August 20, 2010

SPEAKING VOLUMES: A Review of Drafting Delaware LLC Agreements: Forms and Practice Manual

Donald M. Scotten

Limited liability companies (LLCs) have become a popular choice of business entity for small business owners and entrepreneurs. In fact, the number of LLCs formed each year in Delaware (and elsewhere) now exceeds the total number of all other entity formations, including corporations. Forming an LLC under the Delaware LLC Act can be challenging because it is among the lengthiest and most complex of state LLC acts. To assist practitioners in forming Delaware LLCs, several practice manuals are available. Among them is a newly published formbook and practice manual by Wolters Kluwer, titled Drafting Delaware LLC Agreements: Forms and Practice Manual. The book provides an analysis of the Delaware LLC Act as it applies to LLC formations. It is a comprehensive and thorough guide that is easy to read and use. As an LLC practitioner familiar with a variety of practice guides, I believe that Drafting Delaware LLC Agreements is an excellent resource, and I highly recommend it to any practitioner forming Delaware LLCs.

Overview of the Book

Drafting Delaware LLC Agreements is intended primarily for lawyers who advise clients on the formation of Delaware LLCs. It seeks to provide these lawyers with basic knowledge and practice tools—including model LLC agreements—necessary to handle Delaware LLC formations competently and proficiently.

Drafting Delaware LLC Agreements covers the gamut of formation issues that a lawyer should consider in drafting an LLC agreement. Several chapters review in detail the Delaware LLC Act itself from an LLC formation practice viewpoint. Other chapters discuss the following: the choice between the Delaware LLC Act and other state LLC acts for particular client; the importance of nontax choice-of-entity issues; an overview of series LLCs; the use of Delaware LLC form agreements; federal and state taxation of both LLCs and their members; and fiduciary duties issues in Delaware LLC formations. In the chapters related to LLC taxation, the authors discuss tax issues in nontechnical language so the discussion is meaningful and helpful to those unfamiliar with tax concepts. The chapter on fiduciary duties, in my view, distinguishes Drafting Delaware LLC Agreements from competitor practice manuals. The chapter includes the most comprehensive analysis of fiduciary duties issues in LLC formations that I have seen in a practice manual.

The book's authors, John M. Cunningham and Vernon R. Proctor, are experts on Delaware LLCs. Cunningham is of counsel to McLane, Graf, Raulerson & Middleton, Professional Association, a law firm with offices in Massachusetts and New Hampshire, where his practice focuses on forming LLCs for business start-ups. Cunningham also is the author of Drafting Limited Liability Company Operating Agreements, a generic (i.e., nonstate-specific) formbook and practice manual. Proctor is the co-founder of Proctor Heyman LLP, a Delaware business litigation firm, and he is a member of the Delaware Bar committee that annually updates the Delaware LLC Act and Delaware's other alternative entity statutes.

The Book's Strengths

One of the most useful features of Drafting Delaware LLC Agreements is its menu of sample LLC agreements that cover every type of LLC formation. The book includes detailed guidance for selecting among the menu of agreements, allowing a practitioner to choose the most appropriate agreement depending on the needs of a client or specific terms of a deal. Drafting Delaware LLC Agreements offers 28 general-purpose form agreements and one special-purpose form agreement (namely, for Delaware series LLCs), each of which is specifically tailored for use in forming Delaware LLCs. The forms are downloadable from a compact disc that accompanies the book and includes form agreements for single-member LLCs owned by individuals; single-member LLCs owned by entities; multimember LLCs, including LLCs with general partnership, limited partnership, and corporate management structures; and series LLCs.

The book's guidance goes beyond helping the practitioner choose the right form agreement; it also assists the practitioner in fine-tuning the agreement with some 70 "plug-in" provisions—including, for example, buy-sell and indemnification provisions—that can be used to supplement or replace standard provisions in the various form agreements if those provisions do not quite work for particular clients or a specific deal. Further, the book also provides 44 charts, tables, and other Delaware LLC formation practice tools, including tables listing and quoting (or summarizing) the 168 principal definitional, mandatory, default, and permissive provisions of the Delaware LLC Act relevant to LLC formations. This is another feature that sets the book out from its competitors.

The Book's Weaknesses

Without question, Drafting Delaware LLC Agreements is a thorough, even exhaustive, guide to understanding formation issues for Delaware LLCs. Its thoroughness, though, could arguably be its weakness for certain readers, as the sheer number of formation issues the book raises can be overwhelming. Indeed, the book may be too detailed for a practitioner simply seeking a concise overview of formation issues. The book also lacks a section-by-section commentary on the nonfiduciary provisions in the form agreements, which may require the reader to reference another source to determine the purpose of a particular "standard" provision. The authors intend to provide section-by-section commentary in the supplement to the book due to be published later this year.


Drafting Delaware LLC Agreements will assist any practitioner to advise clients competently and proficiently in forming a Delaware LLC. This book may be the best Delaware LLC practice guide available given the depth and breadth of its coverage of LLC formation issues, all presented in a user-friendly manner.

Editor's Note:The book reviewed herein is a different one from that published by Data Trace Publishing Company, titled Delaware Limited Liability Company Forms and Practice Manual.

Donald M. Scotten

Donald Scotten specializes in business law and business entity governance. He is a lecturer in law at USC Law School, where he teaches business organizations, and he serves as secretary for the California State Bar's Partnerships and Limited Liability Companies Committee.