Law Commons^™

Misreading Menetti: The Case Does Not Help You Avoid Liability For Your Own Fraud, Val D. Ricks

St. Mary's Law Journal

Several decades ago, an incorrect legal idea surfaced in Texas jurisprudence: that business entity actors are immune from liability for fraud that they themselves commit, as if the entity is solely responsible. Though the Supreme Court of Texas has rejected that result several times, it keeps coming back. The most recent manifestation is as a construction of Texas’s unique veil-piercing statute. Many lawyers have suggested that this view of the veil-piercing statute originated in Menetti v. Chavers, a San Antonio Court of Appeals case decided in 1998. Menetti has in fact played a prominent role in the movement to …

The Direct-Derivative Distinction, The Special Litigation Committee, And The Uniform Act: A Response To Professor Weidner, Daniel S. Kleinberger

Faculty Scholarship

The Unfortunate Role of Special Litigation Committees in LLCs has a deeply pejorative view of the Uniform Law Commission “second generation” limited liability company act, and that view extends far deeper than the target suggested by the article’s title. The article’s fundamental attack is on the distinction between direct and derivative claims; the criticisms of ULLCA’s provisions on special litigation committees depend on that attack. In support of its wide-ranging attack, The Unfortunate Role seeks to marshal history, policy, logic, and a research study pertaining to the outcome of derivative claims. Unfortunately, however, the article (i) misapprehends the drafting history …

Heads Up! Arkansas Has A New Llc Act, Carol Goforth

Arkansas Law Notes

This past legislative session Senate Bill 601, sponsored by Senator Jonathan Dismang, was enacted into law, becoming Ark. Act 1041 on April 30, 2021. This act repeals the old LLC Act and adopts the Uniform Limited Liability Company Act (“ULLCA”), with minimal changes from the uniform language. This short piece points out some basic information about the Arkansas ULLCA and some of the major changes in Arkansas law applicable to LLCs. While lawyers will obviously need to consult the new statute when actual issues arise, this article should at least provide a “heads up” notice to practitioners with LLCs or …

Ending Corporate Anonymity: Beneficial Ownership, Sanctions Evasion, And What The United Nations Should Do About It, Vineet Chandra

Michigan Journal of International Law

In the vast majority of jurisdictions around the world, there is a generous array of corporate forms available to persons and companies looking to do business. These entities come with varying degrees of regulation regarding how much information about the businesses’ principal owners must be disclosed at the time of registration and how much of that information is subsequently available to the public. There is little policy harmonization around the world on this matter. Dictators and despots have long taken advantage of this unintended identity shield to evade sanctions which target them; in July of 2019, the Center for Advanced …

Seeking Shelter In The Minefield Ofunintended Consequences - The Traps Oflimited Liability Law Firms, Susan Saab Fortney

Susan S. Fortney

No abstract provided.

Three Problems (And Two Solutions) In The Law Of Partnership Formation, Shawn Bayern

University of Michigan Journal of Law Reform

This Article considers several foundational questions concerning the formation of general partnerships, a topic that has received little modern attention and that is governed largely by classical axioms rather than adaptive modern considerations. Its three main topics concern (1) the timing of partnership formation, (2) the aggregation of multiple distinct questions under the single heading of “partnership formation,” and (3) the rarely challenged proposition that general partners ought to be liable for partnership obligations, a doctrine that is surprisingly at odds with the rest of modern business-entity law.

A Rational Approach To Business Entity Choice, Eric Franklin Amarante

Scholarly Works

This Article reinvigorates the entity rationalization movement and will ultimately argue that there are only three necessary entity options: corporations, partnerships, and nonprofit organizations. Part I defines the issue of entity proliferation and, along with the Appendix, presents a state-by-state analysis of the types of legal entities available, an endeavor that has not yet been conducted. The Appendix contains a chart that enumerates each legal entity available in each of the fifty states and the District of Columbia. Part II discusses the problems associated with entity proliferation from the perspective of the public, potential business owners, small business attorneys, and …

Enduring Design For Business Entities, William E. Foster

Utah Law Review

The success or failure of an institution may hinge on some of the earliest decisions of its founders. In constitutional design literature, endurance is a widely accepted drafting objective. Indeed, constitutional endurance is positively associated with prosperous and stable societies. Like drafters of constitutions, business organizers have almost innumerable objectives for their enterprises, and attorneys drafting organizational documents must take into account these myriad goals. Oftentimes the drafting process fails to fully address some of the most important of these aims and results in suboptimal structures that lack predictability and reliability.

