The next generation: The revised uniform limited liability company act

Business Lawyer

Volumn 62, Issue 2, 2007, Pages 515-551

  Kleinberger, Daniel S ^a,b   Bishop, Carter G ^c  

^a Department of Law ^*

^b William Mitchell College of Law   (United States)

^c SUFFOLK UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 34547816061     PISSN: 00076899     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (230)

1. Re-ULLCA, Cover. Re-ULLCA is available at http://www.law.upenn. edu/bll/ulc/ullca/2006act_ final.htm.
2. Prefatory Note to Re-ULLCA. See also ULLCA drafting committee website, Welcome from the Chair, available at http://www.llcproject.org/ ULLCA/DesktopDefault.aspx.
3. As will be seen, the Act is already well known to leading practitioners and academics who have served as ABA Advisors to the Drafting Committee. See infra notes 5-12 and accompanying text (Part II-B).
4. Re-ULLCA, Prefatory Note, available at http://www.law.upenn.edu/ bll/ulc/ullca/2006act_final. htm#_Tocl47562675.
5. The members of the drafting committee are listed at http://www. llcproject.org/ULLCA/ DesktopDefault.aspx?tabindex=1&rtabid=49.
6. Robert Keatinge.
7. William J. Callison (from the Committee on Partnerships and Unincorporated Business Organizations ["PUBO"]), William H. Clark, Jr. (from the Committee on Corporate Laws), Jon T. Hirschoff (from the Committee on Negotiated Acquisitions), Paul L. Lion, III (from PUBO; also representing the California State Bar), Scott E. Ludwig (from PUBO), Professor Elizabeth Stone Miller (from PUBO), Professor Sandra K. Miller (from PUBO), and Thomas E. Rutledge (from PUBO).
8. Professor Thomas Earl Geu, Barry B. Nekritz and Robert Krapf.
9. John R. Maxfield.
10. Professor Elizabeth Stone Miller.
11. Robert Keatinge.
12. Daniel S. Weinberger, Progress Report on the Revised Uniform Limited Liability Company Act ("VLLCA") and the Issue of "Corpufuscation, " Vol. XXII, no. 2, PUBOGRAM, at 7 (March 2006) [herein-after "Progress Report"].
13. ABA influence was also strong among the commissioners. One was the original ABA Advisor to the Drafting Committee for RUPA and the first recipient of the PUBO Committee's Martin I. Lubaroff Award for contributions to law of unincorporated business organizations (Harry J. Haynsworth). Another had been the Tax Sections Advisor to ULLCA and ULPA (2001) (Steven G. Frost). The ABAs influence was felt most strongly on the question of "shelf LLCs." See infra notes 73-84 and accompanying text (Part III-F).
14. David Walker is Dean of the Drake Law School.
15. Harry Haynsworth is Dean Emeritus of the William Mitchell College of Law.
16. Ann Anker is Professor of Law at Widener University School of Law.
17. Sandra Miller is Professor of Accounting and Taxation at Widener University School of Business Administration.
18. Tom Geu is Professor of Law at University of South Dakota School of Law, and Elizabeth Miller is Professor of Law at Baylor Law School.
19. William J. Callison, "The Law Does Not Perfectly Comprehend....": The Inadequacy of the Gross Negligence Duty of Care Standard in Unincorporated Business Organizations, 94 KY. L.J. 451 (2005-06);
20. William J. Callison, Blind Men and Elephants: Fiduciary Duties Under the Revised Uniform Partnership Act, Uniform Limited Liability Company Act, and Beyond, 1 J. SMALL & EMERGING BUS. L. 109 (1997);
21. Robert R. Keatinge, The Implications of Fiduciary Relationship in Representing Limited Liability Companies and Other Unincorporated Associations and Their Partners or Members, 25 STETSON L. REV 389 (1995);
22. Robert R. Keatinge, New Gang in Town Limited Liability Companies: An Introduction, 4 BUS. L. TODAY 5 (1995);
23. Thomas E. Rutledge, To Boldly Go Where You Have Not Been Told You May Go: LLCs, LLPs, and LLLPs in Interstate Transactions, 58 BAYLOR L. REV. 205 (2006);
