ON TIME ON TIME ON TIME BUSINESS MANAGEMENT A+ WORK, ON TIME, NO PLAGARIZING; ON TIME
Single-Member LLC Entity Member Form Anonymous . Anonymous; LLCs, Partnerships and Unincorporated Entities Committee, ABA Business Law Section.
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ABSTRACT In this article, a Single-Member LLC Entity Member Form is presented. FULL TEXT
LIMITED LIABILITY COMPANY AGREEMENT OF _____________________, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT1 (this "Agreement") by the undersigned sole member (the "Member") of
________________________, LLC,2 a Delaware limited liability company (the "Company"), is effective as of the date of
formation of the Company.
The Member is executing this Agreement for the purpose of forming a limited liability company pursuant to and in
accordance with the Delaware Limited Li- ability Company Act (DEL.CODE ANN. tit. 6, § 18-101 et seq.), as amended from
time to time3 (the "Delaware LLC Act"), and hereby agrees as follows4:
1. FORMATION
(i) The Company was formed on ____________ ___, ______5 by _________________ (the "Organizer"), acting in the
capacity of an "au- thorized person"6 under section 18-201 of the Delaware LLC Act, exe- cuting the initial certificate of
formation of the Company and filing it with the Secretary of State of the State of Delaware. The Member hereby
acknowledges its authorization and approval of the Organizer's taking, and otherwise ratifies, that action to form the
Company under the Delaware LLC Act.7
(ii) Each of the Member, the Manager (as hereinafter defined) and ____________________8 is hereby designated as an
authorized per- son, within the meaning of the Delaware LLC Act and otherwise, to execute, deliver and file any
amendments and/or restatements to the certificate of formation of the Company and any other certificates (and any
amendments and/or restatements thereof ) necessary for the Company to qualify to do business in a jurisdiction in which
the Com- pany may wish to conduct business.
2. PURPOSE
The Company is formed for the object and purpose of, and the nature of the business to be conducted and promoted by the
Company is, to [engage in any lawful act or activity for which a limited liability company may be formed under the Delaware
LLC Act] [specify activity, e.g., acquire and develop cer- tain property, conduct specific business, etc.] and to engage in any
and all ac- tivities necessary or incidental to the foregoing.9
3. POWERS OF THE COMPANY10
(i) The Company shall have the power and authority to take any and all actions necessary, appropriate, advisable,
convenient or incidental to or for the furtherance of the purpose set forth in Section 2, including, but not limited to, the
power:
(a) to conduct its business, carry on its operations and have and ex- ercise the powers granted to a limited liability company
by the Del- aware LLC Act in any state, territory, district or possession of the United States, or in any foreign country that
may be necessary, con- venient or incidental to the accomplishment of the purpose of the Company;
(b) to acquire, by purchase, lease, contribution of property or otherwise, and to own, hold, operate, maintain, finance,
improve, lease, sell, convey, mortgage, transfer, demolish or dispose of any real or per- sonal property that may be
necessary, convenient or incidental to the accomplishment of the purpose of the Company;
(c) to enter into, perform and carry out contracts of any kind,11 includ- ing, without limitation, contracts with the Member
or any person or other entity that directly or indirectly controls, is controlled by, or is under common control with the
Member (any such person or entity, an "Affiliate"), or any agent of the Company necessary to, in con- nection with,
convenient to, or incidental to, the accomplishment of the purpose of the Company. For purposes of the definition of
Affiliate, "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management
and pol- icies of an entity, whether through ownership of voting securities or otherwise;
(d) to purchase, take, receive, subscribe for or otherwise acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge,
or otherwise dispose of, and otherwise use and deal in and with, shares or other interests in or obligations of domestic or
foreign corporations, associations, general or limited partnerships (including, without limitation, the power to be admitted
as a partner thereof and to exercise the rights and perform the duties created thereby), trusts, limited liability companies
(including, without limitation, the power to be admitted as a member or appointed as a manager thereof and to exercise
the rights and perform the duties created thereby), and other entities or individuals, or direct or indirect obligations of the
United States or any foreign country or of any government, state, territory, governmental district or municipality or of any
instru- mentality of any of them;
(e) to lend money for any proper purpose, to invest and reinvest its funds, and to take and hold real and personal property
for the pay- ment of funds so lent or invested;
(f ) to sue and be sued, complain and defend and participate in admin- istrative or other proceedings, in its name;
(g) to appoint employees and agents of the Company, define their du- ties and fix their compensation;
(h) to indemnify any person or entity and to obtain any and all types of insurance;
(i) to cease its activities and cancel its insurance;
( j) to negotiate, enter into, renegotiate, extend, renew, terminate, mod- ify, amend, waive, execute, acknowledge or take
any other action with respect to any lease, contract or security agreement in respect of any assets of the Company;
(k) to borrow money and issue evidences of indebtedness, and to se- cure the debts of the Company by mortgage, pledge or
other lien on any or all of the assets of the Company;
(l) to pay, collect, compromise, litigate, arbitrate or otherwise adjust or settle any and all other claims or demands of or
against the Company; and
(m) to make, execute, acknowledge and file any and all documents or instruments necessary, convenient or incidental to
the accom- plishment of the purpose of the Company.
(ii) Upon the approval of the Member and upon such terms as the Member determines, in its sole discretion, and without
any approval of, or ac- tion by, the Manager, the Company may (a) merge with, or consolidate into, any other entity to the
extent permitted by section 18-209 of the Delaware LLC Act, (b) convert to any other entity to the extent permitted by
section 18-216 of the Delaware LLC Act or (c) transfer to or domes- ticate or continue in any other jurisdiction to the extent
permitted by section 18-213 of the Delaware LLC Act.
(iii) All real and personal property of the Company shall be owned by the Company as an entity. The Member shall not have
any interest in any specific property of the Company. The interest of the Member in the Company is personal property.12
4. MEMBER
The following information with respect to the Member is to be provided on Schedule 1 and will be accurate as of the date
hereof (except to the extent up- dated as provided below):
(i) the name and address of the Member; and
(ii) the capital contribution of the Member to the Company.13
The Manager or the Member may, but shall not be required to, update the in- formation on Schedule 1 from time to time to
reflect any changes in that information.
5. POWERS OF MEMBER
(i) The Member shall have the power to exercise any and all rights and powers granted to the Member pursuant to the
express terms of this Agreement.14
(ii) Except as otherwise specifically provided by this Agreement, only the Manager shall have the power to act for and on
behalf of, and to bind, the Company, and the Member, as a member of the Company, shall not have the power to act for and
on behalf of or to bind the Company.15
6. MANAGEMENT
6.1 MANAGEMENT OF THE COMPANY16
(i) [______________] shall be the manager of the Company (the "Man- ager") and, in that capacity, shall manage the
Company in accordance with this Agreement. The Manager is an agent of the Company, and the actions of the Manager
taken in that capacity and in accordance with this Agreement shall bind the Company. The salary or other compen- sation,
if any, of the Manager shall be fixed from time to time by the Member and the Manager.17
(ii) Except to the extent otherwise provided in this Agreement, the Manager shall have full, exclusive and complete
discretion to manage and con- trol the business and affairs of the Company, to make all decisions af- fecting the business
and affairs of the Company and to take all actions as he or she deems necessary or appropriate to accomplish the purpose
of the Company as set forth herein and shall have all powers and au- thority necessary or desirable in connection with the
foregoing, includ- ing the power and authority to execute all documents or instruments, perform all duties and powers and
do all things for and on behalf of the Company in all matters necessary, desirable, convenient or inciden- tal to the purpose
of the Company.18 The Manager may delegate to other persons or entities so much of the Manager's responsibilities here-
under that the Manager determines to be necessary, appropriate or con- venient for the efficient administration and
management of the Company's business and affairs.19 The Manager, however, must retain the power to direct and control
any person or entity to whom the Manager delegates any of the Manager's responsibilities. The Manager shall be a
"manager" (within the meaning of the Delaware LLC Act) of the Company.20
(iii) The Manager may be removed with or without cause by the Member. The Manager shall serve until removed or until the
Manager's earlier death, resignation or incapacity. The Manager may resign at any time upon 30 days' prior written notice to
the Member.21 Upon the removal, death, resignation, incapacity or resignation of the Manager, a successor shall be
designated by the Member.
(iv) The Manager may delegate to any officer of the Company, if any, or to any other person or entity the authority to act on
behalf of the Com- pany as the Manager may from time to time deem appropriate in his or her sole discretion. The salaries
or other compensation, if any, of the officers and agents, if any, of the Company shall be fixed from time to time by the
Manager. Except as otherwise provided by the Man- ager, when the taking of that action has been authorized by the
Manager, the Manager or any officer, if any, of the Company, or any other person specifically authorized by the Manager,
may execute any contract or other agreement or document on behalf of the Company.
(v) The Company may have one or more of the following officers as deter- mined by the Manager from time to time22:
President, Secretary, Trea- surer, and other officers the Manager may appoint from time to time. Any officers may be
appointed and removed at the will of the Manager. If any officers are appointed by the Manager, they shall perform those
functions specified by the Manager. If one or more of a President, Sec- retary or Treasurer is appointed, each shall perform
those functions as are herein provided unless otherwise specified by the Manager:
(a) The President shall be the chief executive officer of the Company and shall, subject to the supervision, direction and
control of the Manager, have the general powers and duties of supervision, direc- tion, management and control of the day-
to-day business and affairs of the Company and of the other officers of the Company, including the power to sign all
instruments, contracts and agree- ments that have been approved by the Manager and all powers necessary to direct and
control the organizational and reporting relationships within the Company, and shall have such other pow- ers and perform
such other duties as may be prescribed by the Manager.
(b) The Secretary shall keep or cause to be kept at the principal place of business of the Company, or other place the
Manager may di- rect, a book of minutes of all formal actions of the Manager and the Member. The Secretary shall keep or
cause to be kept at the principal place of business of the Company, a register or a dupli- cate register showing the name and
address of the Member, the number and date of certificates issued in respect of the Member's interest in the Company, if
any, and the number and date of can- cellation of every certificate surrendered for cancellation.23 The Secretary shall have
those other powers and perform other duties as may be prescribed by the Manager or the President.
(c) The Treasurer shall be the chief financial officer and shall keep and maintain or cause to be kept and maintained
adequate and correct books and records of accounts of the properties and business trans- actions of the Company. The
books of account shall at all times be open to inspection by the Member. The Treasurer shall deposit all monies and other
valuables in the name and to the credit of the Company with the depositaries designated by the Manager. The Treasurer
shall disburse the funds of the Company as may be or- dered by the Manager, shall render to the President and the Man-
ager, whenever the Manager requests it, an account of all of his or her transactions as chief financial officer and of the
financial con- dition of the Company and shall have other powers and perform other duties as may be prescribed by the
Manager or the President.