This article looks specifically at small business organizations and …

Enduring Design For Business Entities, William E. Foster

William E Foster

Integrating Subchapters K And S And Beyond, Walter D. Schwidetzky

All Faculty Scholarship

This Article builds upon a similar, lengthier effort that I published in the Tax Lawyer in 2009. While there is overlap, this Article contains much new material. Important case law and tax proposals from the House Ways and Means Committee have come out in the interim. Due to space limitations, unlike my Tax Lawyer effort, this Article attempts to avoid prolixity. It assumes the reader has good knowledge of both Subchapters S and K and the tax entity selection process. If you are not that reader, a review of my Tax Lawyer article or Professor Mann's article in this symposium …

Pass-Through Entity Reform: Is A Major Overhaul Necessary?, Walter D. Schwidetzky

All Faculty Scholarship

No abstract provided.

Passthrough Entities: The Missing Element In Business Tax Reform, Karen C. Burke

Pepperdine Law Review

Reform of the U.S. corporate tax system is again on the agenda. Despite important differences, many current proposals share two common goals: (1) reducing the statutory corporate tax rate to improve U.S. international competitiveness and (2) broadening the corporate tax base by reducing or eliminating business expenditures to offset revenue losses. Given the significance of the passthrough sector and the relationship between individual and corporate taxes, however, such reforms need to be considered within a broader context. Part I of this article discusses the growing significance of the passthrough sector, which now accounts for roughly half of net business income. …

Damning Dictum: The Default Duty Debate In Delaware, Mohsen Manesh

Mohsen Manesh

Bizarrely, today even the most sophisticated business lawyer cannot answer a seemingly simple question: whether, in the absence of an express agreement to the contrary, the manager of a Delaware limited liability company (LLC) owes traditional fiduciary duties to its members as a default matter? This was not always the case. Until recently, this question was settled—settled at least in the Delaware Court of Chancery. But in November 2012, the Delaware Supreme Court cast doubt on a long line of chancery court precedent in Gatz Properties v. Auriga Capital. Given the broad freedom of contract available under LLC law, it …

Strengthening Investment In Public Corporations Through The Uncorporation, Kelli A. Alces

Scholarly Publications

No abstract provided.

L3cs: The Next Big Wave In Socially Responsible Investing Or Just Simply Too Good To Be True?, David J. Schwister

The Journal of Business, Entrepreneurship & the Law

No abstract provided.

For A Few Dollars Less: Explaining State To State Variation In Limited Liability Company Popularity, Daniel M. Häusermann

University of Miami Business Law Review

The limited liability company (LLC) is a much more popular business entity in some U.S. states than in others. This empirical study provides the first detailed analysis of this phenomenon.

I find that formation fees, rather than taxes or substantive rules or anything else, explain the variation in LLC popularity best. Differentials between the fees for organizing an LLC and the fees for organizing a corporation explain 17% to 28% of the state-to-state variation in LLC popularity. These formation fee differentials are not very big, but they are highly visible at the moment the business entity is formed. In contrast, …

L3cs: An Innovative Choice For Urban Entrepreneurs And Urban Revitalization, Dana Thompson

Articles

Social enterprises offer fresh ways of addressing seemingly intractable social problems, such as high levels of unemployment and poverty in economically distressed urban areas in the United States. Indeed, although social enterprises have deep and longstanding roots, the recent iteration of the social enterprise movement is gaining momentum in the United States and globally. Though there is not a singularly accepted legal definition of social enterprises, they are popularly known as businesses that use forprofit business practices, principles, and discipline to accomplish socially beneficial goals. Social entrepreneurs, those who operate social enterprises, eschew a traditional notion of charity, which primarily …

The Delaware Series Llc: Sophisticated And Flexible Business Planning, Ann E. Conaway, Peter I. Tsoflias

Michigan Business & Entrepreneurial Law Review

The authors conclude that the Delaware series supplies a beneficial, efficient use of a combined contractual Delaware entity form when pooled with sensible, informed planning by sophisticated business attorneys. Such benefits are particularly noticeable in investment vehicles where managers embark to minimize risk by diversifying the fund’s assets or receive funding with specific covenants attached that limit the acceptable uses of the funds. The series is not, however, for general practitioners who have the occasional client wishing for the latest benefit Delaware has to offer its investors. To provide context, Parts II-IV of this article provide a brief overview of …

The Tax Treatment Of Limited Liability Companies: Law In Search Of Policy, Daniel S. Goldberg

Daniel S. Goldberg

No abstract provided.

The Uncorporation And The Unraveling Of 'Nexus Of Contracts' Theory, Grant M. Hayden, Matthew T. Bodie

Michigan Law Review

A corporation is not a contract. It is a state-created entity. It has legal personhood with the right to form contracts, suffer liability for torts, and (as the Supreme Court recently decided) make campaign contributions. However, many corporate law scholars have remained wedded to the conception-metaphor, model, paradigm, what have you-of the corporation as a contract or "nexus" of contracts. The nexus of contracts theory is meant to point up the voluntary, market-oriented nature of the firm and to dismiss the notion that the corporation owes anything to the state. It is also used as a justification for preserving the …

What, Me Worry? Tort Liability Risks For Participants In Llcs, Matthew G. Dore

Matthew G Dore

State legislatures gave scant consideration to tort victims' rights when authorizing the LLC as a new limited liability business option. Nonetheless, state LLC acts leave untouched agency law principles that preserve personal tort liability claims against individual LLC participants. This article explains why this residual tort liability path and related defensive doctrines offer the best hope for a principled accommodation of expanded limited liability business options and the interests of third party tort victims.

