Delaware Corporation Law Section Approves Amendments to Delaware’s Alternative Entity Acts

Client Alert

On Monday, March 27, 2017, the Corporation Law Section of the Delaware State Bar Association approved amendments to the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq. (the “DLLCA”), the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. §§ 17-101 et seq. (the “DRULPA”), and the Delaware Revised Uniform Partnership Act, 6 Del. C. §§ 15-101 et seq. (the “DRUPA”).1  The amendments are subject to further approval in the Bar process and, if approved, will be introduced and considered by the Delaware legislature.  The amendments include a number of “clean up” changes as well as certain substantive improvements relating to, inter alia, delegation, formation requirements and limited partner safe harbors, which are described below.  If approved by the Bar and the legislature and signed by the Governor, the amendments will become effective on August 1, 2017.

Power to Delegate

[DLLCA § 18-407; DRULPA § 17-403(c); DRUPA § 15-401(l)]  Sections 18-407 of the DLLCA, 17-403(c) of the DRULPA and 15-401(l) of the DRUPA provide for the delegation by managers, members, general partners or partners, as applicable, of their rights and powers to manage and control the business and affairs of the applicable entity. These amendments will confirm that managers, members, general partners or partners, as applicable, have the power and authority to delegate “any or all” of their rights, powers and duties to manage and control the business and affairs of the applicable entity, including core government functions, notwithstanding any other provision of the applicable act. These amendments are in response to the Delaware Court of Chancery decision in Obeid v. Hogan, CA. No. 11900-VCL (Del. Ch. June 10, 2016), which raised questions concerning the scope of delegation authorized under the provisions that are proposed to be amended.

Substantial Compliance with Formation Requirements

[DLLCA § 18-201(e); DRULPA § 17-201(e)] Section 18-201(a)(2) of the DLLCA and Section 17-201(a)(2) of the DRULPA currently provide that in order to form a limited liability company or limited partnership, a certificate of formation or certificate of limited partnership must be filed in the Office of the Secretary of State that sets forth the address of the registered office and the name and address of the registered agent of such entity. These amendments will confirm that a certificate that contains the name of the registered agent and the address of the registered office, even if the certificate does not expressly designate such person or address as such, substantially complies with the statutory requirements.

Expansion of Limited Partner Safe Harbor

[DRULPA § 17-303(b)(1)] Section 17-303(a) of the DRULPA provides that a limited partner of a limited partnership is not liable for the obligations of the limited partnership unless such limited partner is also a general partner or participates in the control of the business. Section 17-303(b) provides a list of safe harbors, e.g., activities that do not constitute participation in the control of the business of a partnership. The amendment to Section 17-301(b)(1) will expand the safe harbor relating to being a stockholder of a corporate general partner, a partner of a partnership general partner, a member of an LLC general partner and a beneficiary of an estate or trust general partner to include holding any type of interest in any such general partner.

Expansion of Definition of Entities that may Convert, Domesticate, Merge
and Consolidate

[DLLCA §§ 18-209(a), 18-212(a), 18-214(a), 18-216(a); DRULPA §§ 17-211(a), 17-215(a), 17-217(a), 17-219(a); DRUPA §§ 15-901(a), 15-902(a), 15-903(a), 15-904(a)] The conversion, domestication, and merger and consolidation provisions of the DLLCA, the DRULPA and the DRUPA provide a broad list of entities that can engage in these transactions, including any unincorporated business or entity. These amendments will confirm that any incorporated business or entity (in addition to a corporation) may engage in these transactions.

1 Amendments were also approved to the Delaware General Corporation Law, 8 Del.C. §§ 101 et seq

Copyright © Morris, Nichols, Arsht & Tunnell LLP. These materials have been prepared solely for informational and educational purposes, do not create an attorney-client relationship with the author(s) or Morris, Nichols, Arsht & Tunnell LLP, and should not be used as a substitute for legal counseling in specific situations. These materials reflect only the personal views of the author(s) and are not necessarily the views of Morris, Nichols, Arsht & Tunnell LLP or its clients.

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