(vi) The Manager may appoint, employ, or otherwise contract with those other persons or entities for the transaction of the
business of the Company or the performance of services for or on behalf of the Com- pany as it shall determine in its sole
discretion.
(vii) Except as provided in Section 6.1(v), as otherwise expressly delegated by the Manager or to the extent that the
Company's registered agent has the authority to accept legal process or otherwise act on behalf of the Company as
provided in the Delaware LLC Act, no person or entity other than the Manager shall be an agent of the Company or have any
right, power or authority to transact any business in the name of the Company or to act for or on behalf of or to bind the
Company.
(viii) The expression of any power or authority of the Manager in this Agreement shall not in any way limit or exclude any
other power or authority of the Manager that is not expressly set forth in this Agreement; except that any power or authority
of the Manager shall be subject to any limitations on the power or authority of the Manager expressly set forth in this
Agreement and to any rights and powers granted to the Member pursuant to the express terms of this Agreement.24
6.2 RELIANCE BY THIRD PARTIES
The Manager or any officer of the Company may certify and authenticate re- cords of the Company to third parties and any
third party dealing with the Com- pany, the Manager, the Member or any officer of the Company may rely upon a certificate
signed by the Manager or any officer of the Company as to:
(i) the identity of the Manager, the Member or any officer of the Company;
(ii) the existence or non-existence of any fact or facts that constitute a con- dition precedent to acts by the Manager, the
Member or any officer of the Company or are in any other manner germane to the affairs of the Company;
(iii) the persons who or entities that are authorized to execute and deliver any instrument or document of or on behalf of
the Company; or
(iv) any act or failure to act by the Company or as to any other matter whatsoever involving the Company, the Member, the
Manager or any officer of the Company.
6.3 RECORDS AND INFORMATION
The Manager shall maintain, and upon request make available to the Member, all of the books and records of the Company
referenced in section 18-305 of the Delaware LLC Act, to the extent applicable to the Company, except to the extent that any
books and records are maintained by an officer of the Company in accordance with Section 6.1(v). Notwithstanding
anything to the contrary in the Delaware LLC Act, the Manager shall have no authority to keep any books and records of the
Company confidential from the Member.25
7. TERM;DISSOLUTION
(i) The term of the Company shall be perpetual unless the Company is dissolved and terminated in accordance with this
Section 7.26
(ii) The Company shall dissolve, and its affairs shall be wound up, upon the first to occur of the following: (a) the written
consent of the Mem- ber; or (b) the entry of a decree of judicial dissolution under sec- tion 18-802 of the Delaware LLC Act.
(iii) Upon the occurrence of any event that terminates the continued mem- bership of the Member in the Company, the
Company shall not dis- solve and the personal representative (as defined in the Delaware LLC Act) of the Member shall
agree in writing to continue the Com- pany and to the admission of the personal representative of the Mem- ber or its
nominee or its designee to the Company as a Member, effec- tive as of the occurrence of the event that terminated the
continued membership of the Member in the Company.27
(iv) Upon the dissolution of the Company, the Manager shall wind up the Company's affairs as provided in the Delaware LLC
Act.28 Upon the winding up of the Company's affairs, the Manager shall distribute the property of the Company as follows:
(a) First, to creditors, including the Member if it is a creditor, to the extent permitted by law, in satisfaction of the Company's
liabilities (whether by payment or the making of reasonable provision for payment thereof ); and
(b) Second, to the Member in cash or property, or partly in cash and partly in property, as determined by the Manager.29
(v) Upon the completion of the winding up of the Company, the Manager shall file a certificate of cancellation with the
Secretary of State of the State of Delaware canceling the Company's certificate of formation at which time the Company
shall terminate.30
8. ADDITIONAL CONTRIBUTIONS;MEMBER LOANS
(i) The Member may, but is not required to, make additional capital con- tributions to the Company.31
(ii) The Member may, but is not required to, make loans to the Company. If and to the extent that loans are made by the
Member to the Com- pany, those loans shall be on terms determined by the Member and the Manager to be commercially
reasonable. In the absence of any sep- arate determination made by the Member and the Manager, all loans made by the
Member to the Company shall be payable upon demand and shall bear interest at __% per year.32
(iii) To the extent that additional funds are made available by the Member to the Company, those funds shall be treated as
loans made by the Member to the Company, and not as additional capital contribu- tions made by the Member to the
Company, unless specifically des- ignated as additional capital contributions made by the Member to the Company.33
9. LIABILITY OF MEMBER
Except to the extent provided in the Delaware LLC Act, the Member shall not have any liability for the obligations or
liabilities of the Company.34
10. TAX STATUS
At all times that the Company has only one member (who owns 100% of the limited liability company interests in the
Company), it is the intention of the Member that the Company be disregarded as an entity separate from the Member for
federal, state, local and foreign income tax purposes and that the Company be treated for those purposes, but not for
purposes other than taxation, as a division of the Member.35
11. DISTRIBUTIONS
(i) Distributions shall be made to the Member at the times and in the amounts determined by the Manager, except that no
distribution shall be made in violation of the Delaware LLC Act.36
(ii) Unless otherwise determined by the Member, no distribution shall be paid to the Member upon its resignation, whether
in connection with the voluntary assignment of its entire interest pursuant to Section 13 or otherwise.37
12. ASSIGNMENTS
(i) The Member may transfer or assign (including as a pledge or other col- lateral assignment) in whole or in part its limited
liability company interest.38
(ii) In connection with a voluntary transfer or assignment by the Member of its entire limited liability company interest in
the Company (not including a pledge or collateral assignment or any transfer as a result thereof ):
(a) the Member will cease to be a member of the Company;
(b) the assignee will automatically and simultaneously be admitted as the successor Member without any further action at
the time the voluntary transfer or assignment becomes effective under applica- ble law; and
(c) the Company shall be continued without dissolution.39
(iii) In connection with a partial assignment or transfer by the Member of its limited liability company interest (not including
a pledge or collat- eral assignment or any transfer as a result thereof ), unless this Agree- ment is amended to reflect the fact
that the Company will have more than one member, the assignee or transferee shall not be admitted as a member of the
Company and shall not have any rights as a member other than the right to receive any distributions that are payable in re-
spect of the interest transferred.40
(iv) Upon any pledge or other collateral assignment by the Member of all or any part of its limited liability company
interest,41 the pledgee or col- lateral assignee shall have only those rights as are expressly stated in the controlling pledge
or assignment agreement (including any right in connection with the foreclosure of the pledge or collateral assign- ment of
the purchaser of the limited liability company interest to be- come a member of the Company) or are provided by other
applicable law. If the pledgee or collateral assignee of all or any part of the Mem- ber's limited liability company interest has
the right under the control- ling pledge or assignment agreement or under other applicable law to purchase the interest in
foreclosure (or to cause or permit another per- son to purchase the interest in foreclosure), except as expressly stated in the
controlling pledge or assignment agreement, the purchaser shall not be admitted as a member of the Company and shall
not have any rights as a member other than the right to receive any distributions that are payable in respect of the interest
foreclosed upon and purchased.42
13. RESIGNATION
The Member may resign from the Company at such time as it shall deter- mine.43 Neither the filing of a voluntary petition in
bankruptcy nor any other event specified in section 18-304 of the Delaware LLC Act will cause the Mem- ber to cease to be a
member of the Company.44
14. ADMISSION OF ADDITIONAL MEMBERS
One or more additional members of the Company may be admitted to the Company with the written consent of the
Member.45 In connection with the ad- mission of any additional member of the Company (including an admission in
connection with a partial assignment or transfer pursuant to Section 12(iii), but excluding an admission provided for in any
pledge or collateral assignment agreement pursuant to Section 12(iv)), this Agreement shall be amended by the Member to
make those changes it determines to reflect the fact that the Company will have more than one member, but the failure to
so amend this Agreement shall not invalidate any otherwise valid assignment or transfer made by the Member.
15. EXCULPATION AND INDEMNIFICATION
15.1 EXCULPATION46
(i) For purposes of this Agreement, "Covered Persons" means the Manager, the Member, any Affiliate of the Manager or
Member and any officer, di- rector, shareholder, partner or employee of the Manager or Member and their respective
Affiliates, and any officer, employee or expressly autho- rized agent of the Company or its Affiliates.
(ii) The Member, whether acting as Member, in its capacity as Manager (if applicable) or in any other capacity, shall not be
liable to the Company or to the Manager for any loss, damage or claim incurred by reason of any act or omission (whether
or not constituting negligence or gross negligence) performed or omitted by the Member in good faith, and no other
Covered Person shall be liable to the Company, the Member or the Manager for any loss, damage or claim incurred by
reason of any act or omission (whether or not constituting negligence) performed or omitted by the Covered Person in good
faith and in a manner reason- ably believed to be within the scope of authority conferred on the Cov- ered Person by this
Agreement, except that a Covered Person (other than the Member, irrespective of the capacity in which it acts) shall be
liable for any loss, damage or claim incurred by reason of the Cov- ered Person's gross negligence and a Covered Person
(including the Member) shall be liable for any loss, damage or claim incurred by rea- son of the Covered Person's willful
misconduct.
(iii) A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such
information, opinions, re- ports or statements presented to the Company by any person or entity as to matters the Covered
Person reasonably believes are within the professional or expert competence of that person or entity, includ- ing
information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other
facts perti- nent to the existence and amount of assets from which distributions to the Member might properly be paid.47
The foregoing provision shall in no way be deemed to reduce the limitation on liability of the Member provided in Clause (ii)
of this Section 15.1.
15.2 DUTIES AND LIABILITIES OF COVERED PERSONS
(i) To the extent that, at law or in equity, a Covered Person has duties (in- cluding fiduciary duties) and liabilities relating
thereto to the Company, the Member or the Manager, a Covered Person acting under this Agree- ment shall not be liable to
the Company, the Member or the Manager for its good faith reliance on the provisions of this Agreement. The pro- visions of
this Agreement, to the extent that they restrict or eliminate the duties and liabilities of a Covered Person otherwise existing
at law or in equity, are agreed by the Member to replace any other duties and liabilities of the Covered Person.48
(ii) All provisions of this Section 15 shall apply to any former Member or Manager of the Company for all actions or
omissions taken while that person was the Member or the Manager, as applicable, of the Company to the same extent as if
that person were still the Member or the Man- ager, as applicable, of the Company.
