Published on 24 Jun 2016 • Delaware, USA (National/Federal)
The 2016 amendments to the Delaware General Corporation Law, Limited Liability Company Act, Revised Uniform Partnership Act, and Revised Uniform Limited Partnership Act have been approved by the Delaware legislature and signed into law.
The Delaware General Assembly has approved and the governor of Delaware has signed into law the 2016 amendments to the following business-law statutes:
The amendments to the alternative-entity statutes are technical in nature and in most cases have little substantive effect. Only one amendment has been made to the DRUPA, to confirm in Section 15-407(d) that the statute provides default rules but is otherwise enabling and does not require the partners to vote in writing.
The amendments to the LLC Act and the DRULPA mirror each other. Most of the amendments make a similar clarification to that being made in the DRUPA, removing the default rule that actions of the members, managers, or partners (as applicable) require a written vote. The statutes will now allow approvals or consents to be provided by any means permitted by law.
Clarification for Assignments by Single Members
The LLC Act has been amended to prevent situations of inadvertent dissolution of single-member LLCs. Several provisions of the statute address assignments of membership interests by LLC members:
Section 18-702(b)(3) provides that a member ceases to be a member once it assigns its entire membership interest (6 Del. C. § 18-702(b)(3)).
However, an assignee is not admitted as a member to the LLC absent a provision in the LLC agreement that provides for automatic admission upon assignment (6 Del. C. § 18-702(b)(1)) or consent by the members (6 Del. C. § 18-702(a)).
Taken together, the implication of these provisions is that if the sole member of an LLC assigns its entire interest to an assignee without making explicit that the assignee is to become a member of the LLC, and if the LLC agreement does not already provide that assignees are automatically deemed members of the LLC, then the LLC loses its only member upon the assignment of the membership interest and, consequently, is deemed to have dissolved.
To avoid this result, a new subsection 18-704(a)(3) has been added to the statute to provide that when a sole member of an LLC makes a voluntary assignment of its entire membership interest to a single assignee, the default rule is that the assignee is deemed admitted as a member of the LLC, even without explicit consent or a provision in the LLC agreement to this effect. As this is a default rule, the assigning member can provide to the contrary when effecting the assignment, or the LLC agreement can opt out of this rule with a specific reference to Section 18-704(a)(3) of the LLC Act.
The new subsection provides that an assignment is voluntary for these purposes if it is consented to by the member at the time of the assignment and is not the result of foreclosure or "other similar legal process."
Guarantees by or in Favor of a Series
The LLC Act and DRULPA have also been amended to clarify that a series of a Delaware LLC or LP can agree to be held liable for the debts and obligations of the entire entity or another series of the entity, and on the flip side, that an LLC or LP can agree to be held liable for the debts and obligations of a particular series.