Law Commons^™

Aba Business Law Section, On Behalf Of Its Committees On Llcs And Nonprofit Organizations, Opposes Legislation For Low Profit Limited Liability Companies (L3cs), Daniel S. Kleinberger

Faculty Scholarship

This document comprises a letter and attachment “submitted by the ABA Business Law Section on behalf of its Committee on Limited Liability Companies, Partnerships, and Unincorporated Entities and its Committee on Nonprofit Organizations … and states our views on … a bill ‘relating to limited liability companies [and] providing for the creation and operation of low-profit limited liability companies.’” The letter and attachment “have not been approved by the House of Delegates or the Board of Governors of the American Bar Association and should not be construed as representing the policy of the ABA.”

Supported by detailed analysis of both …

Is The Delaware Court Of Chancery Going “Objective” On Us? Or Policemen’S Annuity And Benefit Fund Of Chicago V. Dv Realty Advisors Llc: More Delaware Permutations On Good Faith, Daniel S. Kleinberger

Faculty Scholarship

The Chancery Court’s opinion in Policemen’s Annuity and Benefit Fund of Chicago v. DV Realty Advisors LLC, C.A. No. 7204-VCN, 2012 WL 3548206 (Del. Ch. Aug. 16, 2012) is thought provoking for at least two reasons. The first is somewhat technical and concerns the relationship between a partnership agreement’s reference to “good faith” and the implied covenant of good faith. The second concerns what appears to be yet another Delaware permutation on the meaning of “good faith.”

Due to the opinion’s treatment of the covenant, it seems possible (though hardly desirable) for two different standards of good faith to apply …

The Fatal Design Defects Of L3cs, Daniel S. Kleinberger

Faculty Scholarship

This article argues that the L3C is an unnecessary and unwise contrivance, and it's very existence is inherently misleading. The notion that an L3C should have privileged status under the Internal Revenue Code (known as the Code) for access to tax-exempt foundation resources is inescapably at odds with the key policies that underpin the relevant Code sections, and L3Cs are not on track-let alone on a fast track-to receive special status under the Code. An ordinary limited liability company (LLC) can perform precisely the same functions proclaimed of L3Cs. In addition, because of technical flaws, the L3C legislation adopted to …

The Single Member Limited Liability Company As Disregarded Entity: Now You See It, Now You Don’T, Daniel S. Kleinberger

Faculty Scholarship

The power and complexity of the single member limited liability company (“SMLLC”) comes from a conceptual contradiction: the conflation of owner and organization for tax purposes and the separation of owner and entity for non-tax, state law purposes. The contraction has significant practical consequences, which this article explores and illustrates, considering: • The SMLLC in federal court (single member not permitted to represent the LLC) • The IRS’s tortuous path to determining whether an SMLLC’s sole member is liable for the SMLLC’s unpaid employment taxes (yes; yes vindicated by the courts; then no, as a matter of policy) • Transfer …

Two Decades Of "Alternative Entities": From Tax Rationalization Through Alphabet Soup To Contract As Deity, Daniel S. Kleinberger

Faculty Scholarship

This essay: (i) puts into perspective the past 20 years of developments in the U.S. law of limited liability companies (LLCs), limited liability partnerships (LLPs), and limited liability limited partnerships (LLLPs); (ii) explains how a movement toward tax rationalization has been transformed into a palace coup aimed at fiduciary duty (a fundamental tenet of the U.S. law of closely held businesses); and (iii) criticizes both conceptually and pragmatically efforts to "kill Cardozo" and worship "freedom of contract."

The Llc As Recombinant Entity: Revisiting Fundamental Questions Through The Llc Lens, Daniel S. Kleinberger

Faculty Scholarship

Rather than being a simple hybrid, the U.S. limited liability company is better described as a recombinant entity that combines attributes of four different types of business organizations. The LLC offers an almost ineffably flexible structure, but that flexibility does not place the LLC beyond the range of traditional, formalist analysis. To the contrary, parsing the LLC in pursuit of conventional forms may allow us "to know the place for the first time." This essay uses conventional concepts to: (i) explore whether "labels matter" when LLC membership interests are described as Contract or as Property; and (ii) examine how the …

The Next Generation: The Revised Uniform Limited Liability Company Act, Daniel S. Kleinberger

Faculty Scholarship

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 …

Direct Versus Derivative And The Law Of Limited Liability Companies, Daniel S. Kleinberger

Faculty Scholarship

The hybrid nature of limited liability companies causes us to re-invent, or at least re-examine, many doctrinal wheels. This Article will reexamine one of the most practical of those wheels-the distinction between direct and derivative claims in the context of a closely-held limited liability company.

Case law concerning the direct/derivative distinction is still overwhelmingly from the law of corporations, although LLC cases are now being reported with some frequency. LLC cases routinely analogize to, or borrow from, the corporate law. This Article encompasses that law, analyzes LLC developments, and argues that courts should (i) avoid the "special injury" rule, (ii) …

Seven Points To Explain Why The Law Ought Not Allow The Elimination Of Fiduciary Duty Within Closely Held Businesses: Cardozo Is Dead; We Have Killed Him., Daniel S. Kleinberger

Faculty Scholarship

Prepared as part of the author's work as co-reporter for the Revised Uniform Limited Liability Company Act, this essay argues against legislation that empowers private agreements to eliminate fiduciary duty within a business organization. The essay considers: (i) the venerable role of fiduciary duty within business organizations and the limited predictive powers of those urging radical reform; (ii) the absence of prescience in contract drafters; (iii) the strict construction function of fiduciary law; (iv) the inevitable and inappropriate pressure that elimination would put on the obligation of good faith and fair dealing; (v) the differences in remedy available for fiduciary …

Charging Orders And The New Uniform Limited Partnership Act: Dispelling The Rumors Of Disaster, Daniel S. Kleinberger, Carter G. Bishop, Thomas Geu

Faculty Scholarship

Last year, an article published in this magazine focused on the charging order as "the Exclusive Remedy Against a Partnership Interest" and announced the "[s]hocking [r]evelation" that ULPA (2001)--the new Uniform Limited Partnership Act--undermines the "exclusive remedy" limitation on charging orders. The authors asserted categorically that, "from an asset protection perspective, the 2001 Act is considerably less protective of a partner's partnership interest than the 1976 Act." Elizabeth M. Schurig & Amy P. Jetel, A Charging Order Is the Exclusive Remedy Against a Partnership Interest: Fact or Fiction?, Prob. & Prop. 57, 58 (Nov./Dec. 2003).

As this article will show, …