15.3 INDEMNIFICATION
To the fullest extent permitted by applicable law, the Member (irrespective of the capacity in which it acts) shall be entitled
to indemnification from the Com- pany for any loss, damage or claim incurred by the Member by reason of any act or
omission (whether or not constituting negligence or gross negligence)49 performed or omitted and any other Covered
Person shall be entitled to indem- nification from the Company for any loss, damage or claim incurred by that Cov- ered
Person by reason of any act or omission (whether or not constituting neg- ligence) performed or omitted by that Covered
Person in good faith and in a manner reasonably believed to be within the scope of authority conferred on that Covered
Person by this Agreement, except that no Covered Person (other than the Member, irrespective of the capacity in which it
acts) shall be entitled to be indemnified in respect of any loss, damage or claim incurred by that Cov- ered Person by reason
of gross negligence and no Covered Person (including the Member) shall be entitled to be indemnified in respect of any loss,
damage or claim incurred by that Covered Person by reason of willful misconduct with re- spect to those acts or omissions;
but any indemnity under this Section 15 shall be provided out of and to the extent of Company assets only, and no Covered
Person shall have any personal liability on account thereof.
15.4 EXPENSES
To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by a Covered Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company before the final
disposition of the claim, demand, action, suit or proceeding upon re- ceipt by the Company of an undertaking by or on
behalf of the Covered Person to repay that amount if it shall be determined that the Covered Person is not en- titled to be
indemnified under this Section 15.50
15.5 INDEMNITY CONTRACTS
The Manager and the Company may enter into indemnity contracts with any Covered Person and adopt written procedures
pursuant to which arrangements are made for the advancement of expenses and the funding of obligations under this
Section 15 and containing other procedures regarding indemnification as are appropriate.
15.6 INSURANCE
The Company may purchase and maintain insurance, to the extent and in amounts the Manager shall, in its sole discretion,
deem reasonable, on behalf of Covered Persons and other persons or entities as the Manager shall determine, against any
liability that may be asserted against or expenses that may be in- curred by that person or entity in connection with the
activities of the Company, regardless of whether the Company would have the power to indemnify that person or entity
against the liability under this Agreement.
16. OUTSIDE BUSINESS
The Member or any Affiliate thereof may engage in or possess an interest in any business venture of any nature or
description, independently or with others, similar or dissimilar to the business of the Company, and the Company and the
Member shall have no rights by virtue of this Agreement in and to such indepen- dent ventures or the income or profits
derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Company, shall not be
deemed wrongful or improper. The Member or any Affiliate thereof shall not be obligated to disclose or present any
particular opportunity to the Company even if that opportunity is of a character that, if disclosed or presented to the
Company, could be taken by the Company, and the Member or Affiliate thereof shall have the right to take for its own
account (individually or as a partner, shareholder, fiduciary or otherwise) or to recommend to others any such partic- ular
opportunity.51
17. AMENDMENT
This Agreement may be amended or modified only by a written instrument signed by the Member; but if any amendment
would affect the rights, obligations or liabilities of the Manager, that amendment shall not be effective with respect to the
Manager unless that amendment is approved in writing by the Manager.52
18. GOVERNING LAW
This Agreement shall be governed by, and construed under, the laws of the State of Delaware, without regard to the rules of
conflict of laws thereof or of any other jurisdiction that would call for the application of the substantive laws of a
jurisdiction other than the State of Delaware.
19. TERMINATION OF AGREEMENT
This Agreement shall terminate and be of no further force or effect upon the filing of a certificate of cancellation cancelling
the Company's certificate of for- mation pursuant to Section 7(v) of this Agreement; but Sections 15.1, 15.2, 15.3 and 15.4
shall survive termination.53
20. EFFECTIVE DATE
Pursuant to section 18-201(d) of the Delaware LLC Act, this Agreement shall be effective as of the effective time of the filing
of the Company's certificate of formation [or specify another date subsequent to the effective time of the fil- ing of the
Company's certificate of formation upon which this Agreement will be effective].54
21. NO THIRD-PARTY BENEFICIARIES
Except as contemplated by Section 15, nothing in this Agreement, express or implied, is intended to confer upon any person
or entity, other than the parties hereto and their respective successors, any benefits, rights or remedies.
22. MISCELLANEOUS
Throughout this Agreement, nouns, pronouns and verbs shall be construed as masculine, feminine, neuter, singular or
plural, whichever shall be applicable. All references to "Sections" and "Clauses" shall refer to corresponding provisions of
this Agreement. The use of the term "including" or any similar term shall be deemed to mean "including, without
limitation." Any reference in this Agreement to any law, rule or regulation shall be construed as reference to the law, rule or
regulation as it may have been, or may from time to time be, amended, revised or reenacted and any successor thereto. The
headings of sections in this Agreement are intended for reference purposes only and shall be given no substantive mean-
ing or any interpretive force.
IN WITNESS WHEREOF, the undersigned has duly executed this Limited Li- ability Company Agreement as of the day and
year first aforesaid.
[MEMBER]
By: ____________________________
Name:
Title:
The Manager hereby executes this Agreement for the purposes of becoming a party hereto and agreeing to perform its
obligations and duties hereunder and being entitled to enjoy its rights and benefits hereunder.55
[MANAGER]
_____
Name:
The Company hereby executes this Agreement for the purposes of becoming a party hereto and agreeing to perform its
obligations and duties hereunder and being entitled to enjoy its rights and benefits hereunder.56
[THE COMPANY]
By: ____________________________
Name:
Title:
Schedule 1
Name
_____
Mailing Address
_____
Agreed Value of Capital Contribution
$_____
Footnote
1. See DEL.CODE ANN. tit. 6, § 18-101(7) (2013) (defining a "limited liability company agreement" and providing that the
agreement of a single-member LLC shall not be unenforceable by reason of there being only one person who is a party
thereto).
2. The Delaware LLC Act sets forth requirements for the name of each domestic LLC, including the requirement that the
name include "Limited Liability Company," "L.L.C.," or "LLC." Id. § 18-102.
3. The Delaware LLC Act specifically reserves the ability to amend the Act from time to time and to have those amendments
binding upon LLCs, their members and managers, and all rights of members and managers are subject to this reservation.
Id. § 18-1106.
4. Id. § 18-101(7).
5. Under Delaware law, an LLC is formed at the time of filing of the certificate of formation or such later time and date as
provided for therein, in each case assuming there has been substantial compli- ance with the requirements of section 18-
201 of the Delaware LLC Act. Id. § 18-201(b). It should be noted that an LLC agreement is required under the Delaware LLC
Act, but can be entered into before, after, or at the time of filing of the certificate of formation and that the LLC agreement
can be made effective as of the formation of the LLC or at such other time as provided in or reflected by the LLC agreement.
Id. § 18-201(d). If the person or entity intending to become the member of an LLC files the certificate of formation for the
LLC and subsequently enters into the LLC agreement, care should be taken to make sure that no business is conducted by
or on behalf of the LLC before the single member enters into the LLC agreement unless the LLC agreement is made effective
as of the filing of the certificate of formation or as of a date before the commencement of business, in which case the
provisions of the LLC agreement relating to the authority of the member or manager will relate back to the filing date or
such other date with respect to any actions taken after that date. Cf. RESTATE- MENT (THIRD) OF AGENCY § 4.02(1) (2006).
6. Although the Delaware LLC Act uses "authorized person" in a number of sections, see, e.g., id. §§ 18-201, 18-204, 18-208,
the term is not defined. Consequently, it is prudent to provide either in the LLC agreement or through proper action by the
manager in the case of a manager-managed LLC or the member in the case of a member-managed LLC what person or
entity is designated as an "authorized person" for purposes of the Delaware LLC Act.
7. The Delaware LLC Act requires that the certificate of formation state the name of the LLC and the address of the
registered office and name and address of the registered agent for the LLC located in the State of Delaware. Id. § 18-201(a).
Because these matters are required to be addressed in the certificate of formation, other than the name, they have not
been included in this Agreement for the sake of simplicity and to avoid unintentional inconsistency.
8. There exists no requirement that there be, in addition to the manager, another authorized per- son, and there is similarly
no requirement that the manager be an authorized person. The alternative formula herein set forth is for purposes of
illustration.
9. The Delaware LLC Act provides that an LLC "may carry on any lawful business, purpose or activity, whether or not for
profit, with the exception of the business of banking as defined in § 126 of Title 8." Id. § 18-106(a). The purpose clause of an
LLC agreement is significant because it delimits the activities in which the LLC may engage. The two basic approaches are
to utilize a gen- eral purpose clause permitting the LLC to engage in any lawful activity or to utilize a specific purpose clause
permitting the LLC to engage only in the specific activity for which it was formed and any necessary or incidental activities.
The benefit of the former clause is that the LLC has the power and authority to engage in any lawful activity that may
present itself whether or not it was initially contemplated. Conversely, the benefit of the latter clause is that it restricts the
authorized use of the LLC to previously agreed-upon activities unless the purpose clause is amended. Where the LLC
agreement designates a manager whose interest may not be identical to, or closely aligned with that of, the member, use of
a narrow purpose clause will restrict the manager's rightful ability to operate the LLC so that it will be only for the member's
intended purpose in creating the LLC. Similarly, a clear limitation on the power and authority of the LLC to take certain
actions in Section 3 would accomplish the same objective. See also infra notes 11 & 18. Use of a narrow purpose clause also
can affect the application of the business opportunity doctrine and limit the circumstances where the member or the
manager would be deemed to be taking an opportunity. See, e.g., Grove v. Brown, C.A. No. 6793-VCG, 2013 WL 4041495 (Del.
Ch. Aug. 8, 2013). See also Section 16, which specifically eliminates the application of the doctrine to the member.
10. The Delaware LLC Act contains a broad recitation of the powers of an LLC, stating that:
A[n] [LLC] shall possess and may exercise all the powers and privileges granted by this chapter or by any other law or by its
[LLC] agreement, together with any powers incidental thereto, in- cluding such powers and privileges as are necessary or
convenient to the conduct, promotion or attainment of the business, purposes or activities of the [LLC].
DEL.CODE ANN. tit. 6, § 18-106(b) (2013). This is in contrast with the approach taken in the Delaware General Corporation
Law wherein there is both a general (DEL.CODE ANN. tit. 8, § 121) and a specific (DEL.CODE ANN. tit. 8, § 122) listing of
powers.
The powers clause of an LLC agreement is significant because, together with the governing statute, it establishes the power
and authority of the LLC to act. The powers clause should conform to the purpose clause so that the LLC has the power and
authority to accomplish its stated purpose. Thus, a broad powers clause should accompany a general purpose clause.
