let alone a fast track) to any special status under the Code.Debunking “the emperor’s new clothes” should be done painstakingly, and this article therefore proceeds through several parts: (1) summarizing the L3C concept and the claims of its proponents; (2) providing background information on the Limited Liability Company and highlighting the aspects of LLC statutes that are relevant to a discussion of L3Cs; (3) explaining the concept of the Program Related Investments; and (4) critiquing the L3C construct and exposing its fundamental flaws under several different areas of law, including the law of Limited Liability companies, securities regulations, and PRIs.The article concludes that L3C legislation is no “friendly amendment” to a state LLC statute. Using foundation funds to offer market-rate returns to “tranched” investors is at best a complicated device, not appropriate for “branding” and simplistic appeals to social conscience. When a foundation contemplates making a program related investment, the matter requires careful, individualized, professional assessment, not reliance on a branded template.
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the next generation the revised uniform Limited Liability Company act
2006Co-Authors: Daniel S Kleinberger, Carter G. BishopAbstract:In July, 2006, the National Conference of Commissioners on Uniform State Laws approved Re-ULLCA - the Revised Uniform Limited Liability Company Act. The product of a three-year drafting process, heavily influenced by 13 advisors appointed by the ABA, the new Act brings major innovations to the law of Limited Liability companies. This article, written by the two co-reporters for the drafting committee: (i) explains why the Conference decided to draft a new LLC statute, reviews the process through which the Conference produced and approved the new Act, and describes the Act's basic architecture; (ii) highlights the Act's major innovations; and (iii) provides a roadmap through the Act's intricate and all-important provisions concerning the operating agreement. The following specific topics are addressed: the operating agreement; the decision to deviate from RUPA and un-cabin fiduciary duty; returning good faith and fair dealing to the concept's contract law moorings; the question of an owner's legitimate self-interest; reformulating the duty of care; the question of the shelf LLC; statutory apparent authority (de-codifying apparent authority by position); statements of authority by position; templates for management structure; charging orders; a remedy for oppressive conduct; derivative claims and special litigation committees; organic transactions - mergers, conversions, and domestications; the decision to eschew the series LLC; and the lot of mere transferees.
Dana Brakman Reiser - One of the best experts on this subject based on the ideXlab platform.
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disruptive philanthropy zuckerberg the Limited Liability Company and the millionaire next door
Social Science Research Network, 2017Co-Authors: Dana Brakman ReiserAbstract:Facebook founder Mark Zuckerberg and his wife, Dr. Priscilla Chan, announced they would give 99% of their net worth to – in their words – “advance[e] human potential and promot[e] equal opportunity.” To make good on this promise, however, they did not set up a traditional nonprofit, tax-exempt organization. Instead, they founded the Chan-Zuckerberg Initiative, a for-profit, Limited Liability Company. The bulk of this Article provides the definitive explanation for this seemingly bizarre choice. Most importantly, the philanthropy LLC structure offers donors the flexibility to bolster charitable grantmaking with impact investment and political advocacy, free of the restrictions, penalties, and transparency requirements applied to tax-exempt vehicles. In addition, the LLC form provides donors complete control over the organizations they found, including an ability to reclaim donated assets that is absolutely prohibited in nonprofit forms. With careful planning, all of these advantages can be gained at relatively little tax cost. The philanthropy LLC is poised to spread far beyond Silicon Valley to the millionaire next door, a development with the potential to do both good and harm. In its concluding section, the Article explores how a turn to for-profit philanthropic vehicles can both unleash tremendous capital for solving society’s most challenging problems and magnify the influence of our most powerful elites.
