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Updates to Delaware LLCs and Partnership Law Enacted

By Marla H. Norton

On June 22, 2016, Delaware Governor Jack Markell signed legislation implementing the 2016 updates to the Delaware Limited Liability Company Act (the “LLC Act”), the Delaware Revised Uniform Limited Partnership Act (the “LP Act”) and the Delaware the Delaware Revised Uniform Partnership Act (the “GP Act”).  All of the amendments become effective August 1, 2016.  Following is a summary of the material changes:

Series Updates

The bills include several clarifications to the series provisions of the LLC Act and LP Act.  While not a separate legal entity, a series of a limited liability company or a limited partnership has many entity-like attributes, including the ability to sue and be sued.  The legislation amends Sections 18-105 of the LLC Act and 17-105 of the LP Act to provide that a series is served with process in the same manner as the limited liability company or limited partnership of which the series is a part and that any process served with respect to a series as provided therein upon the registered agent for an LLC or LP or upon the Secretary of State of the State of Delaware must identify both the LLC or the LP and the applicable series.

In addition, the 2016 amendments update Section 18-215(b) and 17-218(b): (1) to clarify that “assets of a series” and “assets associated with a series” have the same meaning and are interchangeable, and (2) to confirm that the language in the relevant Act or an LLC agreement or partnership agreement encapsulating liabilities of a series or of the LLC/partnership and shielding each from the obligations and liabilities of the others does not prevent a series or the LLC/partnership from affirmatively agreeing to undertake liability for any or all of the obligations or liabilities of another series or the entity.

Other amendments to the series provisions that parallel changes applicable generally to LLCs and limited partnerships are addressed below.

Consent Rights Not Limited to Written Consent

The LLC Act amendments revise Sections 18-302(d) and 18-404(d) of the LLC Act to expressly confirm that a consent or approval by a member with respect to a series or an LLC may be written, electronic or in any other manner permitted by law and Sections 18-215(k), 18-304, 18-702(a), 18-704(a) and 18-806 to strike references to “written” consents.  Similarly, the LP Act amendments revise Sections 17-302(e) and 17-405(d) of the LP Act to expressly confirm that a consent or approval by a partner with respect to a series or an LP may be written, electronic or in any other manner permitted by law and Sections 17-218(k) and 17-401(b), 17-402(a), 17-702(a), 17-704(a) and 18-706 to strike references to “written” consents and agreements “in writing.”.  These amendments make clear that a writing is not the exclusive means to express assent by a member, manager, partner, personal representative or assignee.  The GP Act amendment revises Section 15-407 of the GP Act to expressly confirm that a consent or approval by a partner may be written, electronic or in any other manner permitted by law.

Also, the amendments eliminate as unnecessary the adjective “affirmative” preceding the word “vote” in sections 18-215(k), 18-702(a), 18-704(a) 18-801 and 18-806.  Analogous changes have been made to Sections 17-218(k), 18-702(a), 17-704(a) 17-801 and 17-806 of the LP Act.

Assignment and Admission

The new legislation amends Section 18-704(a) and Section 17-704(b) of the LLC and LP Acts to replace the words “may become” with the word “becomes” to make clear that upon satisfaction of the applicable enumerated condition(s) in each of these sections, an assignee is admitted as a member or partner, respectively.  In addition, Section 18-704(a) is amended by adding a new subsection (3), which provides that when the sole member of a limited liability company voluntarily assigns its entire limited liability interest in the LLC to a single assignee, unless the limited liability agreement provides otherwise by specific reference to Section 18-704(a)(3) or unless the terms of the assignment otherwise specify, the assignee is automatically admitted as a member.  The new language states that the term “voluntary” means that the assignment is consented to at the time of the assignment and that a voluntary assignment excludes an assignment effected by foreclosure or other similar legal process.  The intent of this provision is to avoid the involuntary dissolution that results when the LLC Agreement does not provide for the admission.

Note:  While lender-required language in an LLC Agreement permitting the admission of a pledgee or its designee following a foreclosure or other exercise of remedies will not satisfy new Section 18-304(a)(3), such language remains viable under Section 18-304(a)(1), which provides for the admission of an assignee “[a]s provided in the limited liability company agreement.

No Negative Implication

The LLC Act amendments modify Section 18-801(b) to eliminate an implication that any or all of the enumerated events will terminate a member’s continued membership or cause the dissolution of a limited liability company.  Thus the clause indicating that “unless the LLC Agreement provides otherwise, the death, retirement, resignation, expulsion, bankruptcy or dissolution of any member or the occurrence of any other event that terminates the continued membership of any member,” is revised to refer to the occurrence of “an event that terminates the continued membership of any member.”

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