The Allure And Illusion Of Partners' Interests In A Partnership, Bradley T. Borden

Bradley T. Borden

Favorable tax treatment and management flexibility make tax partnerships very popular. For starters, tax partnerships, unlike tax corporations, are not subject to entity-level taxes. Partnership taxable income flows through to the partners, and the partners report their shares of partnership taxable income on their individual tax returns. Partnership tax allocation rules determine the partners’ shares of partnership taxable income. Those rules rely upon the alluring concept of partners’ interests in a partnership. It seems intuitive that partners would know their interests in a partnership and be able to allocate partnership taxable income accordingly. This Article illustrates, however, that the concept …

The Relationship Of The Model Business Corporation Act To Other Entity Laws, William H. Clark Jr.

Law and Contemporary Problems

No abstract provided.

Wilkes V. Springside Nursing Home, Inc.: A Historical Perspective, Mark J. Loewenstein

Publications

No abstract provided.

Delaware For Small Fry: Jurisdictional Competition For Limited Liability Companies, Larry E. Ribstein

Larry E. Ribstein

Most of the work on jurisdictional competition for business associations has focused on publicly held corporations and the factors underlying Delaware’s dominance in attracting formations of large out-of-state corporations. We examine an analogous jurisdictional competition to attract formations by closely held limited liability companies (LLCs). The LLC offered the first attractive business form for closely held limited liability firms unconstrained by the legacy of corporate default rules. State legislatures have adopted and changed LLC statutes rapidly over the past 20 years. Unlike general and limited partnerships, which have been shaped by uniform laws, LLC statutes vary significantly. These circumstances offer …

Handling Fiduciary Issues In Limited Liability Company Formations Under The New Hampshire Limited Liability Company Act—A Practical Introduction, John M. Cunningham

The University of New Hampshire Law Review

[Excerpt] “Absent an agreement among the parties to the contrary, business entity fiduciary duties arise automatically under state common law and applicable statutory law whenever one person entrusts the management of his or her business to another person and the other person agrees to accept this entrustment. The two principal fiduciary duties are the duty of care and the duty of loyalty. The duty of care requires that business managers carry out their management responsibilities non-negligently. The duty of loyalty requires that business managers avoid conflicts of interest with the entity that they have agreed to manage.

However, the common …

Fostering Social Enterprise: A Historical And International Analysis, Matthew F. Doeringer

Duke Journal of Comparative & International Law

No abstract provided.

When The Law Is Understood—L3c No, Daniel S. Kleinberger, J. William Callison

Faculty Scholarship

The November, 2009 issue of Community Dividend, included an article entitled “The L3C: A new business model for socially responsible investing.” The article spoke enthusiastically about “[t]he low-profit limited liability company, or L3C, …a newly developed form of business that blends attributes of nonprofit and for-profit organizations in order to promote investment in socially responsible objectives.”

We understand the enthusiasm; proponents of the L3C have predicted dramatic benefits. However, after careful study of the relevant law, we have concluded that the enthusiasm is misplaced. The L3C concept is fundamentally flawed, potentially dangerous, and at best counterproductive.

We also understand that …

Integrating Subchapters K And S — Just Do It, Walter D. Schwidetzky

All Faculty Scholarship

The Code contains two “pass-through” tax regimes for business entities. One is contained in Subchapter K, which applies to partnerships, the other in Subchapter S, which, unsurprisingly, applies to S corporations. In the main, both Subchapters tax the owners of the entities rather than the entities themselves. Having two pass-through tax regimes creates obvious administrative and other inefficiencies. There was a time when S corporations served a valuable purpose, particularly when taxpayers needed a fairly simple and foolproof pass-through entity that provided a liability shield. But limited liability companies (LLCs), which are usually taxed as partnerships, 1 in most contexts …

The “New” Fiduciary Standards Under The Revised Uniform Liability Company Act: More Bottom Bumping From Nccusl, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

Between 1995 and 2001, the influential National Conference of Commissioners on Uniform State Laws (NCCUSL) promulgated iterations of uniform laws pertaining to partnerships, limited partnerships and limited liability companies. One or more of those acts have been widely adopted by state legislatures.

Each of the three acts—the Uniform Partnership Act (1997) (RUPA), the Uniform Limited Partnership Act (2001) (ULPA (2001)), and the Uniform Limited Liability Company Act (1996) (ULLCA)—contains identical fiduciary duty provisions. The acts all adopt the same standards for the duty of care and the duty of loyalty, and offer parties the same limited rights to opt out …