These form limited liability company agreements are designed for use for single-member limited liability companies (“LLCs”). Both forms are designed to comply with the requirements of the Delaware Limited Liability Company Act. If a practitioner desires to use either form to organize an LLC under the laws of another jurisdiction, it will be necessary to consider carefully how any differences between the laws of that jurisdiction and the Delaware LLC Act affect the provisions of the forms.
One form is designed for use where the member is an individual, and the other form is designed for use where the member is an entity. Many of the provisions in the two forms are the same or similar. However, when there are two approaches to a given area, one of which is more complicated or detailed than the other, the more complicated or detailed approach is included in the entity member form and the simpler approach in the individual member form. Thus, for example, the individual member form uses management by the member, which is the simplest and most straightforward management structure in a single-member LLC, while the entity member form employs a manager-managed construct. In addition, the individual member form employs a simpler dissolution structure that tracks the default language of the Delaware LLC Act, permitting the LLC to be continued after dissolution but not requiring it. In contrast, the entity member form requires that, upon dissolution, the LLC will be continued to the extent permitted under the Delaware LLC Act. Similarly, the entity member form provides for officers and specifically describes the functions of the president, secretary, and treasurer, while the individual member form simply provides that the member may appoint officers if desired.
The forms are also designed to avoid certain pitfalls that can frequently occur with single member LLCs. Thus, for example, in connection with a voluntary transfer by the member of its entire LLC interest, both forms provide that the member will cease to be a member, the transferee will automatically and simultaneously be admitted as the successor member, and the LLC will continue without dissolution. This provision is designed to address the situation that arises when the sole member of an LLC transfers the entire interest in the LLC, just as a stockholder would transfer the stock in a wholly owned corporation, without expressly admitting the transferee as the successor member. Failure to do so can result in the inadvertent dissolution of the LLC, and the transfer provisions of the forms are designed to avoid this. It should be noted, however, that the forms are designed only to function for single-member LLCs. Thus, they should not be used for multi-member LLCs and should be amended and restated if they are used for a single-member LLC that subsequently has more than one economic member.
With regard to tax matters, both forms are intended for use only with an LLC formed with one economic member under the laws of one of the states that is not treated as a trust or corporation (including a corporation making an S election) for tax purposes.
Finally, it should be stressed that no form is appropriate for every use, and careful consideration should be given to the specific facts and circumstances in any individual situation before either of the forms is used. In this regard, while one or the other of the forms may be appropriate for a specific situation, in other situations, it may be desirable to combine provisions of the two forms by, for example, using manager management in a form where the member is an individual, or it may be desirable to add provisions that are not in either form if the specific circumstances dictate.
These forms are a project of the Limited Liability Company Subcommittee of the Committee on LLCs, Partnerships and Unincorporated Business Organizations of the ABA Business Law Section. The forms were approved by the Committee in 2013 after many years of work. The project was begun by Marty Lubaroff, one of the seminal figures in the alternative entity area. Over the years, many …