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Amendments to Delaware's LLC and Partnership Legislation Enacted

June 27, 2016

The Delaware General Assembly has recently enacted legislation amending the Delaware Limited Liability Company Act (LLC Act), the Delaware Revised Uniform Limited Partnership Act (LP Act) and the Delaware Revised Uniform Partnership Act (GP Act) (collectively, the LLC and Partnership Acts). The following is a brief summary of some of the more significant amendments that affect Delaware limited liability companies (Delaware LLCs), Delaware limited partnerships (Delaware LPs) and Delaware general partnerships (Delaware GPs).

Automatic Admission of Assignees to Single Member Delaware LLCs

The LLC Act has been amended to add a new subsection 18-704(a)(3) that provides that in connection with a voluntary assignment by the sole member of a Delaware LLC of all its limited liability company interests to a single assignee, the assignee will be admitted as a member of the Delaware LLC unless otherwise provided in connection with the assignment or unless otherwise provided in the limited liability company agreement of the Delaware LLC by a specific reference to Section 18-704(a)(3) of the LLC Act. Section 18-704(a)(3) of the LLC Act provides that an assignment will be voluntary for purposes of Section 18-704(a)(3) of the LLC Act if it is consented to by the member at the time of the assignment and is not effected by foreclosure or other similar legal process.

Default rules under the LLC Act provide that (i) a member ceases to be a member of a Delaware LLC upon the assignment of all of the member's limited liability company interests unless otherwise provided in the limited liability company agreement of the Delaware LLC, and (ii) a Delaware LLC dissolves at any time there are no members of the Delaware LLC. The addition of Section 18-704(a)(3) to the LLC Act will reduce the risk of triggering an inadvertent dissolution of a Delaware LLC that may have otherwise occurred if the admission of an assignee as a member was not otherwise provided for in connection with an assignment of all of a sole member's limited liability company interests in the Delaware LLC.

Default Rule Requiring Approval or Consent to Be in Writing Eliminated

The LLC Act, the LP Act and the GP Act have been amended to change the default rule in certain instances that required written approvals or written consents to now only requiring approvals or consents. This amendment will allow approvals or consents to be provided by means other than in writing. The amendment also brings certain provisions, such as approving a transaction, dissolution of the entity, revocation of dissolution and admission of members or partners, in line with the merger and conversion provisions of the LLC and Partnership Acts, which did not require approvals or consents to be written.

Service of Process on a Series of a Delaware LLC or Delaware LP

The LLC Act and the LP Act have been amended to provide a manner for effecting service of process on a series of a Delaware LLC or a series of a Delaware LP. Previously, the LLC Act and LP Act only specifically addressed service of process on the entity itself and not on a series of such entity.

Cross-Collateralization and Cross-Default by a Series of a Delaware LLC or Delaware LP

The LLC Act and the LP Act have been amended to clarify that a series of a Delaware LLC or a Delaware LP can agree to be liable for any or all of the debts, liabilities, obligations or expenses incurred, contracted for or otherwise existing with respect to the entity generally or another series of the entity, and that a Delaware LLC or Delaware LP can agree to be liable for any or all of the debts, liabilities, obligations or expenses incurred, contracted for or otherwise existing with respect to a series.

The recent amendments reflect Delaware's continuing commitment to maintaining statutes governing Delaware LLCs, Delaware LPs and Delaware GPs that effectively serve the business needs of the national and international business communities. The recent amendments to the LLC Act, LP Act and GP Act are contained in House Bill Nos. 372, 367 and 368, respectively (each effective August 1, 2016).