LLC/LP Interests as Collateral Toolkit

Resources to assist counsel in understanding the issues involved with creating, perfecting and enforcing a security interest in limited liability company (LLC) or limited partnership (LP) interests under the Uniform Commercial Code (UCC).

Practical Law Finance

It is not unusual for a lender's collateral to include interests in a limited liability company ( www.practicallaw.com/6-382-3582) (LLC) or a limited partnership ( www.practicallaw.com/7-382-3586) (LP). A borrower will often have subsidiaries that have been formed as LLCs or LPs. Hedge funds are also often structured as LLCs or LPs, and hedge fund investors may use their LLC or LP interests as collateral for loans. LLCs and LPs are also often used in real estate mezzanine loan transactions. However, taking a security interest in LLC interests or LP interests raises additional issues for counsel compared to a pledge of corporate shares.

This Toolkit includes continuously maintained resources to provide information on:

  • State entity law issues with LLC interests and LP interests, for example correctly describing the collateral in a security agreement.

  • Dealing with assignment restrictions in an LLC operating agreement or an LP partnership agreement or under state entity laws.

  • Correctly classifying the LLC interests or LP interests under the Uniform Commercial Code ( www.practicallaw.com/1-382-3891) (UCC) and properly perfecting ( www.practicallaw.com/0-382-3684) the lender’s security interest in the collateral.

  • Additional closing requirements in connection with perfecting and enforcing the security interest in the LLC interests or LP interests, for example obtaining consents to the pledge.

  • Enforcing the lender’s security interest in the collateral, including its ability to access economic and control rights in the LLC interests or LP interests, dispose of the collateral and for a transferee to be admitted as a member ( www.practicallaw.com/0-382-3622) of the LLC or a limited partner ( www.practicallaw.com/9-382-3585) of the LP.

  • Other enforcement issues related to perfecting and enforcing a security interest in LLC interests or LP interests, including the obligations on lenders, the risks and liabilities for lenders and transferees, securities law issues and bankruptcy issues.

 

Practice Notes

 

Standard Documents

 

Checklists

 
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