24. and Thomas E. Rutledge, The Lost Distinction Between Agency and Decisional Authority: Unfortunate Consequences of the Member-Managed Versus Manager-Managed Distinction in the Limited Liability Company, 93 KY. L.J. 737 (2004-2005).
25. In alphabetical order by author: CARTER G. BISHOP & DANIEL S. KLEINBERGER, LIMITED LIABILITY COMPANIES: TAX AND BUSINESS LAW (1994 and Supp. 2006-2); [hereinafter "BISHOP AND KLEINBERGER" ] ;
26. WILLIAM J. CALLISON & MAUREEN A. SULLIVAN, LIMITED LIABILITY COMPANIES: A STATE-BY-STATE GUIDE TO LAW AND PRACTICE (2006);
27. and LARRY A. RIBSTEIN & ROBERT R. KEATINGE, RIBSTEIN & KEATINGE ON LIMITED LIABILITY COMPANIES (2ded. 2003).
28. The drafting committee met during May 2003 in Atlanta, Georgia; June 2003 via teleconference; November 2003 in Chicago, Illinois; April 2004 in Chicago, Illinois; June 2004 via teleconference; October 2004 in Chicago, Illinois; February 2005 at Phoenix, Arizona; May 2005 via teleconference; October 2005 via teleconference; and February 2006 via teleconference. See http:// www.llcproject.org/ULLCA/DesktopDefault.aspx?tabindex=4&tabid=52.
29. http://www.nccusl.org/Update/CommitteeSearchResults.aspxTcommittee = 224.
30. See, e.g., Re-ULLCA, 2006 Annual Meeting Draft [hereinafter "2006 Annual Meeting Draft"], § 409, cmt. (discussing the drafting committee's many-splendored approaches to the duty of care issue) and §401, cmt. (discussing the committee's internal debates over the "shelf LLC" issue), available at http://www.law.upenn.edu/bll/ ulc/ullca/2006amdraft.htm.
31. It was highly unusual for the Conference to devote part of an annual meeting to a briefing memo. However, the chair of the Drafting Committee persuaded the Conference's leadership that it was appropriate for the Conference to understand several fundamental conceptual innovations the Committee planned to make before the Committee (and its co-reporters) began the intensive labor of drafting statutory language.
32. Re-ULLCA § 102(1) cmt. (emphasis in original). Most LLC statutes use the term "articles of organization." See, e.g., ARIZ. REV. STAT. ANN. § 29-601 (Supp. 2006);
33. FLA. STAT. ANN. § 608.402 (West Supp. 2007);
34. see generally BISHOP AND KLEINBERGER, supra note 19, at ¶ 5.05. Delaware uses the term "certificate of formation." DEL CODE ANN. tit. 6, § 18-101 (2007).
35. Re-ULLCA § 102(13).
36. BISHOP AND KLEINBERGER, supra note 19, 5.06 [3] [d].
37. As a matter of common law, a contract presupposes at least two parties. RICHARD A. LORD, 1 WILLISTON ON CONTRACTS § 3:2 (4th ed. 2006).
38. See RUPA § 101(7) (defining "partnership agreement") and ULPA (2001) § 102 (13) (same). Compare Revised Model Business Corporations Act § 7.32(b)(1) (2005) (requiring shareholder agreements to be in writing).
39. See the discussion infra at notes 30-35 and accompanying text.
40. Re-ULLCA § 201.
41. According to Re-ULLCA § 110(a): The operating agreement governs: (1) relations among the members as members and between the members and the limited liability company; (2) the rights and duties under this [act] of a person in the capacity of manager; (3) the activities of the company and the conduct of those activities; and (4) the means and conditions for amending the operating agreement.
42. "To the extent the operating agreement does not otherwise provide for a matter described in subsection (a), this [act] governs the matter." Re-ULLCA § 110(b) (emphasis added).
43. Compare CAL. CORP. CODE §17050(a) (West 2006) which provides: "In order to form a limited liability company, one or more persons shall execute and file articles of organization with, and on a form prescribed by, the Secretary of State and, either before or after the filing of articles of organization, the members shall have entered into an operating agreement." Id.
44. Re-ULLCA § 102(13) cmt.
