Current Month (September 2026)
It’s Difficult to Dispute the Power of Dividing Limited Liability Companies
By William E. H. Quick, Outside Inside Counsel, LLC
Division of an existing limited liability company (“LLC”) into two or more new LLCs is permitted under Delaware law. See Del. Code Ann. tit. 6, § 18-217. This division process may be thought of as a merger in reverse. Each of the constituent entities, post-division, are independent, juridical persons (i.e., having a distinct legal identity recognized by law), and each is a continuation, as a matter of law, of the original LLC. As a result, LLC division can be a powerful tool in spin-offs, split-ups, and business separation transactions.
Each resulting company in a division must be formed in compliance with the requirements of the applicable act. To effect a division, the dividing company is required to adopt a plan of division (similar to a plan of merger) and file a certificate of division with the Department of State. A plan of division will effect the adoption of a new operating agreement for each resulting company, and it may effect either an amendment to the existing operating agreement or adoption of a new amended and restated operating agreement of a surviving company in the division.
If the operating agreement of the dividing company specifies the manner of adopting a plan of division, it will be adopted as specified. However, if the operating agreement of the dividing company does not specify the manner of adoption, and does not prohibit division, the plan of division will be adopted in the same manner as specified in the operating agreement for authorizing a merger or consolidation.
Because of the features of division, an LLC may, through the division process, bifurcate ownership, control, assets, liabilities, obligations, and other constituent attributes of the original LLC into discrete components that may vested in separate, autonomous satellite LLCs going forward. The obligations and liabilities of the dividing company will be allocated to and vested in, and be valid and enforceable obligations of, such division company or companies to which such obligations and liabilities are allocated pursuant to the plan of division. These traits may allow existing contractual rights, licenses, and other attributes to move forward in a resulting company without the need for third-party consent.
If applicable, however, the resulting cessation of the existence of the dividing company pursuant to a certificate of division will not be deemed to affect the personal liability of any person incurred prior to such division with respect to matters arising prior to such division, nor will it be deemed to affect the validity or enforceability of any obligations or liabilities of the dividing company incurred prior to such division. Thus, existing creditors or litigants of the original LLC will likely have ongoing claims to LLC collateral assets as a whole, so the division process may not be used to facilitate fraudulent transfers.
Business law practitioners should be mindful of this powerful and precise tool when addressing complicated or thorny issues in strategic business planning, wind-down transactions, or decoupling of LLC members.
