Law commission

Uniform Law Commission Creates Drafting Committee to Clean Up and Modernize U.S. LLC Law

The Uniform Laws Commission has established a drafting committee to review amendments to the so-called “unincorporated organizations” laws, which primarily includes the Uniform Limited Liability Companies Act (ULLCA), but also includes the uniform on limited partnerships (ULPA). The drafting committee, which will be chaired by DLA Piper lawyer Lisa Jacobs, is not expected to propose major policy changes to these laws, but rather the project appears to be aimed at updating and generally improving these laws. laws.

The point is that laws are not static, but evolve as new issues – and often flaws in the laws as written – are identified, and the courts make decisions commensurate with how whose laws they think are supposed to work. Often the courts correctly identify the intent of the drafters and all is well, but it is not uncommon for the courts to sometimes make decisions that go off the rails, and in that case the drafters need to take a step back and, through ‘amendments, run the train in the again in the right direction. That is largely the goal of this drafting committee: to identify areas where the courts have struggled or gone off the rails and get their decisions back on track. In addition, the drafting committee will need to review state enactments of the ULLCA and explore why some states have adopted specific non-uniform provisions.

This form of updating is particularly important in the field of limited liability companies, since these companies have become, in the last twenty years alone, the main legal form of organization for small businesses. This is largely because LLCs have a simplified contractual form of management as opposed to corporations (which still have to conduct most business through largely superfluous shareholder meetings and resolutions and directors), but also because limited liability companies benefit from what is called charging order protection which has the added benefit of allowing them to more easily be entities away from bankruptcy.

But there are also significant flaws in existing LLC laws that have been identified and require corrective drafting. Probably the most important flaw to address is how out-of-state (“foreign”) LLCs are to be treated, as the current version of the ULLCA inadvertently excludes them from much of the application of this law – including, most importantly, Article V of the ULLCA which deals with the rights of the assignee and the creditor and the orders of assessment. Some courts have taken the law at face value, essentially saying “you wrote it, you thought it” and excluded foreign limited liability companies from the application of the charging order provisions, which other courts have recognized the statutory defect and have held that the provisions of the charging order should apply, regardless of what the text of the statute says. An example of this particular problem can be found here.

There are many other charging order issues that the drafting committee will consider, almost all driven by court opinions where the judges involved have either been confused or completely off the rails. But billing orders are not the only area of ​​concern, as there are also very important issues to consider in other parts of the ULLCA, such as those involving fiduciary obligations owed to members.

The editorial board’s webpage is here, and the Uniform Law Commission welcomes interested observers (anyone can be an observer) who are generally allowed to participate in discussions and give their proverbial $0.02 worth. Individuals wishing to register as an observer should contact the Uniform Law Commission Staff Liaison, Ms. Libby Snyder, at [email protected]