Generally speaking, the powers clause provides that the LLC shall have all the power and authority to pursue its purpose,
specifically lists each power and authority that may be necessary or desirable to pursue that purpose, or includes both
general language and a specific list of enumerated powers. This latter approach, adopted by this Agreement, is probably
most useful when the goal is to ensure that the LLC has the power and authority to take any action relating to any lawful
activity. However, where the LLC agreement designates a man- ager whose interest may not be identical to, or closely
aligned with that of, the member, consideration should be given to whether limiting the power and authority of the LLC to
take certain actions is ad- visable in order to, in that manner, restrict the ability of the manager to cause the LLC to take
those actions. See infra notes 18 & 19.
11. Notwithstanding the general prohibition against an LLC's engaging in banking, see DEL.CODE ANN. tit. 6, § 18-106(a)
(2013), LLCs are permitted to "make contracts of guaranty and suretyship and enter into interest rate, basis, currency,
hedge or other swap agreements or cap, floor, put, call, option, exchange or collar agreements, derivative agreements, or
other agreements similar to any of the foregoing." Id. § 18-106(c).
12. Id. § 18-701.
13. Identifying what assets have been contributed to the LLC, and by negative implication what assets of the member have
not been contributed, serves a variety of purposes. Initially, it determines the LLC's capital base. Second, it defines those
assets of the sole member that are not available (absent a successful effort to pierce the veil) to the creditors of the LLC.
Third, in the event of a claim against the sole member, identification makes clear what assets are not (absent a successful
reverse pierce) available to the creditor as no longer being the member's property. See infra note 31.
14. As noted in footnote 16, caution should be exercised if choosing a manager whose interests are not identical to, or
aligned with those of, the member. If the interests of the member and the manager are not closely aligned, in addition to
the methods of limiting the ability of a manager to lead the LLC in directions not contemplated by the member referenced
at infra note 16, it is possible to give the member approval rights over certain actions by the manager. Thus, for example,
Section 3(ii) pro- vides that the Company may merge or consolidate only with the approval of the member. In addition, if
additional limitations on the authority of the manager are desired, the member could have approval rights, for example,
over the filing of a voluntary petition in bankruptcy, over all borrowings or those above a certain dollar amount, over the
acquisition or disposition of any assets outside the ordinary course or exceeding a set dollar amount, or the member could
have an approval right over any action by the manager that relates to any business or purpose other than the limited
business or purpose previously agreed by the member. This last type of approval right is similar to a limited purpose clause,
but gives somewhat greater flexibility to the member and the manager. See supra note 10.
15. See DEL.CODE ANN. tit. 6, § 18-402 (2013) ("Unless otherwise provided in a limited liability company agreement, each
member and manager has the authority to bind the [LLC]."). Be aware that a member has the apparent authority to bind the
LLC except as to a third party who is on notice of the contractual limitation on its authority. A member without authority
who did act to bind the LLC would likely be in breach of the warranty of authority. See RESTATEMENT (THIRD) OF AGENCY §
6.10 (2006); see also id. § 8.09(1). Conversely, by so acting, the member may have, by conduct, amended the LLC agreement
to vest in itself the power to bind the LLC. See infra note 52.
16. The two most common structures for management of a single-member LLC are management by the member (who may
be designated a "managing member") or management by one or more man- agers. This form addresses management by a
manager. As noted at supra note 1, the companion in- dividual member form addresses management by the member,
which is the default rule under the Delaware LLC Act. DEL.CODE ANN. tit. 6, § 18-402 (2013). A manager may but need not be
a member and can be an individual or an entity. This form contemplates that the manager will be an individual. If the
manager is the member or another entity, certain provisions such as Section 6.1(iii) should be revised to address the
manager's dissolution or termination rather than death, resignation, or incapac- ity. Caution should be exercised if a
manager is selected whose interests are not identical to, or closely aligned with those of, the member. If (i) the company's
purpose expressed in Section 2 is not limited to a specific business or project, (ii) the company's power and authority is not
expressly limited in Section 3, (iii) the member is not given approval rights over certain actions by the manager as de-
scribed at supra note 14, or (iv) the manager's powers are not expressly limited in Section 6.1, the manager, exercising the
broad powers granted to a manager under Section 6.1 or the expansive pow- ers given to the company under Section 3,
might have the ability to lead the company in directions not contemplated by the member. See supra notes 10 & 11. If more
than one manager is designated, the LLC agreement will need to provide procedures by which the managers act, including
specifying what vote is required for action, e.g., majority of the managers or some higher vote. It should also be noted that
in the context of a corporate subsidiary, there is sometimes a desire that the management structure of the LLC replicate to
the maximum extent possible a corporate structure. Thus, the LLC may have a board of managers that functions like a
board of directors and that supervises and in some instances appoints the officers of the LLC, and the LLC may have
"bylaws" comparable to corporate bylaws providing for, among other things, action by the board of managers. If a "board"
structure is desired, care needs to be taken in defining its structure as a collegial body rather than a mere group- ing of
individual agents.
It is important to note that any formalities with respect to management that are created in an LLC agreement must be
observed in order to limit the risk that a court will pierce the LLC veil if its assets are insufficient to satisfy its liabilities. See,
e.g., Irwin & Leighton, Inc. v. W.M. Anderson Co., 532 A.2d 983, 989 (Del. Ch. 1987) (discussing the importance of
"appropriate formalities" in a corporate piercing analysis). Thus, if an LLC agreement establishes a manager and provides
that the manager shall take all action on behalf of the LLC, then all action should be taken by the manager and the member
should not act for the LLC unless it is doing it in its capacity as the manager.
17. To the extent the member is the manager and payments for services pursuant to Section 6.1(i) are deemed to be
distributions, those distributions would be subject to section 18-607(a) of the Del- aware LLC Act.
18. It is important to note that although the Delaware LLC Act contemplates management by a manager, the default rule is
member management. See DEL.CODE ANN. tit. 6, § 18-402 (2013). Thus, although as a default rule a manager has the
authority to bind an LLC, id. § 18-402, a right to information, id. § 18-305(b), a right to seek judicial dissolution, id., and a
right to wind up a dis- solved LLC so long as the manager has not wrongfully dissolved the LLC, id. § 18-803, there is no
default rule that gives a manager any general authority to manage an LLC. Consequently, a term in an LLC agreement giving
the manager all of the authority provided by the Delaware LLC Act really gives the manager very little. Consistent with the
member-management default rule, the default rule for a number of actions under the Delaware LLC Act requires member
action. Perhaps the most significant of these relates to approval of a merger or consolidation. Under section 18-209(b) of
the Delaware LLC Act, unless otherwise provided in the LLC agreement, a merger or consolidation must be ap- proved by a
majority of the members of the LLC, or if there is more than one class or group of mem- bers, then by a majority of each
class or group of members. Id. § 18-209(b). The default rule for the allocation of voting rights is in proportion to the then
current interest in company profits. Thus, even a broadly worded powers clause vesting in the manager all authority to
manage and control the busi- ness and affairs of the LLC, as is included in this form, is probably not sufficient to displace the
de- fault voting rights of members under section 18-209(b) of the Delaware LLC Act or comparable pro- visions. See, e.g., id.
§§ 18-213 (transfers or continuances), 18-216 (conversions). If it is desired that the manager have authority over those sorts
of actions, it is necessary either to specifically reference each such action or include a general statement that the manager
has the authority to consent to and approve any action that under the Delaware LLC Act the members would otherwise
have the right to consent to or approve in each case without any action by the members. Pursuant to Section 3(ii), this form
reserves all those approval rights to the member.
19. Id. § 18-407. Notwithstanding the proviso that the authority of each person shall be limited to the written delegation,
this proviso relates only to actual authority. See RESTATEMENT (THIRD) OF AGENCY § 2.01 (2006). However, each person
with the title of "manager" will in all likelihood be deemed to have apparent authority to bind the LLC. See id. § 2.03.
20. The Delaware LLC Act defines a "manager," inter alia, as one who is named as a manager of an LLC or who is so
designated pursuant to an LLC agreement or a similar instrument. DEL.CODE ANN. tit. 6, § 18-101(10) (2013); see also id. §
18-401.
21. Under section 18-602 of the Delaware LLC Act, notwithstanding that an LLC agreement re- stricts or eliminates a
manager's right to resign as manager from the LLC, a manager may resign at any time by giving written notice to the
members and any other managers. If the manager's resignation violates the LLC agreement, in addition to any remedies
otherwise available under applicable law, the LLC may recover from the resigning manager damages for breach of the LLC
agreement and offset the damages against the amount otherwise distributable to the resigning manager.
22. The appointment of "officers" by an LLC is a matter of private ordering. Where the company's business does not require
active day-to-day management, the manager may not want to appoint all three officers, if any at all. Consequently, this
form makes the appointment optional. The persons appointed will have the actual agency authority as is defined in this
Agreement and the apparent agency authority as a third party would reasonably ascribe to the titles given. See supra note
20; see also RESTATEMENT (THIRD) OF AGENCY § 2.03.
23. References to certificates for limited liability company interests are for purposes of illustration; there is no requirement
that physical certificates be issued. See infra note 42.
24. This provision is intended to ensure that the manager has all power and authority necessary to manage the company,
whether or not a specific power or authority is expressly referenced in this Agreement, but those powers and authority
would be subject to any limitations on the manager's authority under this Agreement and to any rights and powers granted
to the member, such as the requirement for member approval of mergers, conversions, transfers, domestications, and
continu- ances. See supra notes 15 & 19.
25. The Delaware LLC Act provides, as a general matter and subject to certain exceptions, that each member of an LLC has
the right to certain specified information. DEL.CODE ANN.tit.6,§18-305 (2013). Thus, implicit in this section of the Delaware
LLC Act is that the LLC must maintain the re- quired information. However, the Delaware LLC Act does not state who has
responsibility to maintain the required information. To avoid any confusion on this point, this form takes the approach that
the manager must maintain all required information unless one or more officers are appointed and any such officer or
officers maintain some or all of the required information. This form also negates the statutory authority of the manager to
keep any information confidential from the member because to do so would likely be inappropriate in the context of a
single-member LLC absent very special circumstances.
It is also important to note that all recordkeeping requirements should be observed so as to reduce the risk that a court will
pierce the LLC veil if the LLC's assets are insufficient to satisfy its liabilities. In this regard, diligent recordkeeping will bolster
the argument that the company is an entity separate and apart from the member.
26. Under the Delaware LLC Act, except as may be otherwise provided in the LLC agreement, an LLC has perpetual duration.
Id. § 18-801(a)(1).
