Delaware LLC & Partnership Law Update
July 1, 2013
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 Limited Partnership Act (DRULPA) and the Delaware Revised Uniform Partnership Act (DRUPA) (collectively, the Acts). The following is a brief summary of some of the more significant amendments that affect Delaware limited liability companies (Delaware LLCs), Delaware limited partnerships (Delaware LPs) and Delaware general partnerships (Delaware GPs) (each, a Delaware Alternative Entity, and collectively, Delaware Alternative Entities).
Default Fiduciary Duties Applicable to Delaware LLCs
In Gatz Properties, LLC v. Auriga Capital Corp., 59 A.3d 1206 (Del. 2012), the Delaware Supreme Court invited the Delaware legislature to clearly answer the question as to whether default fiduciary duties apply to Delaware LLCs. In response to the invitation in Gatz, DLLCA has been amended to confirm that in some circumstances default fiduciary duties apply to Delaware LLCs. The synopsis accompanying the amendments to DLLCA provides, as an example, that a manager of a manager-managed limited liability company would ordinarily have fiduciary duties even in the absence of a provision in the limited liability company agreement establishing such duties. DLLCA continues to provide that fiduciary duties may be expanded, restricted or eliminated by provisions in a limited liability company agreement.
Charging Order Exclusive Remedy for Judgment Creditor
The Acts have been amended to confirm that a charging order is the exclusive remedy by which a judgment creditor of a member, a partner or a member’s or partner’s assignee, as applicable, of a Delaware Alternative Entity may satisfy a judgment out of the judgment debtor’s interest in a Delaware Alternative Entity. The amendments specifically provide that attachment, garnishment, foreclosure and other legal and equitable remedies are not available to a judgment creditor of a member, partner or assignee.
Confirmation of Applicability of DLLCA Provisions to Single-Member and Multi-Member Delaware LLCs
DLLCA has been amended to confirm that the provisions of DLLCA (including the provision regarding a charging order) apply whether a Delaware LLC has one member or more than one member.
Domestications, Transfers, Continuances, Conversions and Mergers Involving Delaware Alternative Entities
The Acts have been amended to confirm that in connection with a domestication, transfer, continuance or conversion, rights or securities of, or interests in, an entity that is domesticating or converting to a Delaware Alternative Entity and rights or securities of, or interests in, a Delaware Alternative Entity that is transferring to or domesticating or continuing in another jurisdiction or converting to a different type of entity or another jurisdiction may remain outstanding in connection with such domestication, transfer, continuance or conversion. In connection with a merger involving a Delaware Alternative Entity, the amendments to the Acts confirm that the rights or securities of, or interests in, a constituent party that is the surviving entity in a merger may remain outstanding in connection with the merger.
The recent amendments reflect Delaware’s continuing commitment to maintaining statutes governing Delaware LLCs, Delaware LPs and Delaware GPs that effectively serve the business needs of the national and international business communities. The recent amendments to DLLCA are contained in House Bill No. 126 (effective August 1, 2013). The recent amendments to DRULPA are contained in House Bill No. 124 (except for Sections 1, 2 and 4 thereof, effective August 1, 2013; Sections 1, 2 and 4 thereof (i) contain certain clarifying amendments to DRULPA relating to Delaware limited liability limited partnerships, which are limited partnerships where the general partner may have limited liability, and (ii) become effective April 1, 2014). The recent amendments to DRUPA are contained in House Bill No. 123 (effective August 1, 2013).
If you have any questions about this Delaware LLC & Partnership Law Update, or other legal issues, please contact a Richards, Layton & Finger attorney.