I happen to be working presently with a start-up LLC for which the potential patentability of business methods may be their central business issue. Under the link below is a post with the best brief outline I’ve ever seen concerning the potential value of patents to business start-ups.
Under the link below is a useful new post about the new Treasury Department temporary regulations under the new Bipartisan Budget Act of 2015 partnership audit rules.
Except in very narrow circumstances, I believe lawyers shouldn’t advise their clients to use series LLCs; and I believe that if they do, they should provide their clients with detailed warnings about the attendant risks. However, if they do advise them to use series LLCs, they should be aware of the issues addressed in the newly published article cited below, and they should warn their clients about these issues.
35-SEP Am. Bankr. Inst. J. 22
American Bankruptcy Institute Journal
Lien on Me
HOW ARE SECURITY INTERESTS IN SERIES LLC ASSETS PERFECTED, AND IS IT EVEN POSSIBLE?
Bryan Cave LLP
Kansas City, Mo.
Copyright © 2016 by American Bankruptcy Institute; Michelle M. Masoner, Brian M. Devling, Mark G. Stingley
Series limited liability companies (LLCs) are a form of alternative entity in which multiple series are incorporated into a single LLC. Under the series LLC structure, a master LLC (a “series LLC”) may create separate series to hold separate assets, and each series may have different ownership and management structures. By the statutes enabling them, the various series are meant to be protected from the liabilities incurred by other series within the company. As series LLCs are more commonly used, certain questions inevitably arise regarding how to transact businesses with this type of structure. In the commercial lending context, one of the most important considerations is the proper method for obtaining and perfecting a security interest in the individual series’ assets as collateral for financing.
As many of you will know, Congress in November 2015, enacted, in the Bipartisan Budget Act of 2015, major and draconian new partnership audit rules. Congress painted with a broad and messy brush, and there are dozens of issues as to the meaning and implementation of these rules. All of these issues must be resolved, if at all, by Treasury regulations. Yesterday, the IRS announced that Treasury is aiming to issue these regulations by the end of this calendar year.
Under the link below is a rather detailed article from the Morris Nichols law firm (Delaware) about the recent amendments to the Delaware General Corporation Law and in the Delaware “alternative entity” statutes, including the Delaware Limited Liability Company Act.
Dwight Sowerby is a New Hampshire lawyer who is expert in both LLC and estate planning law. His newsletters are usually terrific. Here is the link to his latest newsletter: http://conta.cc/2cygtrD. In this newsletter, business lawyers will like the thoughts in his newsletter about non-tax choice of entity, and estate planners will like his ideas about irrevocable trusts and Medicaid.
Over time, one or more of our LLC clients may go bankrupt. If they do, can a bank provide in the LLC’s operating agreement that the LLC may not file for bankruptcy except with the bank’s consent? According to the very recent decision of the Delaware bankruptcy court, discussed in the post under the link below, the answer is no.
The “pick-your-partner” concept and the related concepts of member vs. assignee and management rights vs. LLC interests are central to LLC law both in forming LLCs and in other LLC matters. The recent NY court decision discussed by Peter Mahler under the link below addresses all of these concepts in deciding a case involving all of them. If any of your clients or if lawyers or accountants with whom you’re dealing in LLC matters raise questions about these concepts, the decision under the link below will provide them with authoritative (or at least persuasive) responses.
LLC formation lawyers should have a detailed understanding of the charging order provisions of the LLC acts under which they form LLCs, since these provisions may be critical in non-tax choice of entity, in choosing the governing LLC act, and in drafting operating agreement cross-purchase and redemption provisions.
The world’s expert on charging orders is Jay Adkisson, a lawyer licensed in California and many other jurisdictions. In the e-mail below, Jay points out that if an operating agreement has a provision calling for the redemption of a member’s membership if the member’s LLC interest becomes subject to a charging order, that provision may become worthless.
I am presuming that the contractual right of redemption is enforceable against the debtor-partner only, and not the creditor (who is not a party to the Partnership Agreement).
If a creditor obtains a charging order, then the creditor gets a lien on the debtor-partner’s interest. If the partnership exercises a contractual redemption, then they are taking the debtor’s interest subject to the creditor’s lien — and the creditor may very well garnish the payment to the debtor-partner as well (but as a garnishment, and not as any payment to the creditor for the interest). In other words, once the charging order lien attaches, my view is that the contractual redemption provisions are practically worthless.
I’ve never had a case go all the way through a completed foreclosure, but usually the partnership or the non-debtor partners would likely have an interest in attempting to bid for the interest at the judicial sale, if the interest has any significant value at all — easy way to pick up equity on the cheap.
Notably, the one party who usually doesn’t want the interest is the creditor, since then the creditor is subject to the whole “K-O’d by the K-1” issue, although of course any third-party buyer would be in the same shoes. The exception would be if the entity is a valuable hedge fund or something, for which the creditor could itself pick up equity on the cheap, by credit-bidding a portion of its judgment that is usually not fully collectable anyway.
Many start-ups businesses being formed as LLCs own patents or patentable inventions. Under the link below is a useful blog post about surveying clients’ patent assets.