NEW LLC ARTICLE IN THE ABA BUSINESS LAWYER

February 23, 2021

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.

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