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E-MailThis post is by Mr. Spark’s colleague Louis G. Hering. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.
In its latest session, the Delaware legislature enacted several amendments to three of Delaware’s four “alternative entity” statutes – the Delaware Limited Liability Company Act (“DLLCA”), the Delaware Revised Uniform Limited Partnership Act (“DRULPA”) and the Delaware Revised Uniform Partnership Act (“DRUPA”). [1] The amendments become effective on August 1, 2009. Among other things, the amendments (i) effectively codify the doctrine of independent legal significance, as developed in Delaware corporation law, to apply to LLCs, limited partnerships and general partnerships; and (ii) confirm the ability by merger or consolidation to amend an operating or partnership agreement or adopt a new operating or partnership agreement for an entity that is the surviving or resulting entity in a merger or consolidation.
The utility of the Delaware alternative entity statutes, as well as the other advantages of using Delaware entities (for example, the predictability of the Delaware courts and the customer friendly attitude of the Delaware Secretary of State’s office), has resulted in significant use of Delaware alternative entities. According to the Delaware Secretary of State, 2,581 statutory trusts, 7,552 limited partnerships and 81,923 LLCs were formed in 2008, bringing the total number of each of these entities existing at the end of 2008 to 22,526, 70,503 and 501,670 respectively. The continued formation and use of Delaware’s alternative entities have predictably led to additional litigation, and we have again updated our survey of Delaware case law relating to alternative entities. The 2009 Cumulative Survey is now available on our website here under Publications.
The changes referenced above, together with other changes of particular interest, are summarized below.
Highlights
I. Certain 2009 Amendments To The Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 Et Seq.
A. Construction and Application of Chapter and Limited Liability Company Agreement [Section 18-1101(h)]
Newly added Subsection 18-1101(h) effectively codifies the doctrine of independent legal significance, as developed in Delaware corporation law. The amendment is in the form of a statement of the doctrine: that an action validly taken under one provision of the DLLCA shall not be deemed invalid solely because it is similar to an action that could have been taken under another provision of the DLLCA, but fails to satisfy the conditions of that other provision.
B. Merger and Consolidation [Section 18-209(f)]
Related to the amendment codifying the doctrine of independent legal significance, Section 18-209(f) was amended to confirm the ability by merger or consolidation to amend a limited liability company agreement or adopt a new limited liability company agreement for a limited liability company that is the surviving or resulting entity in a merger or consolidation by obtaining the approval of the requisite number of members to approve such merger or consolidation, unless the limited liability company agreement by its terms limits such amendment or adoption.
C. Interpretation and Enforcement of Limited Liability Company Agreement [Section 18-111]
Section 18-111 has been amended to broaden the jurisdiction of the Court of Chancery to include any action to interpret, apply or enforce any provision of the DLLCA or any other instrument, document, agreement or certificate contemplated by any provision of the DLLCA.
D. Classes and Voting [Section 18-302(e)]
In connection with the amendment to Section 18-209(f), Section 18-302(e) has been amended to confirm that the reference in such section to “as otherwise permitted by law” includes an amendment made in connection with a merger or consolidation as permitted by Section 18-209(f).
II. Certain 2009 Amendments to The Delaware Revised Uniform Limited Partnership Act, 6 Del. C. §§ 17-101 Et Seq.
A. Construction and Application of Chapter and Partnership Agreement [Section 17-1101(h)]
Newly added Subsection 17-1101(h) effectively codifies the doctrine of independent legal significance, as developed in Delaware corporation law. The amendment is in the form of a statement of the doctrine: that an action validly taken under one provision of the DRULPA shall not be deemed invalid solely because it is similar to an action that could have been taken under another provision of the DRULPA, but fails to satisfy the conditions of that other provision.
B. Merger or Consolidation [Section 17-211(g)]
Related to the amendment codifying the doctrine of independent legal significance, Section 17-211(g) was amended to confirm the ability by merger or consolidation to amend a partnership agreement or adopt a new partnership agreement for a limited partnership that is the surviving or resulting entity in a merger or consolidation by obtaining the approval of the requisite number of limited partners to approve such merger or consolidation, unless the limited partnership agreement by its terms limits such amendment or adoption.
