LAW JOURNAL ARTICLE ABOUT LLCS AS CONTRACTUAL ENTITIES

By , September 19, 2018 11:25 am

A thoughtful law journal article explores the extent to which LLCs really are the purely contractual entities they are often described as being under the Delaware Limited Liability Company Act.  The citation to the article and the abstract of it are below.

42 Del. J. Corp. L. 391
Delaware Journal of Corporate Law
2018
Article
Mohsen Manesh
Copyright © 2018 by Widener University Delaware Law School; Mohsen Manesh
CREATURES OF CONTRACT: A HALF-TRUTH ABOUT LLCS

ABSTRACT

Courts reflexively describe LLCs–the nation’s most popular form of business entity–as “creatures of contract,” the contract being, of course, the LLC agreement that governs the rights and obligations of the parties that own and manage the entity. The judicial reflex to use this maxim is especially pronounced in Delaware, where today LLCs outnumber corporations by more than two to one. And because Delaware LLC law, like its corporate law, enjoys an outsized influence in the business world, courts in other jurisdictions have now predictably embraced the “creatures of contract” maxim, too.

But to describe LLCs as “creatures of contract,” while perhaps a useful shorthand, is simply misleading. LLCs are also creatures of statute. And they are also creatures of equity. This claim is not normative; it is a legal reality.

Therefore, the singular aim of this Article is to puncture the persistent fantasy that LLCs are “creatures of contract.” More accurately, this Article shows that LLCs embody a complex interaction of contract terms, statutory rules, and judge-made doctrine. Thus, LLCs are creatures of contract, statute, and equity.

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