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LLC Agreement Toolkit (DE)
Practical Law Toolkit w-033-5629 (Approx. 11 pages)
LLC Agreement Toolkit (DE)
by Practical Law Corporate & Securities
| Maintained • Delaware, USA (National/Federal) |
A collection of resources to help with forming a limited liability company (LLC) in Delaware and drafting the company's LLC agreement.
A limited liability company agreement (LLC agreement) is an agreement between or among the members of a limited liability company (LLC or company) that governs the LLC's operation, including the members' contractual rights, obligations, and restrictions relating to their membership interests (sometimes denominated in units) in the LLC. The LLC agreement, together with the company's certificate of formation, are the basic documents entered into when forming an LLC in Delaware.
The principal advantages of forming an LLC, as opposed to a different form of business entity, include:
- The flexibility to describe the members' entire relationship, including the economics of their venture and any fiduciary duties, by contract, without being governed or constrained by a mandatory statutory scheme. Section 1101(c) and (e) of the Delaware Limited Liability Company Act (Delaware Act) permits the expansion, limitation, or total elimination of LLC members' and managers' default fiduciary duties (other than the implied contractual covenant of good faith and fair dealing, which cannot be limited or eliminated) and associated liabilities for breach (6 Del. C. § 18-1101(c), (e)).
- The benefit of the same limited liability for members as is available to a corporation's stockholders. Unlike the general partners in a partnership, the members of an LLC are generally not personally liable for the LLC's liabilities.
- For US tax purposes, an LLC may be treated as a partnership or pass-through entity.
In part because of the contractual freedom afforded under the Delaware Act, negotiating and drafting an LLC agreement can be a complicated process. In addition to the LLC's management structure, some of the key provisions that may be included in more complicated LLC agreements are:
- Provisions for additional capital contributions.
- Minority member veto rights.
- Preemptive rights.
- Deadlock or buy-sell provisions.
This Toolkit provides a collection of continuously maintained resources to assist counsel in forming an LLC in Delaware and drafting and negotiating the LLC agreement, including standard documents with integrated drafting notes with important explanations and drafting and negotiating tips.