This Week in Real Estate: Limited Liability Companies – Freedom of Contract
As discussed in the last few weeks and will continue in the next several weeks, This Week in Real Estate examines Limited Liability Partnerships (LLP) and Limited Liability Companies (LLC), their history, and their similarities and differences. This week continues with discussing LLC’s freedom of contract.
One of the most important characteristics of LLCs under most or all jurisdiction’s LLC acts is the freedom of contract. As discussed in a previous edition of This Week in Real Estate, Where to Form Your Business Entity, Delaware’s LLC Act is extremely flexible. “If a structure can be imagined, chances are it can be accomplished with a Delaware LLC.”
The most famous expression of LLC freedom of contract is § 18-1101(b) of the Delaware LLC Act. Section 18-1101(b) provides that “it is the policy of this [Act] to give the maximum effect to the principle of freedom of contract and the enforceability of LLC agreements.” The Delaware LLC Act has deeply influenced the drafting of many other LLC acts across the country, and at least 17 other acts contain a provision identical to Delaware’s § 18-1101(b). But even LLC acts that don’t contain such a provision are characterized, like the Delaware LLC Act, by the fact that virtually all of their provisions relevant to LLC formations are default provisions. In other words, provisions whose very terms expressly permit LLC members to contractually alter them as they wish in their operating agreements to meet their specific and unique needs and interests.
The leading Delaware case interpreting LLC freedom of contract is Elf Atochem North America v. Jaffari, 727 A.2d 286 (Del. 1999), which was decided by the Delaware Supreme Court on April 6, 1999. In Elf Atochem, the Delaware Supreme Court stated that the intent of the DLLC Act is to give LLC members the “broadest possible discretion in drafting their [LLC] agreements” and “a great deal of certainty that their…agreement will be enforced in accordance with its terms”. Further in Elf Atochem, the Delaware Supreme Court stated that even LLC statutory provisions that appear by their terms to be mandatory should normally be construed as merely default unless they are intended to protect the rights of non-parties to LLC deals.
Next week, This Week in Real Estate continues the discussion of LLCs and LLPs, discussing the most important non-tax issues in drafting partnership agreements or operating agreements for multi-member LLCs.
Subscribe to This Week in Real Estate »
ABOUT JAMES LANDON
Jim Landon has practiced real estate law since 2002 and has been involved in real estate investment and construction for most of his life. Jim’s practice focuses on real estate transactions and land use.
Jim represents individuals and privately and publicly held companies in the purchase, sale, leasing, financing, and development of real property. He also represents title insurance companies on commercial purchases and refinancing transactions, as well as providing third-party legal opinions regarding Delaware law related to Delaware entities.
ABOUT OFFIT KURMAN
At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value and personal wealth. In every interaction, we focus on furthering our clients’ objectives and provide timely services and within budget, all while focusing on the clients’ interests and goals.
Offit Kurman is one of the fastest-growing, full-service law firms in the United States. With over 230 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well-positioned to meet dynamic businesses’ needs, as well as the needs of the people who own and operate them. We also provide representation of individuals and families in diverse matters ranging from estate planning and asset protection to intellectual property structuring and entrepreneurial start-ups. Our International Group provides clients with a broad range of services for transactions and dispute representation for clients worldwide, including Europe, Canada, Asia, Latin America, the Middle East and Africa.
At Offit Kurman, we distinguish ourselves by the quality, breadth, and global reach of our legal services — as well as our unique operational structure, which encourages a culture of collaboration and entrepreneurialism. The same approach that makes our firm attractive to legal practitioners interested in representing clients in the middle market, also gives clients access to experienced counsel in almost every area of the law and in many jurisdictions in the U.S. and abroad
Subscribe and follow us on our Blog, and on Facebook, Twitter, Instagram, YouTube, and LinkedIn. You can also sign up to receive LawMatters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.
DELAWARE | MARYLAND | NEW JERSEY | NEW YORK | NORTH CAROLINA | PENNSYLVANIA |SOUTH CAROLINA | VIRGINIA | WASHINGTON, DC