Protecting LLC Owners While Preserving LLC Flexibility

Limited liability companies, or LLCs, have emerged as the entity of choice for new businesses.  The form attracts many everyday owners and entrepreneurs as an easy way to combine corporation-style limited liability protection with partnership-style tax treatment. LLCs also offer an appealing means for sophisticated players to craft more flexible internal governance arrangements without fiduciary duties and other governance terms required of other organizational forms.  LLCs thus cater to two very different groups: average investors, and very sophisticated parties.  Unfortunately, as LLCs have grown in popularity, so too have the stress fractures that result from satisfying these two divergent groups.  … Read more

How Do LLC Owners Contract Around Default Statutory Protections?

Limited liability companies, or LLCs, have quickly become the form of choice for new businesses.  Companies ranging from the well known, like Chrysler, to the more experimental, such as French fry vending machine makers, to local flooring installers all organize as LLCs.  One attraction is LLCs’ ability to replicate S-corporations’ robust limited liability protection and potential for single taxation of company profits.  Another attraction is the wide contractual freedom permitted among owners and managers to divide up ownership and management rights and responsibilities.  Most states impose few mandatory rules on this relationship.  For instance, Delaware, the leader in out of … Read more