Proposed Amendments to Delaware’s LLC and Partnership Acts
June 9, 2022
Publication| Limited Liability Company & Partnership Advisory
Legislation proposing to amend the Delaware Limited Liability Company Act (LLC Act), the Delaware Revised Uniform Limited Partnership Act (LP Act) and the Delaware Revised Uniform Partnership Act (GP Act) (collectively, the LLC and Partnership Acts) has been introduced to the Delaware General Assembly. The following is a brief summary of some of the more significant proposed amendments that affect Delaware limited liability companies (Delaware LLCs), Delaware limited partnerships (Delaware LPs) and Delaware general partnerships (Delaware GPs), including amendments (i) confirming the permitted methods to execute certificates of limited liability company interests and partnership interests; (ii) clarifying the timing of a signatory’s oath or affirmation of facts stated in instruments filed with the Delaware Secretary of State; (iii) providing clarification on the timing of when requisite approvals are required to be obtained with respect to conversions and domestications; (iv) confirming that protected and registered series of a Delaware LLC or LP are bound by the limited liability company agreement or partnership agreement of such Delaware LLC or LP whether or not such series executes such agreement; (v) confirming that the limited liability company agreement or partnership agreement of a Delaware LLC, LP or GP may include or incorporate multiple documents that govern its business and affairs; (vi) clarifying the effects on protected and registered series in connection with the revival of a cancelled Delaware LLC or LP; and (vii) updating certain procedures relating to service of process upon the manager or liquidating trustee of a Delaware LLC. If enacted, all of the proposed amendments will become effective on August 1, 2022.
Execution of Certificates of LLC and Partnership Interests
The LLC and Partnership Acts were amended in 2019 to include the addition of provisions relating to the execution of documents by electronic signature and the delivery of documents by electronic transmission (collectively, the Electronic Signature and Delivery Provisions). The Electronic Signature and Delivery Provisions explicitly state that any act or transaction contemplated or governed by the LLC and Partnership Acts or a limited liability company agreement or partnership agreement may be provided for in a document, and an electronic transmission will be deemed the equivalent of a written document.
Whenever the LLC and Partnership Acts or a limited liability company agreement or partnership agreement require or permit a signature, an electronic signature is a permissible mode of executing a document.
The Electronic Signature and Delivery Provisions currently set forth certain documents and actions that are not governed thereby, including a certificate of limited liability company interest or partnership interest. While the Electronic Signature and Delivery Provisions expressly state that the foregoing shall not create any presumption regarding the lawful means to document a matter, or sign or deliver a document, addressed by these excluded items, some uncertainty has arisen relating to the permitted methods of executing certificates representing limited liability company interests and partnership interests.
The proposed amendments update the Electronic Signature and Delivery Provisions of the LLC and Partnership Acts to confirm that a signature on a certificate of limited liability company interest or partnership interest may be a manual, facsimile or electronic signature. This update will facilitate modern transactions by providing greater flexibility with respect to the manner of executing certificates representing ownership interests of Delaware LLCs, LPs and GPs.
Timing of Signatory’s Oath or Affirmation of Facts Contained in Filed Instruments
The LLC and Partnership Acts require various instruments to be filed with the Delaware Secretary of State with respect to Delaware LLCs, LPs and GPs. In general, any such instrument is effective at the time it is filed with the Delaware Secretary of State, unless it provides that it will become effective at a future specified date or time within 180 days after the filing date. At the same time, under the LLC and Partnership Acts, the execution by a person of an instrument filed with the Delaware Secretary of State constitutes an oath or affirmation, under the penalties of perjury, that, to the best of such person’s knowledge and belief, the facts stated therein are true. The proposed amendments to the LLC and Partnership Acts clarify that a person’s execution of an instrument constitutes an oath or affirmation that the facts stated therein shall be true at the time such instrument becomes effective and not at the time it is executed.
Timing of Requisite Approvals of Conversions and Domestications
The LLC and Partnership Acts permit other entities (including foreign entities) to convert to, and non-United States entities to domesticate in the State of Delaware as, Delaware LLCs, LPs or GPs. The LLC and Partnership Acts currently provide that, prior to the filing of a certificate of conversion or certificate of domestication with the Delaware Secretary of State to effect a conversion or domestication, (i) the conversion or domestication shall be approved in the manner provided for by the document, instrument, agreement or other writing, as the case may be, governing the internal affairs of the converting or domesticating entity and the conduct of its business or by applicable law as appropriate; and (ii) a limited liability company agreement or partnership agreement shall be approved by the same authorization required to approve the conversion or domestication (jointly, the Requisite Conversion and Domestication Approvals). As stated above, in general, any instrument filed with the Delaware Secretary of State is effective at the time it is filed, unless it provides that it will become effective at a future specified date or time within 180 days after the filing date. The proposed amendments will amend the LLC and Partnership Acts to contemplate the possible use by transaction parties of a future specified effective date or time in a certificate of conversion or certificate of domestication and provide that the Requisite Conversion and Domestication Approvals are required to occur prior to the time a certificate of conversion or certificate of domestication becomes effective instead of prior to the time of its filing with the Delaware Secretary of State. The proposed amendments will provide greater flexibility to transaction parties in structuring conversions and domestications, including with respect to the particular timing of obtaining the Requisite Conversion and Domestication Approvals.
