Amendments to Delaware’s Alternative Entity Legislation Enacted
July 20, 2009
Publication| Limited Liability Company & Partnership Advisory
The Delaware General Assembly has recently enacted legislation amending the Delaware Limited Liability Company Act (DLLCA), the Delaware Revised Uniform Partnership Act (DRUPA) and the Delaware Revised Uniform Limited Partnership Act (DRULPA) (collectively, the Acts). The following is a brief summary of some of the amendments that affect Delaware limited liability companies (Delaware LLCs), Delaware general partnerships (Delaware GPs) and Delaware limited partnerships (Delaware LPs) (collectively, Delaware Alternative Entities).
Doctrine of Independent Legal Significance
The amendments to the Acts clarify that the doctrine of independent legal significance, as developed under the Delaware General Corporation Law, applies in the context of Delaware Alternative Entities. The amendments provide that an action validly taken under one provision of an Act shall not be deemed invalid solely because it is identical or similar in substance to an action that could have been taken under another provision of such Act but fails to satisfy the requirements of that other provision. The amendments further clarify the ability to amend a limited liability company agreement or a partnership agreement (jointly, Alternative Entity Agreements) or adopt a new Alternative Entity Agreement in connection with a merger.
Clarification of Chancery Court Jurisdiction
The Acts currently grant jurisdiction to the Delaware Court of Chancery for any action to interpret, apply or enforce the provisions of an Alternative Entity Agreement. The Acts have been amended to clarify that the jurisdiction of the Delaware Court of Chancery includes actions to interpret, apply or enforce the provisions of the Acts and any instruments, documents, agreements or certificates that are contemplated by the Acts.
Amendments to Certificates and Statements in Connection with a Merger
The Acts permit a certificate of merger to include amendments to a certificate of formation, statement of partnership existence, statement of qualification or certificate of limited partnership to amend the name of the Delaware Alternative Entity. The amendments expand this ability to amend to include amendments to the registered office and registered agent.
Governing Law Safe Harbor
DRUPA currently provides that a partnership agreement will be governed by Delaware law if it so provides and a statement of partnership existence is filed with the Delaware Secretary of State. The amendments to DRUPA provide that a partnership agreement will also be governed by Delaware law if it so provides and a statement of qualification has been filed. This is to account for a Delaware GP that has qualified as a limited liability partnership by filing its statement of qualification but has not filed a statement of partnership existence.
Default Rules "Opt-out" Via Statement of Qualification
DRUPA permits a Delaware GP to "opt-out" of certain provisions of DRUPA (e.g., separate legal entity, partnership property, partners not co-owners of partnership property) by making such an election in its statement of partnership existence. The amendments to DRUPA expand the "opt-out" provisions by permitting the election to be made in a statement of qualification as well. This is to account for a Delaware GP that has qualified as a limited liability partnership by filing its statement of qualification but has not filed a statement of partnership existence.
Persons Permitted to Execute Certificates
The Acts were amended to clarify who may execute certificates in connection with certain types of restructuring transactions.
The recent amendments reflect Delaware’s continuing commitment to maintaining statutes governing Delaware Alternative Entities that effectively serve the business needs of the national and international business communities. The recent amendments to DLLCA are contained in Senate Bill No. 82 (effective August 1, 2009). The recent amendments to DRUPA are contained in Senate Bill No. 83 (effective August 1, 2009). The recent amendments to DRULPA are contained in House Bill No. 142 (effective August 1, 2009).