Richards Layton & Finger

Delaware LLC & Partnership Law Update

July 14, 2011

Amendments to Delaware's Alternative Entity Legislation Enacted
The Delaware General Assembly has recently enacted legislation amending the Delaware Limited Liability Company Act (DLLCA), the Delaware Revised Uniform Partnership Act (DRUPA) and the Delaware Revised Uniform Limited Partnership Act (DRULPA) (collectively, the Acts). The following is a brief summary of some of the more significant amendments that affect Delaware limited liability companies (Delaware LLCs), Delaware general partnerships (Delaware GPs) and Delaware limited partnerships (Delaware LPs) (each, a Delaware Alternative Entity, and collectively, Delaware Alternative Entities).

Amendment Provisions in Agreements
In its In re LJM2 Co-Investment, L.P. Limited Partners Litigation, 866 A.2d 762 (Del. Ch. 2004), decision (LJM2), the Delaware Court of Chancery considered a Delaware LP agreement amendment section prohibiting amendments to any provision of the agreement that affected the vote required in such provision unless the proposed amendment was approved by at least the vote originally required in such provision. The Court of Chancery held that the foregoing amendment section applied to amendments to default voting provisions of DRULPA that were engrafted onto the Delaware LP agreement in the absence of any specific contractual provision to the contrary.

The Acts have been amended to adopt a rule different from the approach articulated in LJM2. The amendments to the Acts provide that supermajority amendment provisions of the type addressed in LJM2 apply only to provisions expressly included in Delaware Alternative Entity agreements, and, unless otherwise provided in such agreements, do not apply to default voting provisions of the Acts.

Delaware LLC Agreement Amendments
DLLCA has been amended to establish that a Delaware LLC agreement that does not provide for the manner in which it may be amended may be amended with the approval of all of the Delaware LLC's members or as otherwise permitted by law. Such amendment to DLLCA will only apply to a Delaware LLC whose original certificate of formation is filed with the Delaware Secretary of State on or after January 1, 2012.

Personal Liability of Partners of Delaware LLPs
Under DRUPA, a Delaware GP may be formed as, or may become, a Delaware limited liability partnership (Delaware LLP), which is a form of Delaware GP in which the partners have limited liability. DRUPA has been amended to confirm that a partner of a Delaware LLP is not personally liable for liabilities arising out of circumstances or events occurring while the Delaware GP is a Delaware LLP. As a result, such liabilities shall be solely the obligation of the Delaware LLP.

Certificates of Correction of Certificates of Cancellation
Each Act permits the filing of a certificate of correction of a certificate filed under such Act that has been so filed and is an inaccurate record of the action therein referred to or was defectively or erroneously executed. A certificate of cancellation terminates the existence of a Delaware LLC or Delaware LP. The amendments to DLLCA and DRULPA confirm that a certificate of correction may be filed to correct a certificate of cancellation that has been filed prior to the dissolution or the completion of winding up of a Delaware LLC or a Delaware LP, thereby negating the termination of such entity.

Address of Registered Office and Registered Agent
Each amendment to the Acts requires that the address of a registered office or registered agent listed in a certificate or other document filed with the Delaware Secretary of State include the street, number, city and postal code. This requirement does not apply to any document filed with the Delaware Secretary of State prior to August 1, 2011, unless a document is being filed to change the address of the registered agent or registered office contained therein.

Written and Electronically Transmitted Consents
Each amendment to the Acts clarifies that actions by partners, members or managers, as the case may be, without a meeting may take the form of a written consent or electronic transmission. An electronic transmission means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof and may be directly reproduced in paper form by the recipient through an automated process.

The recent amendments reflect Delaware's continuing commitment to maintaining statutes governing Delaware Alternative Entities that effectively serve the business needs of the national and international business communities. The recent amendments to DLLCA are contained in Senate Bill No. 76 (effective August 1, 2011). The recent amendments to DRULPA are contained in Senate Bill No. 95 (effective August 1, 2011). The recent amendments to DRUPA are contained in Senate Bill No. 74 (effective August 1, 2011).