Delaware Limited Liability Company Act

Delaware Limited Liability Company Act
Name	Delaware Limited Liability Company Act
Enacted by	Delaware General Assembly
Year	1992
Citation	6 Del. C. §§ 18-101 et seq.
Status	current

Delaware Limited Liability Company Act The Delaware Limited Liability Company Act is the statutory framework that governs the formation, operation, governance, and dissolution of limited liability companies in Delaware. It has become a primary choice for domestic and foreign entities in corporate structuring, influencing jurisprudence in courts such as the Delaware Court of Chancery and the Supreme Court of the United States. The Act interacts with corporate practice in venues like New York City, Silicon Valley, and international capital centers such as London.

Background and Legislative History

The Act was enacted by the Delaware General Assembly in 1992, following earlier statutory approaches in states like Wyoming and Texas that adopted LLC statutes in the 1970s and 1980s. Its development drew upon precedents from the Delaware General Corporation Law and the statutory evolution evidenced by cases in the Delaware Court of Chancery, including disputes reviewed by judges such as Chancellor William B. Chandler III and panels influenced by opinions from the Delaware Supreme Court. Amendments over time have paralleled trends in decisions from venues like the United States Court of Appeals for the Third Circuit, reactions to doctrines from the Internal Revenue Service, and comparative scholarship from institutions including Harvard Law School, Yale Law School, and Columbia Law School.

Formation and Governing Documents

Formation requires filing a certificate of formation with the Delaware Secretary of State under statutes codified at 6 Del. C. §§ 18‑101 et seq. Practitioners routinely prepare an operating agreement modeled after provisions in the Model Business Corporation Act and informed by guidance from firms such as Skadden, Arps, Slate, Meagher & Flom, Wachtell, Lipton, Rosen & Katz, and Kirkland & Ellis. The certificate and operating agreement intersect with filings governed by the Securities and Exchange Commission when public offerings implicate LLC interests, and often reflect transactional documents used in mergers overseen by parties like Goldman Sachs and Morgan Stanley. Formation practitioners consider precedents from bankruptcy matters in the United States Bankruptcy Court for the District of Delaware and contract principles litigated in the Delaware Court of Chancery.

Management and Fiduciary Duties

The Act permits flexibility in management structures, allowing member-managed or manager-managed forms frequently used by startups in Silicon Valley and private equity sponsors such as The Carlyle Group and Blackstone Group. Fiduciary duties under the Act—duty of loyalty and duty of care—have been judicially interpreted in cases from the Delaware Court of Chancery and appealed to the Delaware Supreme Court, with influential opinions comparable to precedents from the Revlon, Inc. and Unocal Corp. line of cases in corporate law. Duties are negotiated and sometimes modified via operating agreements in transactions involving counsel from Debevoise & Plimpton or Latham & Watkins, and enforcement may invoke remedies like injunctions or equitable relief that mirror remedies in disputes before the United States District Court for the District of Delaware.

Membership, Capital Contributions, and Distributions

Membership interests are created by agreement among parties, with capital contribution rules tailored for investors such as Sequoia Capital, Andreessen Horowitz, and sovereign wealth investors like the Government of Singapore Investment Corporation. Allocation of profits and losses and distributions follow contractual terms often negotiated in financing rounds similar to transactions in the NASDAQ or New York Stock Exchange contexts. Disputes over capital calls and distributions have been resolved by judges from the Delaware Court of Chancery and informed by comparative practice from United Kingdom company law and rulings considered by the Second Circuit Court of Appeals on matters of equitable accounting.

Dissolution, Merger, and Conversion

The Act provides statutory paths for voluntary dissolution, judicial dissolution, statutory mergers, and conversions to or from entities governed by statutes such as the Delaware General Corporation Law and the Delaware Limited Partnership Act. Mergers and conversions often involve transactional advisers such as Cravath, Swaine & Moore and regulatory clearances that mirror processes seen in deals involving Pfizer or Walmart. Judicial dissolution proceedings in the Delaware Court of Chancery have addressed competing interests of members and creditors, drawing analogies to insolvency matters in the United States Bankruptcy Court and corporate reorganizations monitored by the Securities and Exchange Commission.

Tax Treatment and Regulatory Considerations

Tax treatment under federal law generally follows classifications by the Internal Revenue Service (e.g., partnership or corporation), implicating authorities such as Section 7701 of the Internal Revenue Code and guidance from the United States Department of the Treasury. State-level considerations include franchise taxes and annual filing requirements with the Delaware Division of Corporations. Regulatory interactions arise when LLCs engage in securities offerings regulated by the Securities and Exchange Commission, or investment activities overseen by the U.S. Department of Justice and agencies like the Federal Trade Commission in merger reviews. Tax counsel from firms such as Ernst & Young, PricewaterhouseCoopers, and Deloitte commonly advise on structuring to optimize treatment under both Internal Revenue Code provisions and state statutes.

Category:Delaware law Category:United States business law