As I recently reported, Suffolk Law School threw a 20th birthday party for LLCs. Here's some quick observations from the conference.
First, for those of you who are unconvinced, LLCs are, in fact, a big deal. For example, Ann Conaway reported on the recent data on Delaware LLCs: 490,000 in all, producing about the same percentage of Delaware's gross revenues as its booming business in big corporations.
Second, LLCs are getting into some very interesting niches. A good example is non-profits. Bob Keatinge talked about use of LLCs particularly for profit/non-profit partnerships -- firms straddling the line between the profit and non-profit world. I understand in talking to one of the practitioners in attendance that LLCs are being used to essentially fill the gap left by the states' failure to have separate statutes for charitable and non-charitable non-profits.
I view this development in LLCs as somewhat ironic. My own theory has been that LLCs and other partnership-type firms actually enhance the profit orientation of firms by enabling more managerial accountability than in corporations. See my Uncorporating the Large Firm. LLCs accomplish this substituting discipline and incentives for monitoring devices such as fiduciary duties. However, the same ability to modify fiduciary duties lets LLCs accommodate responsibilities to non-owners. So the non-profit LLC illustrates the dominant characteristic of all unincorporated firms: flexibility.
Ann Conaway also talked about "series" LLCs -- the device, originated in Delaware, that allows separate entities in one umbrella organization. This has been considered a rather speculative and niche device -- so arcane that the uniform law commissioners refused to provide for it in the Revised Uniform Limited Liability Company Act. But did you know that 1% of the 490,000 Delaware LLCs are series LLCs? 5000 firms gets beyond arcane.
All those firms are likely to generate some interesting legal issues. For example, what do you do with a series that doesn't have a member? The operating agreement is supposed to allocate all the income, but you can't really allocate to a member-less firm.
The main series question for me is how veil-piercing law applies. (There was a fair amount of talk at the conference about veil-piercing generally). This is still an unanswered question.
I have assumed that a key objective of series provisions was to legislatively clarify that the series are separate and thereby inhibit judicial interference with that separation through veil-piercing. But I wonder if all of the formalities required to create series don't encourage the courts to pierce when the formalities aren't observed. Or do the provisions in some statutes preventing piercing in LLCs merely for non-compliance with formalities operate to protect series LLCs? I suppose we'll have to wait for some courts to instruct us.
Finally, there was some discussion in the last panel session about the future of LLCs. The big quesiton is whether abuses of the LLC form might kill the goose that has been laying the golden eggs of flexibility for 20 years. I have expressed my own concerns about abuse of the LLC (see my paper on Reverse Limited Liability).
I've also worried, including in my Uncorporating article linked above, that the spread of the "uncorporation" into the large firm realm might spark an adverse political reaction. I hope not, because I think that's been and promises to be a positive development.
Anyway, there's a lot happening in this realm that, sooner or later, will be big news in the so-called "corporate" world.
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