27. The dissolution provisions of Section 7 are designed to ensure the continuation of the com- pany to the maximum
extent possible. They do this by including a requirement that the personal rep- resentative of the member agree to continue
the company upon the occurrence of any event that ter- minates the continued membership of the member in the
company. See id. § 18-801(a)(4) (providing that an LLC agreement may obligate the personal representative of the last
remaining member to agree to continue the LLC and to the admission of a new member). "Personal representative" is de-
fined in the Delaware LLC Act to mean, as to an entity, the legal representative or successor thereof. Thus, the intended
effect of Section 7 is to avoid any inadvertent dissolution of the company while leaving the member complete flexibility to
dissolve the company at any time by written consent. It should also be noted that the Delaware Court of Chancery has held
that a member may waive the right to judicial dissolution under section 18-802 of the Delaware LLC Act. See R&R Capital,
LLC v. Buck Doe Run Valley Farms, LLC, C.A. No. 3803-CC, 2008 WL 3846318 (Del. Ch. Aug. 19, 2008). Thus, waivers of the right
to judicial dissolution are now frequently included in multi-member LLC agreements. However, in the context of a single-
member LLC, as a practical matter, the remedy of judicial dissolution would be rarely invoked.
To the extent continuation of the LLC to the maximum extent possible is not the desired objective, a typical provision would
provide for dissolution upon the written consent of the member, upon the entry of a decree of judicial dissolution under
section 18-802 of the Delaware LLC Act, or upon the occurrence of any event that terminates the continued membership of
the member in the LLC. See the dissolution section of the individual member form (Section 6 thereof ) for an example of
such a provision. Section 18-801 of the Delaware LLC Act provides, as a default rule, that an LLC may, but is not required to,
continue without dissolution when there are no members if within ninety days after the occurrence of the event that
terminated the continued membership of the last remain- ing member, the personal representative of the last remaining
member agrees in writing to continue the LLC and to the admission of the personal representative of that member or its
nominee or de- signee to the LLC as a member effective as of the occurrence of the event that terminated the contin- ued
membership of the last remaining member.
Another alternative to preventing the inadvertent dissolution of an LLC upon the termination of the membership of the last
remaining member of the LLC is to utilize a "springing member" provi- sion. A typical springing member provision follows:
Upon the occurrence of any event that causes the member to cease to be a member of the Company (other than (i) upon an
assignment by the member of all of its limited liability com- pany interest in the Company and the admission of the
transferee pursuant to Sections 12 and 14, or (ii) the resignation of the member and the admission of an additional member
of the Company pursuant to Sections 13 and 14), the Springing Member shall, without any action of any person or entity
and simultaneously with the member's ceasing to be a member of the Company, automatically be admitted to the
Company as the Special Member and shall continue the Company without dissolution. The Special Member may not resign
from the Company or transfer its rights as Special Member unless a successor Special Member has been admitted to the
Company as the Special Member by executing a counterpart to this Agreement; but the Spe- cial Member shall
automatically cease to be a member of the Company upon the admission to the Company of a substitute member. The
Special Member, in its capacity as Special Member, shall be a member of the Company who has no interest in the profits,
losses and capital of the Company and has no right to receive any distributions of Company assets. Pursuant to sec- tion 18-
301 of the Delaware LLC Act, the Special Member shall not be required to make any capital contributions to the Company
and shall not receive a limited liability company interest in the Company. The Special Member, in its capacity as Special
Member, shall have no authority to bind the Company. Except as required by any mandatory provision of the Delaware LLC
Act or this Agreement, the Special Member, in its capacity as Special Member, shall have no right to vote on, approve or
otherwise consent to any action by, or matter relating to, the Company, in- cluding, without limitation, a merger,
consolidation or conversion of the Company. In order to reflect its agreement to be admitted to the Company as the Special
Member, the Springing Mem- ber shall execute a counterpart to this Agreement. Before its admission to the Company as the
Special Member, the Springing Member shall not be a member of the Company.
If this provision is incorporated, the Springing Member should execute a counterpart signa- ture page to this Agreement and
the following definitions should be incorporated herein:
"Special Member" means, upon that person's admission to the Company as a member of the Company pursuant to Section
[__], the Springing Member, in that person's capacity as a mem- ber of the Company. The Special Member shall have only
the rights and duties expressly set forth in this Agreement.
"Springing Member" means, initially, [_________], and, thereafter, any successor to the Springing Member, which successor
shall be designated by the member to replace the Springing Member.
28. The Delaware LLC Act provides for the winding up of an LLC upon its dissolution setting forth, among other things, who
conducts the winding up and certain specified powers of the persons conducting that activity. DEL.CODE ANN. tit. 6, § 18-
803 (2013). The Delaware LLC Act specifies the priority of the distribution of assets in the winding up of an LLC. Id. § 18-804.
Generally, this requires distributions to be made first to creditors, then to members in satisfaction of liabilities for
distributions, and thereafter to members first for the return of their contributions and second respect- ing their limited
liability company interests.
29. The Delaware LLC Act provides that a member may not be required to accept an in-kind dis- tribution to the extent that
the member's percentage interest in the asset distributed exceeds the mem- ber's interest in distributions from the LLC. Id.
§ 18-605. In the case of a single-member LLC, there is no opportunity for disproportionate distributions among the
members.
30. Upon the completion of the process of winding up of an LLC (id. § 18-803), a certificate of cancellation of the certificate
of formation is to be filed with the Secretary of State of the State of Del- aware, whereupon the separate legal existence of
the LLC is terminated. Id. 18-203.
31. As noted at supra notes 14, 17, and 26, practitioners preparing single-member LLC agree- ments and clients using single-
member LLCs must take care to avoid veil piercing-a risk to which single-member LLCs may, in some cases, be substantially
more susceptible than are multi- member LLCs. See 2LARRY E. RIBSTEIN &ROBERT R. KEATINGE,RIBSTEIN AND KEATINGE
ON LIMITED LIABILITY COMPANIES § 19:1, at 407 n.1 (2d ed. 2013) (discussing the risk of informality in the operation of
single-member LLCs giving rise to a "greater risk of piercing the entity veil"). Note, however, that it is generally recognized
to be more difficult to pierce the corporate veil in Delaware than in many other jurisdictions because fraudulent or other
similar wrongful conduct is usually required under Delaware law. See STEPHEN B. PRESSER,PIERCING THE CORPORATE
VEIL § 2.8 (2013); In re Phillips Petroleum Sec. Litig., 738 F. Supp. 825, 838 (D. Del. 1990). In a veil-piercing claim against the
mem- ber of a single-member LLC, a plaintiff may claim that because, in practice, the owners of small single-owner
businesses (especially those owned by individuals as opposed to entities) often view all of their personal assets as being
available to ensure their business success, the court should view all of the assets of the member of a single-member LLC as
being at risk in the claim in question. The member of a single-member LLC should carefully segregate its personal assets
from those belong- ing to the LLC. As to the importance of treating the assets of the LLC as distinct from those of the sole
member (and vice versa), see Mobil Oil Corp. v. Linear Films, Inc., 718 F. Supp. 260, 268 (D. Del. 1989) ("A subsidiary
corporation may be deemed the alter ego of its corporate parent where there is a lack of attention to corporate formalities,
such as where the assets of the two entities are commingled, and their operations intertwined. An alter ego relationship
might also lie where a corporate parent exercises complete domination and control over its subsidiary."). In addition, if the
LLC agreement specifically lists the amount of the member's contributions and provides that no contribution shall be
deemed to have been made to the LLC and no asset of the member shall be deemed to be at risk for claims against the LLC
unless expressly listed as a contribution in the LLC agreement, that may help to counter the above argument by a creditor.
Delaware courts have applied the same standard for piercing the veil in respect of an LLC as they have in the corporate
context. See, e.g., U.S. Bank N.A. v. U.S. Timberlands Klamath Falls, L.L.C., C.A. No. 112-N, 2005 WL 2093694 (Del. Ch. Mar. 30,
2005). To state a claim of veil piercing, a party "must plead facts supporting an inference that [a party] created a sham
entity designed to defraud investors and creditors." Id. at *1 (citing Crosse v. BCBSD, Inc., 836 A.2d 492, 497 (Del. 2003)). The
inquiry is fact-intensive, and the court would consider several factors, including: "(1) whether the company was adequately
capitalized for the undertaking; (2) whether the company was solvent; (3) whether corporate formalities were observed; (4)
whether the [member] siphoned company funds; and (5) whether, in general, the company simply functioned as a façade
for the [member]." Id. at *1.
32. The practitioner should consider what interest rate is appropriate for a specific transaction. In this regard, using a
market-based rate will lend support to the argument that the loan should be treated as such, and not be recharacterized as
equity or be subordinated to debts owed to third- party creditors.
33. This formulation is intended to preserve claims by the member, vis-à-vis other creditors of the company, that additional
funds provided by the member to the company were actually loans and thereby give the member equivalent rights and
claims with respect to its loan as are enjoyed by the company's other unsecured creditors. See DEL.CODE ANN. tit. 6, § 18-
107 (2013) (providing, inter alia, that a member may lend money to an LLC and, subject to other applicable law, has the
same rights and obligations with respect to any such matter as a person who is not a member). Note, however, that those
loans possibly may be subject to equitable subordination as well as to veil-piercing attacks. See supra notes 14, 17, 26 & 32.
34. The rule of limited liability exists regardless of whether it is recited in the LLC agreement. The Delaware LLC Act
provides:
Except as otherwise provided by this chapter, the debts, obligations and liabilities of a[n] [LLC], whether arising in contract,
tort or otherwise, shall be solely the debts, obligations and liabilities of the [LLC], and no member or manager of a[n] [LLC]
shall be obligated personally for any such debt, obligation or liability of the [LLC] solely by reason of being a member or
acting as a manager of the [LLC].
DEL.CODE ANN. tit. 6, § 18-303(a) (2013). A member, as to some or all obligations of the LLC, may agree to be personally
obligated. See id. § 18-303(b).
35. On January 1, 1997, the so called "Check-the-Box" classification regulations went into effect. Generally speaking, under
those regulations a single-member LLC will be, for purposes of federal in- come tax classification, a "disregarded entity."
Treas. Reg. § 301.7701-2(c)(2)(i) (as amended in 2014) ("Except as otherwise provided in this paragraph (c), a business entity
that has a single owner and is not a corporation under paragraph (b) of this section is disregarded as an entity separate
from its owner."). For federal employment tax purposes (beginning in 2009), and for certain federal excise tax purposes
(beginning in 2008), a "disregarded entity" is treated as separate from its owner. Treas. Reg. § 301.7701-2(c)(2)(iv) (as
amended in 2014) (employment taxes), -2(c)(2)(v) (as amended in 2014) (excise taxes). Under the original "Check-the-Box"
regulations, a disregarded en- tity was disregarded for federal income, employment, and excise tax purposes. But see
Notice 99-6, 1999-1 C.B. 321, obsoleted by T.D. 9356, 2007-39 I.R.B. 675 (elective treatment of disregarded en- tities for
employment tax purposes before 2009). As a disregarded entity (sometimes referred to as a "Tax Nothing"), a single-
member LLC so classified will not file an income tax return or itself report income, loss, deduction, or credit. Rather, those
tax items will be incorporated into the tax return of and reported by the sole member of the single-member LLC. Treas. Reg.
