EXPULSION

The post under the link below, which deals with expulsions of members of multi-member LLCs, is based on New Jersey statutory and case law, but it is relevant to LLC lawyers in most or all other states.

Here’s the link:  https://www.lexology.com/library/detail.aspx?g=15fbd0c3-811d-4f29-9fe2-0fb566581f46&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2021-03-19&utm_term=

PARTNERSHIP V. CORPORATION

Can businesspeople who formed a partnership by oral agreement and who then form corporations that operate through corporations that they form ever claim any continuing partnership benefits, such as real property ownership?  The short answer, as I read Peter Mahler’s latest post in his excellent “Business Divorce” blawg, is this: “Yes, but only by a very specific written agreement.”

Here’s the link:  https://www.nybusinessdivorce.com/2021/03/articles/partnerships/the-oral-partnership-operating-as-a-corporation-is-it-a-partnership-a-corporation-can-it-be-both/

WRITTEN LLC OPERATING AGREEMENT VS. SUBSEQUENT ORAL AGREEMENT

Under the link below is a new post by Peter Mahler relevant to all too many LLC clients.  Peter summarizes the issue in the post as follows:

The interaction between an LLC’s operating agreement and a subsequent, informal deal between the members raises difficult questions surrounding the enforceability of either agreement. In a recently-filed Manhattan Commercial Division case, the Court granted the plaintiff a preliminary injunction, signaling to the parties that the plaintiff was likely to succeed on his claim to enforce the informal deal notwithstanding arguably contrary provisions in the operating agreement. The case reminds us that the formality requirements of an LLC operating agreement may give way to an informal agreement when both LLC members manifest their intent to be bound by the informal agreement

Here is the link:

https://www.nybusinessdivorce.com/2021/02/articles/buyout/a-shotgun-buy-sell-agreement-and-an-email-deal-walk-into-a-beachside-bar/

LIMITED PARTNER VALUATION CASE

A recent decision of the Delaware Court of Chancery, discussed under the link below, addresses an ownership interest issue in a Delaware case that, although it involves the interest in a limited partner of a Delaware limited partnership and addresses Delaware limited partnership Implied Covenant and merger issues, has important implications for Delaware and non-Delaware LLCs that have limited partnership management structures.

Here’s the link:  https://www.nybusinessdivorce.com/2021/03/articles/delaware/general-partner-breached-implied-covenants-in-partnership-agreement-but-plaintiffs-apples-to-oranges-calculation-dooms-bid-for-damages/

NEW LLC ARTICLE IN THE ABA BUSINESS LAWYER

In the latest issue of the Business Lawyer, the American Bar Association has published an article by Donald J. Weidner, a leading LLC scholar, entitled “LLC Default Rules Are Hazardous to Member Liquidity.”  It’s an article that every LLC lawyer should read and study.  Here is the author’s preliminary summary of the article:

Simply by forming LLCs, entrepreneurs now unwittingly lock themselves in to perpetual entities that offer them no liquidity and present them with costly procedural obstacles to enforcing both their agreement among themselves and their statutory rights. Even in at-will LLCs that are member-managed, recent LLC acts deny members both a right to dissolve and a right to be bought out. While thus locking members in, these acts deny them standing to bring many if not most of their claims among themselves or against the firm. In swinging so dramatically toward a corporate model, recent acts have failed to consider the presumptive intent of small groups of entrepreneurs who operate informally and expect to have a direct role in management. At least in the case of member-managed LLCs, legislatures should reinstate more appropriate default rules and courts should be receptive to claims that members never intended their relationships to have such harsh consequences.

LLC MERGERS VS. CORPORATE MERGERS

The post in Peter Mahler’s “New York Business Divorce” under the link below will be of interest not only to LLC lawyers in New York but also in all other states.  Peter introduces the post as follows:

This week’s New York Business Divorce is a follow-up to last week’s article, a piece about the enormously important appellate decision in the Farro case, the first to carefully consider the correct meaning and interpretation of New York’s LLC merger statute and its relation to the analogous corporation merger statute. In this week’s article, learn about the rest of the story in the Farro litigation, addressed in two companion appellate decisions issued the same day. Continue Reading…

The link to the post is as follows:  https://www.nybusinessdivorce.com/2021/01/articles/expulsion-and-removal/the-farro-litigation-the-rest-of-the-story/

FREEZE-OUTS

Whether fairly or not, the majority members of a multi-member LLC often want to get rid of a dissenting minority member.  Peter Mahler’s excellent blog “New York Business Divorce” addresses this issue in the post under the link below.  The introduction to the post is as follows:

In a long-awaited decision handed down last week by the Appellate Division, Second Department, the court construed two sections of New York’s LLC Law in a significant boost to the ability of members with voting control to remove minority members by means of a cash-out merger. Learn more in this week’s New York Business Divorce.

Here’s the link:  https://www.nybusinessdivorce.com/2021/01/articles/freeze-out-merger/groundbreaking-appellate-ruling-boosts-llc-cash-out-mergers/