A key issue in the provisions of operating agreements of multi-member LLCs are those governing the duty, if any, of the LLCs ‘members and managers to give their members a right of first refusal with regard to “corporate opportunities” that the members or managers discover. The attached post from the FarrellFritz law firm provides an excellent introduction to that doctrine.
A Recurring Business Divorce Feature: Usurpation of Corporate Opportunity
In a recent post in his website entitled “New York Business Divorce,” Peter Mahler of the FarrellFritz law firm has published an excellent discussion of the difference between equity and debt as among LLCs and their members. The post is under New York law, but the lessons in it are likely to be useful in all other jurisdictions. The link to the post is https://www.nybusinessdivorce.com/2022/06/articles/llcs/a-loan-is-a-loan-is-a-loan-except-when-its-equity/
NY Business Divorce published an excellent article about the business judgment rule at https://www.nybusinessdivorce.com/2022/05/articles/family-owned-businesses/principles-of-fiduciary-deference-the-business-judgment-rule-and-exculpatory-clauses/.
The excellent post in New York Business Divorce addresses an important new legal argument against sex discrimination in public and closely-held businesses. You can read it at https://www.nybusinessdivorce.com/2022/05/articles/podcast-episodes/corporate-oppression-doctrine-meets-sex-discrimination-a-conversation-with-professor-meredith-miller/.
Today’s post in the excellent blawg entitled “Business Law Divorce” makes clear the paramount importance of drafting dissolution provisions in LLC operating agreements with great care. The link is https://www.nybusinessdivorce.com/2022/08/articles/summer-shorts/summer-shorts-llc-dissolution-and-other-recent-decisions-of-interest/.
In many LLC operating agreements, provisions that give the manager or one or more members the right to request or require some or all members to make additional contributions of capital to the LLC (“capital calls”) after the LLC’s formation in order to meet current or anticipated needs are among the most important provisions in the agreement. The latest post in the excellent blawg entitled “NY Divorce,” at A Lesson In Drafting Capital Call Provisions | New York Business Divorce (nybusinessdivorce.com), provides a very helpful overview of the law and practical considerations governing capital calls.
Under the link below, the FarrellFritz law firm provides an excellent summary of two recent articles in the ABA Business Lawyer about the debate among LLC scholars and lawyers about whether internal LLC disputes should be resolved by derivate or direct lawsuits.
Here is the link: LLCs, Direct vs. Derivative Claims, and Special Litigation Committees: A Lively Debate | New York Business Divorce (nybusinessdivorce.com)
The conflict of operating agreement provisions and statutory default provisions, discussed in the new blog in the link below, can arise in many cases in which the members of a multi-member LLC seek to remove a manager.
A Two-Act Play of LLC Default Rules and Manager Removal
The attached new New York Business Divorce post addresses a “direct vs. derivative” problem that arises in litigation by LLC members against their LLCs or their managers or other members in many states. The New Hampshire LLC Act is drafted to prevent the problem, and I suspect there are at least a few other acts that do the same. But New York law—addressed in the post—is likely to be useful in many states besides New York.
Singin’ the Derivative Plaintiff Blues