§ 301.7701-2(a) (as amended in 2014) ("If the entity is disregarded, its activities are treated in the same manner as a sole
proprietorship, branch, or division of the owner."). If that sole member is an individual, those items will be reported on
Schedule C (Profit or Loss from Business (Sole Proprietorship)), Schedule C-EZ (Net Profit from Business (Sole
Proprietorship)), Schedule E (Supplemental Income and Loss), or Schedule F (Profit or Loss from Farming). A single-member
LLC that would otherwise be treated as a disregarded entity may elect to be classified as a corporation. Treas. Reg. §
301.7701-3(a) (as amended in 2006). In most instances that election is made on Form 8832. If the single-member LLC meets
the requirements for being taxed as an S corporation it may elect S corporation status on Form 2553. The regulations
formerly required the single-member LLC to file both Form 2553 and Form 8832 in order to elect S corporation status, but
under the 2005 amendments Form 2553 alone is now required. See Treas. Reg. § 301.7701-3(c)(1)(v)(C) (as amended in
2006). A single- member LLC may not be classified as a partnership. Treas. Reg. § 301.7701-3(a) (as amended in 2006). Note
that "Check-the-Box" applies only to "eligible entities" (i.e., business entities that are el- igible to select a classification
under the regulations). The vast majority of single-member LLCs, but not all, are eligible entities. A "corporation" formed
under state or federal law is never an eligible en- tity. Other ineligible entities include insurance companies, banks,
government-owned entities, and certain foreign "per se" corporations. See Treas. Reg. §§ 301.7701-1(a)(3) (as amended in
2011), 301.7701-2(b) (as amended in 2006), 301.7701-3(c)(1)(v) (as amended in 2006). Assuming a single-member LLC
formed in the United States is an eligible entity, it has a default classification as a disregarded entity; it is not necessary that
it "check a box" or file Form 8832. Protective elections are possible, but are rarely made except for certain foreign entities.
For a general review of "Check- the-Box," see GARY HUFFMAN,WILLIAM MCKEE,WILLIAM NELSON,JAMES WHITMIRE
&ROBERT WHITMIRE,FED- ERAL TAXATION OF PARTNERSHIPS AND PARTNERS ¶ 3.06 (4th ed. 2007). Note that the number of
members under Delaware or other applicable state law is not necessarily the same as the number for federal income tax
purposes. For example, the IRS has treated a two-member LLC as a single-member LLC for federal tax purposes. Conversely,
the IRS might consider an LLC with only one member, but two or more holders of economic interests, to be a multi-member
entity for tax purposes. See I.R.S. Priv. Ltr. Rul. 2002-01-024 (Oct. 5, 2001).
Keep in mind that, while for purposes of federal income tax classification a single-member LLC may be a disregarded entity
without its own tax identity or obligations, certain states will impose entity-level taxes on it. States imposing an entity-level
tax potentially applicable to single-member LLCs in- clude: Alabama (net worth based "business privilege" tax imposed on
LLCs, ALA.CODE § 40-14A-22(a) (LexisNexis 2011)); California (entity-level franchise fee and gross receipts-based fee,
CAL.REV.&TAX. CODE §§ 17941, 17942 (West 2004 and Supp. 2014)); Illinois (1.5% personal property replacement tax based
on net income, 35 ILL.COMP.STAT.ANN. 5/205(b) (West 2012)); Kentucky (entity-level in- come tax imposed upon LLCs, LPs,
and LLPs; minimum tax of $175 per annum; rates up to 7% of income with alternative minimum tax calculations based upon
gross receipts and gross profits also required, KY.REV.STAT.ANN. §§ 141.010(24), 141.040(5) (West 2010 and Supp. 2013));
New Hampshire (LLCs doing business in the state are subject to a 5% tax on dividends and interest, an 8.5% business profits
tax, and the 0.75% business enterprise tax, N.H. REV.STAT.ANN.chs.77,77- AQ, 77-E-1 (LexisNexis 2009 and Supp. 2013));
Ohio (8.5% entity-level tax imposed except where all owners give written consent to state tax jurisdictions, OHIO REV.CODE
ANN. §§ 5733.40, 5733.41 (LexisNexis 2014)); Pennsylvania (LLCs except certain professional LLCs subject to .699% capital
stock and franchise taxes), 15 PA.CONS.STAT.ANN. § 8925 (West 2013)); Tennessee (excise tax of 6.5% of net earnings and
franchise tax of $0.25 per $100 of net worth applied to LLCs, LLPs, and LPs, TENN.CODE ANN. §§ 67-4-2105(a), 67-4-2106(a)
(2013)); Texas (LLCs, as well as LPs, LLPs, and LLLPs, are subject to entity-level franchise tax, TEX.TAX CODE ANN. § 171.0002
(West 2008 and Supp. 2013)); Washington (all entities subject to business and occu- pations tax, WASH.REV.CODE ANN. §§
25.05.500-25.05.570, 25.15.005-25.15.902 (West, Westlaw current with 2014 Legislation effective before June 12, 2014)). A
state also may treat a single-member LLC as a separate entity for sales and use tax purposes, even if for income tax
purposes the state fol- lows the federal classification of the single-member LLC as a disregarded entity. See generally Bruce
P. Ely, Christopher R. Grissom & William T. Thistle, State Tax Treatment of LLCs and LLPs-An Update, 56 ST.TAX NOTES 509
(May 17, 2010); see also JAMIE FENWICK,MICHAEL MCLOUGHLIN,SCOTT SALMON, PATRICK SMITH,ARTHUR TILLEY &BRIAN
WOOD;STATE TAXATION OF PASS-THROUGH ENTITIES AND THEIR OWNERS app. tbl. 9 (2010) (INCOME AND FRANCHISE
TAXES IMPOSED ON SINGLE-MEMBER LLCS).
While a single-member LLC may have employees, for purposes of federal employment taxation the sole member was
treated under the original "Check-the-Box" regulations as the employer with re- sponsibility for the collection and
remission of those levies. See Med. Practice Solutions, LLC v. CIR, 132 T.C. 125 (2009), aff 'd sub nom. Britton v. Shulman, No.
09-1994, 2010 WL 3565790 (1st Cir. Aug. 24, 2010); Littriello v. United States, 484 F.3d 372 (6th Cir. 2007); McNamee v. United
States, 488 F.3d 100 (2d Cir. 2007); Kandi v. United States, No. C05-0840C, 2006 WL 83463 (W.D. Wa. 2006); Notice 99-6, 1991-
1 C.B. 321, obsoleted by T.D. 9356, 2007-39 I.R.B. 675 (Aug. 15, 2007); see also Thomas E. Rutledge & Scott E. Ludwig, The
Sixth Circuit Affirms Littriello: "Check- the-Box" Classification Regulations Are Upheld,J.TAX'N, June 2007, at 325; Thomas E.
Rutledge & Scott E. Ludwig, Second Circuit Affirms McNamee: Validity of Check-the-Box Regulations Again Con-
firmed,J.TAX'N, July 2007, at 32; Thomas E. Rutledge, The Dispute Over Check-the-Box, SMLLCs and Liability for
Employment Taxes,J.PASSTHROUGH ENTITIES, July/Aug. 2007, at 19. However, effective January 1, 2009, the single-
member LLC is treated as the "employer," and the liability of the sole member for any failure to collect and remit
employment taxes is determined under Code sec- tion 6672. T.D. 9356, 2007-39 I.R.B. 675 (Aug. 15, 2007).
The IRS in Rev. Rul. 1999-5, 1999-1 C.B. 434 held that an LLC which, for federal tax purposes, is disregarded as an entity
separate from its owner is converted to a partnership when a second member purchases an interest in that LLC. Cf. Rev. Rul.
1999-6, 1999-1 C.B. 432 (tax consequences when multi-member LLC becomes single-member LLC).
36. DEL.CODE ANN. tit. 6, § 18-601 (2013). Section 18-607(a) of the Delaware LLC Act provides that:
[an LLC] shall not make a distribution to a member to the extent that at the time of the distribu- tion, after giving effect to
the distribution, all liabilities of the [LLC], other than liabilities to members on account of their limited liability company
interests and liabilities for which the re- course of creditors is limited to specified property of the [LLC], exceed the fair value
of the assets of the [LLC], except that the fair value of property that is subject to a liability for which the re- course of
creditors is limited shall be included in the assets of the [LLC] only to the extent that the fair value of that property exceeds
that liability. For purposes of this subsection (a), the term "distribution" shall not include amounts constituting reasonable
compensation for present or past services or reasonable payments made in the ordinary course of business pursuant to a
bona fide retirement plan or other benefits program.
Id. § 18-607(a). Section 18-607 applies to all distributions other than those made upon the winding up of an LLC, which are
governed by section 18-804. Note that while Section 11(i) of this Agreement is by its terms limited to the Delaware LLC Act,
other limitations of Delaware law, such as the Del- aware Fraudulent Transfer Act, and comparable laws of other
jurisdictions, may also apply.
37. The default rule under the Delaware LLC Act is that, upon resignation, a resigning member is entitled to any distribution
provided under the LLC agreement and, if the LLC agreement does not so provide, then a resigning member is entitled to
receive, within a reasonable time after resignation, the fair value of the member's limited liability company interest as of
the date of resignation based upon that member's right to share in distributions from the LLC. Id. § 18-604. Section 11(ii) of
this Agree- ment negates the effect of section 18-604 of the Delaware LLC Act. It does so in connection with a voluntary
assignment because, as noted at supra note 40, it is assumed that consideration will be pay- able by the assignee to the
assignor. In addition, it does so with all other resignations based on the assumption that upon the resignation of the
member for any reason other than an assignment it may be in the best interest of the member and the company to preserve
the value of the company by keep- ing all assets within the company and having the member's personal representative
continue the com- pany pursuant to Section 7 of this Agreement. However, in all cases the rule is subject to a contrary
determination by the member, thus providing the maximum flexibility.