C. Interpretation and Enforcement of Partnership Agreement [Section 17-111]
Section 17-111 has been amended to broaden the jurisdiction of the Court of Chancery to include any action to interpret, apply or enforce any provision of the DRULPA or any other instrument, document, agreement or certificate contemplated by any provision of the DRULPA.
D. Classes and Voting [Section 17-302(f)]
In connection with the amendment to Section 17-211(g), Section 17-302(f) has been amended to confirm that the reference in such section to “as otherwise permitted by law” includes an amendment made in connection with a merger or consolidation as permitted by Section 17-211(g).
III. Certain 2009 Amendments to The Delaware Revised Uniform Partnership Act, 6 Del. C. §§ 15-101 Et Seq.
A. Uniformity of Application and Construction [Section 15-1201]
Section 15-1201 has been amended effectively to codify the doctrine of independent legal significance, as developed in Delaware corporation law. The amendment is in the form of a statement of the doctrine: that an action validly taken under one provision of the DRUPA shall not be deemed invalid solely because it is similar to an action that could have been taken under another provision of the DRUPA, but fails to satisfy the conditions of that other provision.
B. Merger or Consolidation [Section 15-902(g)]
Related to the amendment codifying the doctrine of independent legal significance, Section 15-902(g) was amended to confirm the ability by merger or consolidation to amend a partnership agreement or adopt a new partnership agreement for a domestic partnership that is the surviving or resulting entity in a merger or consolidation by obtaining the approval of the requisite number of partners to approve such merger or consolidation, unless the partnership agreement by its terms limits such amendment or adoption.
C. Classes and Voting [Section 15-407(e)]
In connection with the amendment to Section 15-902(g), Section 15-407(e) has been amended to confirm that the reference in such section to “as otherwise permitted by law” includes an amendment made in connection with a merger or consolidation as permitted by Section 15-902(g).
D. Definition of “Person” [Section 15-101(16)]
The definition of “person” has been revised to confirm that any form of trust including a common law trust, business trust, statutory trust, or voting trust constitutes a “person.”
E. Effect of Partnership Agreement; Nonwaivable Provisions [Section 15-103(c)]
Section 15-103(c) has been amended to permit §§ 15-201, 15-203 and 15-501 to be modified as follows:
Section 15-201(a) has been amended to permit a limited liability partnership to use its statement of qualification rather than a statement of partnership existence to opt-out of the default rule that a partnership is a separate legal entity, distinct from its partners.b. Partnership Property [Section 15-203]:
Section 15-203 has been amended to permit a limited liability partnership to use its statement of qualification rather than a statement of partnership existence to opt-out of the default rule that property acquired by a partnership is property of the partnership, not of the partners individually.
c. Partner Not Co-Owner of Partnership Property [Section 15-501]:
Section 15-501 has been amended to permit a limited liability partnership to use its statement of qualification, rather than a statement of partnership existence, to opt-out of the default rule that a partner is not a co-owner of partnership property and has no interest in specific partnership property.
F. Interpretation and Enforcement of Partnership Agreement [Section 15-122]
Section 15-122 has been amended to broaden the jurisdiction of the Court of Chancery to include any action to interpret, apply or enforce any provision of the DRUPA or any other instrument, document, agreement or certificate contemplated by any provision of the DRUPA.
G. Governing Law [Sect ion 15-106(c)]
Section 15-106(c) has been amended to provide that Delaware law shall govern a partnership agreement when (a) a partnership agreement provides for the application of Delaware law, and (b) the partnership files either a statement of partnership existence or a statement of qualification with the Secretary of State.
H. Statement of Qualification of a Domestic Partnership [Section 15-1001(c)]
Section 15-1001(c) has been amended to provide that the statement of qualification must contain the number of partners of the partnership at the time of the effectiveness of the statement of qualification.
I. Execution, Filing and Recording of Statements and Certificates [Section 15-105(c)]
Section 15-105(c) has been amended to increase the flexibility with regard to execution of a certificate of conversion or a certificate of partnership domestication. In each such case, such a certificate may be executed either by a partner, by one or more authorized persons of the partnership or by a person authorized to execute such certificate on behalf of the other entity in the case of a conversion or the non- United States entity in the case of a domestication.
Footnote:
[1] No amendments were adopted to the Delaware Statutory Trust Act.
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