United States: 2014 Proposed Amendments To Delaware’s Alternative Entity Acts

Last Updated: April 28 2014
Article by Matthew M. Greenberg and Christopher B. Chuff

On April 17, the Corporation Law Section of the Delaware State Bar Association proposed amending the Delaware Revised Uniform Partnership Act, 6 Del. C. §§ 15-101, et seq. (DRUPA), the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. §§ 17-101, et seq. (DRULPA), and the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101, et seq. (DLLCA together with DRUPA and DRULPA, the Alternative Entity Acts). These acts govern general partnerships (GPs), limited liability partnerships (LLPs), limited partnerships (LPs), and limited liability companies (LLCs). If the proposed legislation is enacted, the proposed amendments would make several changes to the Alternative Entity Acts. The proposed legislation seeks to: (i) modify and provide an additional way to revoke dissolution of LLCs and LPs; (ii) authorize current and future members or managers of an LLC and partners of a partnership to "escrow" written consents to become effective at a future date; (iii) confirm that members of an LLC and partners of a partnership may make a books-and-records demand though an attorney or agent; and (iv) require LLCs and LPs to maintain and provide the communications contact of the LLC or LP that is authorized to receive communications from the registered agent with the name of the person who has access to the current record that identifies the name and last known address of each member, manager, and partner of the LLC or LP.

Revoking Dissolution - DRULPA Section 17-806; DLLCA Section 18-806

The proposed amendments would modify and provide LPs and LLCs additional statutory flexibility to revoke dissolution. DRULPA and DLLCA default rules provide, with certain caveats, that an LP or LLC is dissolved and its business and affairs wound up: (i) at the time specified in the governing agreement; (ii) upon the happening of an event specified in the governing agreement; (iii) upon the affirmative vote of all the general partners and two-thirds of the limited partners of an LP and two-thirds of the members of an LLC; (iv) at any time there are no general partners of the LP or members of the LLC; or (iv) upon judicial dissolution. An LP is also dissolved at any time a general partner withdraws from the LP.

DRULPA and DLLCA currently authorize the existing partners of LPs and members of LLCs (or personal representatives thereof) to revoke any dissolution, other than judicial dissolution, by unanimously voting to continue the business before a certificate of cancellation is filed with the Secretary of State. If the LP or LLC was dissolved by a vote of the partners of the LP or members of the LLC, the remaining partners or members must obtain the consent of the partners or members who voted for dissolution.

The proposed amendments would provide LPs and LLCs flexibility in revoking dissolution of the LP or LLC. Rather than requiring a unanimous vote of the partners of an LP or members of an LLC, the proposed amendments provide: (i) in the case of dissolution by the affirmative vote or written consent of partners, members, or other persons, the dissolution may be revoked by the same vote or consent that authorized the dissolution; (ii) in the case of dissolution at the time or upon an event specified in the governing agreement, an LP or LLC may revoke that dissolution by an affirmative vote that, under the terms of the governing agreement, is needed to amend the provisions effecting the dissolution; (iii) where dissolution is effected because there is no remaining general partners in the LP or members in the LLC, dissolution may be revoked by the vote or written consent of the personal representative of the last remaining partner of the LP or member of the LLC; and (iv) where dissolution is effected because of the withdrawal of a general partner or the last remaining partners in the LP, dissolution may be revoked by the vote or written consent of all the remaining general partners or the limited partners who own more than two-thirds of the then-current percentage in profits, or if there is no remaining limited partners, the personal representative of the last remaining limited partner. Certain additional rules apply if, at the time of dissolution, there is no general partner, limited partner, or both.

The proposed amendments also clarify that the methods to revoke dissolution provided for in the DRULPA and DLLCA are in addition to the manners specified in its governing agreement. Thus, unless the governing agreement expressly states otherwise, pursuant to the proposed amendments, the manners for revoking dissolution that are provided for in a governing agreement would not supersede, but would instead supplement, the manners of revoking dissolution provided in DRULPA and DLLCA.

Escrowing Consents – DRUPA Section 15-407(d); DRULPA Sections 17-302(e) and 17-405(d); DLLCA Sections 18-302(d) and 18-404(d)

The proposed amendments would modify the Alternative Entity Acts to clarify that any person, whether or not then a partner of a partnership or member or manager of an LLC, may execute written consents to be held in escrow and to become effective at a future date, including upon the occurrence of an event. The proposed amendments would, among other things, enable acquisition financing transactions to be structured such that persons who are to become a partner of a partnership or member or manager of an LLC may "escrow" written consents authorizing the financing transactions, which will become effective upon the signing persons' election to the partnership or LLC concurrently with the closing of the transaction.

Books-and-Records Demands Through Attorneys and Agents - DRUPA Section 15-403; DRULPA Sections 17-305; DLLCA Sections 18-305

The proposed amendments would amend the Alternative Entity Acts to confirm that partners of a partnership and members of an LLC may make a books-and-records demand to the partnership or LLC though an attorney or agent. The proposed amendments would also clarify that where an attorney or agent makes a books-and-records demand on behalf of a partner or member, a power of attorney or other written authorization must accompany the demand.

Maintenance and Access to Records – DRULPA Proposed Section 17-305(g) and Section 17-104(g); DLLCA Proposed Section 18-305(h) and Section 18-104(g)

The proposed amendments would add a new subsection to DRULPA and DLLCA that provides for LPs and LLCs to maintain a current record of the names and last known business, residence, and mailing address of each member, manager, or partner of the LLC or LP. DRULPA and DLLCA would also be amended to expressly provide the communications contact with the name of the person that has access to such records.

Effective Date

The proposed amendments, if enacted, would become effective on August 1, 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Matthew M. Greenberg
Christopher B. Chuff
 
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