38. As a general matter, this form takes a permissive approach to transfers and assignments of lim- ited liability company
interests by permitting all transfers and assignments. However, because this form is designed to be a single-member form
where the company is disregarded for federal income tax purposes and because certain transfers and assignments can
result in there being more than one member or one or more members and one or more economic interest holders, there are
circum- stances relating to certain transfers, as noted in the accompanying text and footnotes, where this agreement
should be amended. As also noted, however, it is thought preferable that purported trans- fers be permitted than that those
transfers be rendered void even if conforming amendments are not made. In this regard, it should also be noted that
"limited liability company interest" is a defined term in the Delaware LLC Act as "a member's share of the profits and losses
of [an LLC] and a member's right to receive distributions of the [LLC's] assets." Id. § 18-101(8). Thus, as a general matter, a
trans- fer of a limited liability company interest does not necessarily result in the transferee's being admitted as a member
with respect to the interest transferred, and this form takes the position that certain transfers will result in admission of the
transferee while others will not. See, e.g., Achaian, Inc. v. Lee- mon Family LLC, 25 A.3d 800, 804-05 (Del. Ch. 2011) ("[I]t is
clear that the default rule under the [Delaware LLC] Act is that an assignment of an LLC interest, by itself, does not entitle
the assignee to become a member of the LLC; rather, an assignee only receives the assigning member's economic interest
in the LLC to the extent assigned.").
39. DEL.CODE ANN. tit. 6, § 18-702(b) (2013). Although LLC agreements will often have a require- ment that they be executed
by any successor member, that formality, if not complied with upon a full assignment, may give rise to an unintended
dissolution of the LLC if the successor is not admitted due to an inadvertent failure to sign the LLC agreement. Section 12
provides that in connection with a voluntary assignment of all of the member's interest the assignee will automatically be
admitted as the successor member. The triggering event is the effectiveness of the assignment under applicable law. Thus,
if a purported assignment was not accepted, the assignment would not become effective so the assignee will never become
the successor member. Since it is assumed that in connection with a voluntary assignment, any consideration will be
payable by the assignee to the assignor, Section 11 of this Agreement provides that, unless otherwise determined by the
member, the assignor member will not be entitled to a resigning distribution in connection with a voluntary assignment,
which would otherwise be the case under section 18-604 of the Delaware LLC Act as described at supra note 38.
40. Sections 12 and 14 contemplate that in connection with a partial transfer or assignment by the member of its limited
liability company interest (other than in connection with a pledge or collateral assignment (see infra note 43)), the
transferee or assignee of the interest will not be admitted as a member unless this Agreement is amended to reflect the
changes necessary if there is more than one member, including the relative rights and duties of the members and the fact
that the company would no longer be disregarded as an entity separate from its owner for federal income tax purposes (see
supra note 36). However, it is important to note that this form does not take the approach of voiding any transfer that
would cause there to be one or more economic interest holding assignees in addition to the member even though under
those circumstances the company would no longer be disregarded as an entity separate from its owner for federal income
tax purposes and certain of the provisions, such as the distribution provision, would no longer work as drafted. The
distribution provision would presumably be interpreted to provide that distributions would be made to the member and to
the economic interest holding assignees in proportion to their relative limited liability company interests. See Achaian, 25
A.3d at 806 (court and parties agreed that LLC agreement that referred to single member needed to be read to apply to
multiple members once additional members were admit- ted even though LLC agreement was not amended). It is, of
course, preferable that in connection with any partial transfer, appropriate amendments be made to this Agreement to
reflect the new tax treat- ment of the company, the changes with respect to the payment of distributions, and other matters
that will or may be affected by the transfer. Nonetheless, this form takes the approach that it is better to permit those
transfers with their attendant consequences than to provide that they are null and void. There may be transactions,
however, where an inadvertent or other transfer that causes the company not to be disregarded as an entity separate from
its owner for federal income tax purposes are so se- vere that the practitioner should consider including a provision that any
such transfer would be void ab initio, at least if it is not done with the specific intention that the company would have a
different tax status for federal income tax purposes. Under Delaware law, a contractual term that prohibits transfers will be
enforceable and a prohibited transfer may be invalidated. See In re Conaway, C.A. No. 6056-VCG, 2012 WL 524190 (Del. Ch.
Feb. 15, 2012) (finding valid a limited partnership agreement's restraint on alienation and invalidating a purported transfer
in violation of the agreement).
41. In most cases, interests in an LLC are general intangibles and payment intangibles governed by Article 9 of the Uniform
Commercial Code ("UCC"). To facilitate a pledge of the interests in an LLC in connection with a financing, it may be
desirable to opt into coverage of Revised Article 8 of the UCC. See generally Lynn A. Soukup, LLC and Partnership Interests
as Collateral-The Alchemy of "Opting in" to Article 8, in SECURED TRANSACTIONS 2010: WHAT LAWYERS NEED TO KNOW
ABOUT UCC ARTICLE 9, at 431 (PLI Com. L. & Practice, Course Handbook Series, 2010), available at 920 PLI/ Comm 431
(Westlaw); see also Robert R. Keatinge, Taking and Enforcing Security Interests in Unincor- porated Businesses, in LIMITED
LIABILITY ENTITIES IN TIMES OF CHANGE (ALI-ABA Mar. 12, 2002), available at VPC0312 ALI-ABA 245 (Westlaw); Robert R.
Keatinge, Interests in Unincorporated Associations as Se- curities Under Article 8 of the UCC, in LIMITED LIABILITY ENTITIES
IN TIMES OF CHANGE (ALI-ABA Mar. 12, 2002), available at WPC0312 ALI-ABA 361 (Westlaw). In that case, the LLC agreement
(and the cer- tificate representing the limited liability company interest in the case of a certificated interest) must expressly
provide that the interests in the LLC will constitute securities for purposes of Article 8 of the UCC. See DEL.CODE ANN. tit. 6,
§ 8-103(c) (2013).
42. In connection with the pledge of the interests in an LLC, the practitioner should consider whether a lender foreclosing
on the pledge has the right to become a substitute or additional member of the LLC or will simply be an assignee of a
limited liability company interest. If the foreclosing lender is only an assignee, it will generally have no right to cause the
LLC to make distributions or take other actions that may benefit its position. On the other hand, when a lender forecloses
on a limited liability company interest and becomes the member of the LLC, it may assume liability, as the owner and
operator of the LLC for the LLC's activities-past and present. The practitioner should note that Section 12 of this Agreement
provides that a pledgee or collateral assignee shall have the rights provided for in the agreement controlling the pledge or
collateral assignment (and as provided by other applicable law), so that if pursuant to that agreement the pledgee or
collateral assignee has the right to become a member, it will be able to do so under this Agreement, but if under the
applicable security agreement, it does not have the right to become a member, Section 12 of this Agreement does not
otherwise provide it with that right. It should also be noted that in connection with a pledge or collateral assignment by the
member of part of its limited liability company interest, if the applicable security agreement governing the pledge or
collateral assignment provides that the pledgee or collateral assignee can become a member, the situation may arise where
there are two members of the LLC or one member of the LLC and one economic interest holding assignee under this
Agreement. That situation should be addressed in the applicable security agreement, pos- sibly by including a form of
amendment to this Agreement that would apply in the event of foreclo- sure. Even where that is not the case, this
Agreement gives effect to the transfer and admission pro- visions of the applicable security agreement, based on the view
that it is better to have the provisions of this Agreement be consistent with the rights accorded by the member to any
pledgee or collateral assignee rather than to have them inconsistent. This form assumes that when a security interest is
granted in a limited liability company interest under applicable law, including the UCC, the holder of the security interest
could cause the foreclosure and sale of the limited liability company interest subject thereto with the result that the
purchaser, although not a member and not generally having the rights of a member, would have the right to receive any
distributions that are payable in respect of the interest foreclosed upon and purchased. As noted at supra note 40, it is
preferable that in con- nection with any partial transfer that could have this result, appropriate amendments be made to
the LLC agreement to reflect the changes that will take effect. However, as with a voluntary transfer under Section 12, it is
thought better to permit those transfers than to provide that they are null and void. In the event of a pledge or collateral
assignment by the member of its entire LLC interest, the foreclosure on the pledge may result in the member's ceasing to be
a member of the LLC, DEL.CODE ANN. tit. 6, § 18-702(b)(3) (2013), which could have the result of causing the dissolution of
the LLC. See supra note 28 and accompanying text.
43. Pursuant to the Delaware LLC Act, a member may resign from an LLC only at the time or upon the happening of the
events specified in the LLC agreement, and, unless otherwise provided in the LLC agreement, a member may not resign
from an LLC before the dissolution and winding up of the LLC. Id. § 18-603. Thus, Section 13 provides that the member may
resign from the LLC at such time as it shall determine.
Also note that Section 11(ii) of this Agreement (together with the text at supra note 38) has been drafted to avoid the
distribution requirement of section 18-604 upon the resignation of the member in the event of a voluntary assignment in
full of its limited liability company interest.
44. The Delaware LLC Act provides a number of events that will cause a person to cease to be a member of an LLC unless
they are modified in the LLC agreement or waived with the consent of all members. Id. § 18-304. Those events are a
member's making an assignment for the benefit of cred- itors, filing a voluntary petition for bankruptcy, being adjudged
bankrupt or insolvent or having en- tered against that member an order for relief in a bankruptcy or insolvency proceeding,
the filing of a petition or answer seeking the reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief for the member or the admission, or failure to contest a petition filed against the member in a
proceeding of similar nature. Id. § 18-304(1). The last sentence of Section 13 is included to override the deemed cessation of
membership of the member if the member files for bank- ruptcy or is otherwise involved in a specified bankruptcy event. Id.
§ 18-304.
45. The Delaware LLC Act, as a default rule, requires the consent of all incumbent members to the admission of a new
member as a member. Id. §§ 18-301(b)(1), 18-702(a). This threshold may be modified in the LLC agreement.
46. The exculpation and indemnification provisions in Section 15 provide for broad exculpation and broad mandatory
indemnification for the member irrespective of the capacity in which it is act- ing. These provisions also provide for
exculpation and mandatory indemnification of the manager and the other identified "Covered Persons," though those
protections are not as broad as the coverage for the member. The practitioner should carefully consider the standards for
exculpation and indem- nification for the member as well as for all other "Covered Persons" and whether that
indemnification should be mandatory or at the discretion of the member or the manager. In addition, in a single- member
LLC that is being used as a subsidiary, the practitioner should consider conforming those provisions to the standard
provisions employed by the member of the LLC with respect to its other subsidiaries. Pursuant to section 18-1101(e) of the
Delaware LLC Act, liabilities for breach of contract and breach of duties (including fiduciary duties) to an LLC or to another
member or man- ager or to another person that is a party to or is otherwise bound by an LLC agreement may be limited or
eliminated, except that the LLC agreement may not limit or eliminate liability for a bad-faith vio- lation of the implied
contractual covenant of good faith and fair dealing.
