The state of Delaware recently enacted amendments to the Delaware Limited Liability Company Act (the Act), most of which will become effect August 1, 2018, in three primary ways. These amendments introduce the concepts of (i) “protected” and “registered” series, (ii) division of a limited liability company (LLC), and (iii) statutory public benefit limited liability companies.
Registered and Protected Series
The amendments overhaul the series provisions to introduce the concepts of a “protected series” and a “registered series.” These revisions clarify (i) what constitutes as a series and (ii) the applicability of certain provisions of the Delaware Uniform Commercial Code (UCC) to a series.
A “registered series” is formed under new Section 18-218 and may be registered with the Delaware Secretary of State by filing a Certificate of Registered Series.” The name of a registered series as set forth in the Certificate of Registered Series must begin with the name of the LLC and must be distinguishable from other entities, series or otherwise, on the records in the office of the Delaware Secretary of State.
A protected series is formed under Section 18-218(b) and must include limitation on liability language in its Certificate of Formation. The new term highlights the limitation on liability feature of a series established under Section 18-215(b) and adds clarity to the statutory construct that such a series is distinct from a “series” established pursuant to Section 18-215(a) and a “registered series” established pursuant to new Section 18-218.
Following these amendments, a series can be
- a series without limitations on liability,
- a protected series that has limitations on liability,
- a registered series that is registered with the Delaware Secretary of State but no limitations on liability, or
- a protected and registered series that is both registered with the Delaware Secretary of State and has limitations on liability.
Division of a Limited Liability Company.
The amendments introduce the statutory construct that an LLC may be divided into two or more LLCs. In order to divide an LLC, new Section 18-217 provides that the LLC must adopt a plan of division and file a Certificate of Division with the Delaware Secretary of State. The debts and liabilities of the dividing company are allocated among the resulting LLCs in accordance with the plan of division and thereafter, absent a fraudulent transfer, the resulting divided companies are responsible only for those debts and liabilities allocated to it under the plan of division. The process of division may be utilized in reorganizations and may be used in the place of a traditional spin-off transaction.
Statutory Public Benefit Limited Liability Company
The amendments to the Act also introduce a statutory public benefit LLCs through new Subchapter XII (Section 18-1201 – Section 18-1208) of the Act. A statutory public benefit LLC is a for-profit LLC formed under and subject to the requirements of Subchapter XII of the Act that is intended to produce a public benefit and to operate in a responsible and sustainable manner. A statutory public benefit limited lability company shall be managed in a manner that balances the members’ pecuniary interests, the best interests of those materially affected by the limited liability company’s conduct, and the public benefit set forth in its certificate of formation.
The Certificate of Formation of such an LLC must state that it is a statutory public benefit LLC and must set out one or more specific public benefits to be promoted by the LLC. A “public benefit” is defined to mean a positive effect (or reduction of negative effects) on one or more categories of persons, entities, communities or interests (other than members in their capacities as members) including, but not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature. A statutory public benefit LLC must provide its members with a statement as to the limited liability company’s promotion of the public benefit set forth in its certificate of formation.
These amendments are intended to keep the Act current and to maintain its national preeminence.
If you have questions about the Delaware Limited Liability Company Act or would like additional information, please contact Ross Antonacci (rantonacci@morrisjames.com; 302.888.6914), Nick Caggiano (ncaggiano@morrisjames.com; 302.888.6845), Shannon Frazier (sfrazier@morrisjames.com; 302.888.6916), Lew Ledyard (lledyard@morrisjames.com; 302.888.6869), Mike Ledyard (mledyard@morrisjames.com; 302.888.6917) or Jonathan Strauss (jstrauss@morrisjames.com; 302.888.6848).