45. Of course, under RUPA and ULPA (2001), the owners' foundational document is called the partnership agreement rather than the operating agreement. See RUPA § 103(a); ULPA (2001) § 110(a).
46. Re-ULLCA, Prefatory Note, Noteworthy Provisions of the New Act.
47. Re-ULLCA § 110 cmt.
48. See the discussion infra at notes 39-52 and accompanying text (Section IV- B).
49. 164 N.E. 545, 546 (N.Y. 1928).
50. Re-ULLCA § 409(a) and (b) cmt. (stating that "[u]ntil the promulgation of RUPA, it was almost axiomatic that... fiduciary duties reflect judge-made law").
51. RUPA § 404 cmt. 1. The reference to the common law of agency was perhaps too narrow. Partnership law had (and has) its own case law of fiduciary duty. E.g., Peskin v. Deutsch, 479 N.E.2d 1034, 1038 (Ill. App. Ct. 1985) ("the fiduciary duty owed by one partner to another includes a duty to make full and fair disclosure"); Klotz v. Klotz, 117 S.E.2d 650, 656 (Va. 1961) ("[t]he relationship of partners is of a fiduciary character and imposes upon them the obligation to exercise good faith and integrity in their dealings with one another in the partnership affairs"). Cases discussing the duty of loyalty often sound in equity. E.g., Gotham Partners, L.P. v. Hallwood Realty Partners, L.E 817 A.2d 160, 175 (Del. 2002) (stating, "breach of the duty of loyalty... permits broad, discretionary, and equitable remedies"); Cantor Fitzgerald, L.P v. Cantor, No 16297, 2000 WL 307370, at *1 (Del. Ch. Mar. 13, 2000) (holding breach of duty of loyalty did not permit an injunction in this case but did result in "other equitable relief).
52. RUPA § 404 cmt. 1 ("Section 404 is both comprehensive and exclusive."). RUPA § 404(a) provides that "The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subsections (b) and (c)." (emphasis added). Those subsections characterize a partner's duty of loyalty (subsection (b)) and care (subsection (c)) as "limited to" the obligations stated therein, (emphasis added).
53. See William J. Callison, Blind Men and Elephants: Fiduciary Duties Under the Revised Uniform Partnership Act, Uniform Limited Liability Company Act, and Beyond, 1 J. SMALL & EMERGING BUS. L. 109, 115 (1997) ("RUPA attempts to displace common law rules that coexisted with the UPA, including common law fiduciary duty rules.");
54. J. Dennis Hynes, Freedom of Contract, Fiduciary Duties, and Partnerships: The Bargain Principle and the Law of Agency, 54 WASH. & LEE L. REV. 439, 451 (1997) ("In [Section 404] [RUPA] constricts the ability of courts to expand the concept of fiduciary duties. [T[he evident purpose of this constriction is to increase the certainty and reliability of partnership agreements....").
55. See also Transcript of 2006 NCCUSL Annual Meeting, Saturday Morning Session, July 8, 2006, at 44 (on file with The Business Lawyer) (remarks of Co-Reporter Kleinberger: "Just for those people who may not be in touch with the lingo, when we are talking about cabining in, that was RUPAs contribution to say it was going to codify all those fiduciary duties, and that is what we have undone here."); Re-ULLCA § 409(a) and (b), cmt. ("In an effort to respect freedom of contract, bolster predictability, and protect partnership agreements from second-guessing, the Conference decided that RUPA should fence or "cabin in" all fiduciary duties within a statutory formulation.").
56. ULPA (2001), § 408 ("[t]he only fiduciary duties that a general partner has to the limited partnership and the other partners are the duties of loyalty and care.... A general partners duty of loyalty to the limited partnership and the other partners is limited to.... A general partners duty of care to the limited partnership and the other partners... is limited to....") and ULLCA § 409 ("[t]he only fiduciary duties a member owes... are the duty of loyalty and the duty of care.... A member's duty of loyalty... is limited to.... A members duty of care.,, is limited to....").