47. The Delaware LLC Act specifically authorizes a member, manager, or liquidating trustee to rely, in good faith, upon
certain records and information including for purposes of making distribu- tions to members and creditors. See id. § 18-406.
48. See id. § 18-1101(c) (duties (including fiduciary duties) to an LLC or to another member or manager or to another person
that is a party to or is otherwise bound by an LLC agreement may be expanded, restricted, or eliminated by that LLC
agreement, except that the LLC agreement may not eliminate the implied contractual covenant of good faith and fair
dealing); see also id. § 18-1104 ("In any case not provided for in this chapter, the rules of law and equity, including the rules
of law and equity relating to fiduciary duties and the law merchant, shall govern."). If an LLC agreement is completely silent
regarding fiduciary duties, the Delaware LLC Act expressly incorporates Delaware's rules of law and equity relating to
default fiduciary duties of loyalty and care. See id. § 18-1104.
49. The Delaware LLC Act specifically authorizes an LLC to indemnify and hold harmless any member, manager, or any
person from any claim or demand. Id. § 18-108. To indemnify a person for his or her own negligence, Delaware case law in
the corporate context requires that intention to be specifically stated, and indemnification for willful misconduct is
prohibited. See Warburton v. Phoenix Steel Corp., 321 A.2d 345, 346-47 (Del. Super. Ct. 1974); State v. Interstate Amiesite
Corp., 297 A.2d 41, 44 (Del. Super. Ct. 1972); James v. Getty Oil Co. (E. Operations), Inc., 472 A.2d 33, 38 (Del. Super. Ct. 1983).
50. This form provides for mandatory advancement. The drafter should consider whether manda- tory advancement with
respect to the member or other "Covered Persons" is appropriate in particular circumstances, keeping in mind that if
advancement is discretionary, a decision to advance expenses could be viewed as an interested transaction that could be
subject to higher judicial scrutiny. The drafter also should note that the treatment may differ between the member and
other "Covered Persons."
51. Note that this provision, which permits competition between the member and the LLC, con- stitutes a modification of
default fiduciary duties under Delaware law. See Kahn v. Icahn, C.A. No. 15916, 1998 WL 832629 (Del. Ch. Nov. 12, 1998). Also
note that the manager and officers were not included in this section. Adding the manager and/or the officers to this
provision may be appro- priate under particular circumstances.
52. Although under Delaware law written agreements may be amended or modified by a course of dealing notwithstanding
a provision that authorizes amendment only by written instrument, see, e.g., Council of Unitholders of Breakwater House
Condo. v. Simpler, Civ. A. No. 89C-09-007, 1993 WL 81285, at *7 (Del. Super. Ct. 1993); Pepsi-Cola Bottling Co. of Asbury Park
v. Pepsico, Inc., 297 A.2d 28, 33 (Del. 1972), the better practice is to provide for written amendments so that the exact terms
of the current LLC agreement are always readily accessible to the member, the manager, and to any third parties to whom it
has been provided.
53. An LLC agreement as a contract of the member or members of the LLC does not necessarily terminate upon the
termination of the LLC. Thus, termination of the LLC agreement is a topic that should be specifically addressed in the LLC
agreement and this should include specifying when the LLC agreement terminates and what, if any, provisions survive the
general termination, e.g., indem- nity provisions.
54. See supra note 6.
55. Although section 18-101(7) of the Delaware LLC Act provides that a manager is bound by the LLC agreement whether or
not the manager executes the LLC agreement, in order to put a manager on notice that he or she is in fact bound by the
terms of the LLC agreement, some practitioners in- clude a joinder clause whereby the manager executes the LLC
agreement, as provided above.
56. Because an LLC may have obligations to perform under its LLC agreement, some practitioners will make the LLC a party
to its LLC agreement or will provide for a form of joinder, as provided above. The Delaware Supreme Court, in Elf Atochem
North America, Inc. v. Jaffari, 727 A.2d 286 (Del. 1999), held that even though an LLC had not executed its LLC agreement,
the LLC was nev- ertheless bound by an arbitration and forum selection clause in the LLC agreement. The court rec- ognized
that the LLC had not signed the LLC agreement. However, it stated that the members were the real parties in interest and
that the LLC was simply their joint business vehicle and, therefore, it would enforce the clause against the LLC. In 2002, the
Delaware LLC Act was amended to make ex- press that the LLC is bound by the LLC agreement. See DEL.CODE ANN. tit. 6, §
18-101(7) (2013). It should be noted that other jurisdictions have reached a contrary result in cases that also considered the
enforceability of an arbitration clause against an LLC that was not a party to its LLC agreement. See, e.g., Mission
Residential, LLC v. Triple Net Props., LLC, 564 S.E.2d 888 (Va. 2008) (applying Virginia law; note, however, that this decision
was overturned by an amendment to the Virginia Lim- ited Liability Company Act); Trover v. 419 OCR, Inc., 921 N.E.2d 1249
(Ill. App. Ct. 2010) (relying on separate legal existence of LLC under Illinois law and distinguishing Elf Atochem in holding
that LLCs were not bound by arbitration clauses in operating agreements that did not specify LLCs were parties and did not
include LLCs as signatories); In re Am. Media Distribs., LLC, 216 B.R. 486, 487 (Bankr. S.D.N.Y. 1998) (LLC is not a party and
therefore cannot assume operating agreement); Bub- bles & Bleach, LLC v. Becker, No. 97C 1320, 1997 WL 285938 (N.D. Ill.
1997) (applying Wiscon- sin law).
AuthorAffiliation
By LLCs, Partnerships and Unincorporated Entities Committee, ABA Business Law Section*
* This form limited liability company agreement is one of two prepared by the LLCs, Partnerships and Unincorporated
Entities Committee of the ABA Business Law Section. This form is designed for use where the only member is an entity and
the other is designed for use where the only member is an individual. As a general rule, when there are two approaches to a
given area, one of which is more complicated or detailed than the other, the more complicated or detailed approach is
included in this form and the simpler approach in the individual member form. Thus, for example, the individual member
form uses management by the member, that being the simplest and most straightforward management structure in a
single-member limited liability company (an "LLC"), while the entity member form employs a manager-managed construct.
Similarly, the entity member form includes an extensive list of powers of the LLC, while the individual member form simply
includes only a ge- neral powers clause. This division is largely for organizational and instructive purposes. Generally
speaking, these two approaches and the related provisions can be mixed and matched as the drafter deems appropriate for
his or her individual situation. Thus, for example, one could have an individ- ual as the member in a manager-managed LLC
with no officers. Care should be taken, however, when mixing provisions of the two forms to be sure that any necessary
conforming changes are made. Also note that neither form is intended to be used if the parties contemplate the possibility
of there being more than one member or there being more than one person or entity having an economic interest in the
LLC. In addition, neither form is intended to be used for a special purpose entity borrower in a structured financing
transaction because these forms do not include a number of provisions, such as separateness covenants, that would
typically be included in the LLC agree- ment of such an entity.
With regard to tax matters, this form is intended for use only for a domestic LLC (one formed under the laws of one of the
states, not the laws of a foreign jurisdiction) that is not treated as a trust or corporation (including a corporation that makes
an S election) for tax purposes and that has only a single economic member. Such an LLC should be disregarded for federal
income taxes (see infra note 35). Because the LLC will be disregarded for federal tax purposes, contributions by, and
distributions and payments (including compensatory payments and payments of interest) to, the member will be a matter
of tax indifference, or non-events, to the member and the LLC. If the LLC is treated other than as disregarded for tax
purposes, e.g., because it becomes a partnership through the addition of an additional economic member, it would become
an entity for tax purposes separate from the member, and tax counsel should consider the economic interaction between
the LLC and the member and make appropriate drafting changes.
It should be noted that a single-member LLC will not always be treated in the same way, and ac- corded the same rights, as
a sole proprietorship or an individual, and, therefore, the decision to use a single-member LLC should be made in
consideration of any relevant legal considerations. See, e.g., 3519-3513 Realty, LLC v. Law, 967 A.2d 954, 955 (N.J. Super. Ct.
2009) (interpreting a "statute [that] permits a landlord to remove a tenant if '[t]he owner of a building of three residential
units or less seeks to personally occupy a unit'" and holding the statute inapplicable where a sole proprietor had
transferred a building to his single-member LLC); Krueger v. Zeman Constr. Co., 758 N.W.2d 881, 887 (Minn. Ct. App. 2008)
(holding that "to have standing to assert a business-discrimination claim under [the Minnesota Human Rights Act] appellant
must show both that respondent committed a dis- criminatory act in the performance of a contract and that [appellant]-not
her limited liability company-has a contractual relationship with respondent"), aff 'd, 781 N.W.2d 858 (Minn. 2010). For a
general discussion of separate entity effects, see CARTER G. BISHOP &DANIEL S. KLEINBERGER,LIM- ITED LIABILITY
COMPANIES:TAX AND BUSINESS LAW ¶ 5.05[1][e] (1994 & Supp. 2011).
Finally, this form is designed to comply with the requirements of the Delaware Limited Liability Company Act and other
applicable Delaware law. If any practitioner intends to utilize this form to organize a limited liability company under the
laws of a jurisdiction other than Delaware, the limited liability company act and all other applicable laws of that jurisdiction
will need to be carefully re- viewed and compared to those of Delaware and, as needed, this form will need to be modified
to conform with all applicable legal requirements and to ensure that the intent of the parties is carried out under the laws of
the applicable jurisdiction.
DETAILS
Subject: Memberships; Business forms; Commercial law; Limited liability companies; Partnership agreements; Limited partnerships; Wages & salaries; Agreements; Jurisdiction; Personal property
Business indexing term: Subject: Commercial law Limited liability companies Partnership agreements Limited partnerships Wages & salaries
Location: United States--US
Classification: 9190: United States; 4300: Law
Corporate/institutional author:
LLCs, Partnerships and Unincorporated Entities Committee, ABA Business Law Section
Publication title: The Business Lawyer; Chicago
LINKS Check for full text in other resources
Volume: 69
Issue: 3
Pages: 745-773
Number of pages: 29
Publication year: 2014
Publication date: May 2014
Publisher: American Bar Association
Place of publication: Chicago
Country of publication: United States
Publication subject: Business And Economics, Law--Corporate Law
ISSN: 00076899
e-ISSN: 21641838
Source type: Trade Journal
Language of publication: English
Document type: Feature
Document feature: References
ProQuest document ID: 1543338921
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Copyright: Copyright American Bar Association May 2014
Last updated: 2026-08-04
Database: ProQuest Central
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