LLC/Partnership Agreements
The LLC and Partnership Acts provide that a Delaware LLC, LP and GP are not required to execute their respective limited liability company agreement or partnership agreement and that they are bound by the limited liability company agreement or partnership agreement whether or not they execute such agreement.
The LLC Act and the LP Act were each amended in recent years to permit a new type of series known as a “registered series,” which is formed by the filing of a certificate of registered series with the Delaware Secretary of State. A registered series qualifies as a registered organization under the Uniform Commercial Code and facilitates the use of a series Delaware LLC or LP in secured financing transactions. Series created under Sections 18-215(b) of the LLC Act and 17-218(b) of the LP Act, both before and after the enactment of these recent amendments, are now known as “protected series,” which are not formed by the filing of a certificate with the Delaware Secretary of State. Under the LLC Act and the LP Act, an existing protected series is able to convert to a registered series and a registered series in turn is able to convert to a protected series. The proposed amendments to the LLC Act and the LP Act confirm that any registered or protected series of a Delaware LLC or LP is not required to execute the limited liability company agreement or partnership agreement of such Delaware LLC or LP and is bound by the limited liability company agreement or partnership agreement of such Delaware LLC or LP whether or not the registered or protected series executes such agreement. The synopsis to the proposed amendments states that such amendments are not intended to imply that other references to “limited liability company” or “limited partnership” in the LLC Act or the LP Act do not include protected series or registered series of a Delaware LLC or LP (to the extent required by the context).
The proposed amendments would also amend the definition of “limited liability company agreement” in the LLC Act and the definition of “partnership agreement” in each of the Partnership Acts to confirm that such agreement may consist of one or more agreements, instruments or other writings and may include or incorporate one or more schedules, supplements or other writings containing provisions as to the conduct of the business and affairs of the Delaware LLC, LP and GP (and, with respect to a Delaware LLC or LP, any series thereof).
Effect of Revival on Protected and Registered Series
If certain conditions are met, Section 18-1109 of the LLC Act and Section 17-1111 of the LP Act provide for the ability to revive a Delaware LLC or LP whose certificate of formation or certificate of limited partnership has been cancelled because such Delaware LLC or LP failed to (i) obtain and designate a new registered agent prior to the expiration of 30 days after the filing by a registered agent of a certificate of resignation, (ii) obtain and designate a new registered agent within 30 days after the Delaware Secretary of State has given notice that its registered agent has been enjoined from acting as a registered agent, or (iii) pay the annual tax due to the State of Delaware for a period of three years from the date it was due. Once a certificate of revival is filed in accordance with the LLC Act or the LP Act, a Delaware LLC or LP and all registered series thereof that have been formed and whose certificate of registered series has not been cancelled is revived with the same force and effect as if its certificate of formation or certificate of limited partnership had not been cancelled. The proposed amendments clarify that a revival of a Delaware LLC or LP will also (i) revive each protected series thereof that has not been terminated and wound up, and (ii) validate all contracts, acts, matters and things made, done and performed by any protected or registered series thereof or by the members, managers, partners, employees and agents of such series during the time when the certificate of formation or certificate of limited partnership was cancelled with the same force and effect and to all intents and purposes as if such certificate remained in full force and effect. In addition, the proposed amendments provide that as a result of a revival of a Delaware LLC or LP, all real and personal property, and all rights and interests, which belonged to any protected or registered series thereof at the time the certificate of formation or certificate of limited partnership was cancelled, or which were acquired by any protected or registered series thereof following the cancellation of such certificate, and which were not disposed of prior to the time of revival, will be vested in the applicable protected or registered series after the revival as fully as they were held by such series at, and after, as the case may be, the time such certificate was cancelled.
Service of Process on Managers and Liquidating Trustees of Delaware LLCs
Service of process upon the manager or liquidating trustee of a Delaware LLC under the LLC Act is generally effectuated by serving the Delaware LLC’s registered agent in the State of Delaware with a copy of such process. If the Delaware LLC does not have a Delaware registered agent, the LLC Act allows service of process to be made upon the Delaware Secretary of State. Following this service of process being made, the Prothonotary or the Register in Chancery of the court in which the civil action or proceeding is pending must, within 7 days of such service, deposit in the United States mail, by registered mail, postage prepaid, true and attested copies of the process, together with a statement that service is being made pursuant to Section 18-109(b) of the LLC Act, addressed to the manager or liquidating trustee at the registered office of the Delaware LLC, and at the manager’s or liquidating trustee’s address last known to the party desiring to make such service. The proposed amendments to the LLC Act would require that such copies of the process and statement be addressed to the principal place of business of the Delaware LLC (if such address is known) rather than to the registered office of the Delaware LLC. The proposed amendments to the LLC Act would not change the existing requirement that such required copies and statement also be sent to the manager’s or liquidating trustee’s address last known to the party desiring to make such service.
The proposed amendments reflect Delaware’s continuing commitment to maintaining statutes governing Delaware LLCs, LPs and GPs that effectively serve the business needs of the national and international business communities. The proposed amendments to the LLC Act, the LP Act and the GP Act are contained in Senate Bill Nos. 275, 274 and 276, respectively.
If you have any questions about this Delaware LLC & Partnership Law Update or other legal issues, please contact a Richards, Layton & Finger attorney.