This Week in Real Estate: LLCs and LLPs: Top 10 Non-Tax Issues for LLPs or Multi-Member LLCs
Now that This Week in Real Estate has discussed the history and traits of the LLP and LLC and the Freedom of Contract, this week’s edition will focus on the top 10 most important non-tax issues that should be addressed in partnership or operating agreements for LLPs or multi-member LLCs.
- Identification of the partners/members. The agreement should begin with a statement of the names and addresses of the partners or members and their legal status—e.g., as individuals, entities, or trusts.
- Statements of background. The agreement should provide at least a brief statement of the background of the agreement, including a general statement as to the nature of the business to be conducted. This statement will provide partners, members and managers, and third parties, such as lenders, judges, and arbitrators, with a context for understanding the provisions of the agreement.
- Partner/Member economic issues. The agreement must contain comprehensive provisions concerning the members’ or partners’ contributions to the LLC or LLP, respectively, allocations and distributions, redemptions, and cross-purchases of limited partnership or membership interests upon dissociation.
- Transfers and grants of partnership and membership rights. The agreement must specify the rules that will govern transfers by the partners or members of their rights to other partners or members and to third parties (including heirs) and the admissions of new partners or members.
- Events of dissociation. The agreement should specify which events will cause the partners or members to be dissociated—i.e., to cease to be partners or members, and they should specify the consequences of these dissociations. The principal types of events of dissociation are resignation, death, bankruptcy, disability, expulsion, dissolution (in the case of entities), and revocation (in the case of trusts).
- Management provisions. In the partnership agreements of LLPs and operating agreements of member-managed LLCs—i.e., LLCs in which all members may vote on all LLC issues and may sign LLC contracts—no specialized management provisions will normally be needed. However, such provisions must be included in the operating agreements of manager-managed multi-member LLCs. These will include, for example, provisions concerning the qualifications that individuals and entities must meet in order to be managers, manager appointments, resignations and removals, and the allocation of decision-making between the managers and the members.
- Fiduciary duties. The agreement must specify the fiduciary duties of the partners or members to one another and to the entity and those of the managers to the members and to the LLC in manager-managed multi-member LLCs. The main such duties are those of care and loyalty.
- Dissolutions. The agreement must specify the rules that will govern the dissolution, winding up, and liquidation of the LLC or LLP.
- Miscellaneous. Every good agreement must contain several key boilerplate provisions. The most important of these is an “integration provision,” providing that the agreement contains the entire agreement of the members or partners about the LLC or LLP and a provision that the agreement may be amended only in writing signed by all of the members or partners.
- Dispute resolution. The agreement must specify the method that the partners, members, and managers must use to resolve internal disputes and the venue for dispute resolution.
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