March 23, 2017

Our Mini-Theme: LLCs, Partnerships and Unincorporated Business Entities

Thomas E. Rutledge

Each fall, the committee on LLCs, Partnerships and Unincorporated Entities sponsors the LLC Institute. Historically held in Arlington, Virginia, over the course of two days, the LLC Institute uniquely brings together practitioners and academics to discuss and exchange ideas about both the substantive law of LLCs and partnerships and as well the interrelationship of those areas of law with tax, bankruptcy, securities and other fields. Under the leadership of current committee chair Garth Jacobson, the 2017 LLC Institute will be held on November 2–3. Block out those dates on your calendar now to attend; registration information will be distributed via the ABA.

This mini-theme issue of Business Law Today features four articles, three of which are based upon presentations from the 2016 LLC Institute and one from the 2015 LLC Institute.

The first of these articles, “Nonprofit LLCs,” addresses the often ignored the issue of whether and how nonprofit LLCs may be utilized. The article as well considers the Unincorporated Nonprofit Association, a new organizational form available in a variety of states. These and other issues are compared and contrasted against a hypothetical venture.

The next article, “Deadlock-Breaking Mechanisms in LLCs—Flipping a Coin is Not Good Enough, But is Better Than Dissolution,” addresses why it is important that LLC operating agreements incorporate mechanisms to address deadlock. As the authors point out, in the event of a failure to do so, the only remedy that may be available is judicial dissolution of the venture. By addressing the issue in the operating agreement, it likely will be possible to preserve the value of the venture for those who continue with it while increasing the value to the parties who are bought out or otherwise separated.

The last of the articles from the 2016 LLC Institute, “It’s a Bird, It’s a Plane, No, It’s a Board-Managed LLC!”, addresses issues that arise when corporate organizational structures such as a board of directors and officers with titles such as “president” are incorporated (pun intended) into LLC operating agreements. Based upon a pair of decisions, the article explains how the utilization of corporate concepts in LLCs, referred to as “Corporification,” can actually add ambiguity to the agreement. Hence, to the degree that such corporate law concepts are incorporated into the document, they must be done with great precision and is well appropriate limitation.

The fourth article, based upon a presentation from the 2015 LLC Institute, addresses those LLCs that elect, rather than as the typical rule of being taxed as a partnership, to be taxed as an S-Corporation. In that most LLC Acts presuppose that any LLC created thereunder will be taxed either as a partnership or as a disregarded entity, careful drafting of S-Corp LLC operating agreements is absolutely necessary. This article provides guidance as to those requirements.

We hope to see you at the 2017 LLC Institute.

Thomas E. Rutledge

Thomas E. Rutledge
Immediate past chair, LLCs, Partnerships and Unincorporated Entities Committee