57. Revision of Uniform Limited Liability Company Act, Preliminary Report, 2003 NCCUSL Annual Meeting, August, 2003, at 9, available at http://www.law.upenn.edu/bll/ulc/ullca/ann-meetdraft03.pdf.
58. Re-ULLCA, Prefatory Note, Noteworthy Provisions of the New Act. See also Transcript of the 2006 NCCUSL Annual Meeting, supra note 43, at 5 (remarks of Chairman David Walker "We have, we say, 'uncabined' fiduciary duty."),
59. See infra notes 111-32 and accompanying text (Part III-K).
60. See Daniel S. Kleinberger, A User's Guide to the New Uniform Limited Partnership Act, 37 SUFFOLK U. L. REV. 583, 636-39 (2004) [hereinafter "User's Guide"] (explaining the difficulty of relying on the obligation of good faith and fair dealing, because that obligation must be tied to some duty or right under the statute or the partnership agreement).
61. See also Transcript of 2006 Annual Meeting, supra note 43, at 44 (Remarks of Co-Reporter Kleinberger: "Tremendous difficulty [exists if we try] to deal with disclosure duties inter se members by statute. We tried it several times, Carter [Bishop, co-reporter] and I. Every time we wrote something, the committee looked at it and said, you're writing a miniature securities act here. We don't want it. So, the fiduciary duty of disclosure is an important aspect of this.").
62. User's Guide, supra note 48, See also Transcript of 2006 Annual Meeting, supra note 43, at 44 (Remarks of Co-Reporter Kleinberger: "[W]e are already seeing pressure in the courts on the duty of good faith and fair dealing. When you say there are no other fiduciary duties and courts for hundreds of years have looked to fiduciary duties as a policing mechanism that they can develop, if you say you can't have fiduciary duties, they will go to good faith. And, in fact, I had a conversation with... [t]he judge of North Carolina's business court [who] said, if you stop us on fiduciary duty, we will just go to good faith,").
63. For further discussion of pressure on the duty of good faith, in an analogous context, see Carter G. Bishop, A Good Faith Revival of Duty of Care Liability In Business Organization Law, 41 TULSA L. REV. 477 (2006).
64. Re-ULLCA, Prefatory Note, Noteworthy Provisions of the New Act.
65. Transcript of 2006 Annual Meeting, supra note 43, at 44 (Remarks of Chairman Walker).
66. Re-ULLCA § 409(a), (b), (c), and (g) (emphasis added). Note the absence of "only" and "limited to."
67. The obligation is implied by the common law (RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981)) and had been previously codified in, inter alia, the Uniform Commercial Code (U.C.C §§ 1-304 (2001), 2-103(j) (2003)).
68. RUPA § 404 cmt. 4 notes: "The obligation of good faith and fair dealing is a contract concept, imposed on the partners because of the consensual nature of a partnership."
69. RUPA § 404 cmt, 4.
70. ULLCA § 409(d) and ULPA (2001) § 408(d). However, ULPAs Comments took a decidedly narrower view of the obligation, stating: "Courts should not use the obligation to change ex post facto the parties' or this Act's allocation of risk and power, To the contrary, in light of the nature of a limited partnership, the obligation should be used only to protect agreed-upon arrangements from conduct that is manifestly beyond what a reasonable person could have contemplated when the arrangements were made." ULPA (2001) § 305(b) cmt.
71. Re-ULLCA § 409(d) states: "A member in a member-managed limited liability company or a manager-managed limited liability company shall discharge the duties under this [act] or under the operating agreement and exercise any rights consistently with the contractual obligation of good faith and fair dealing." (Emphasis added).
72. Id. § 409(d) cmt.
73. Id. (quoting ULPA (2001), § 305(b) cmt.).
74. DANIEL S. KLEINBERGER, AGENCY, PARTNERSHIPS, AND LLCs 199 (2d ed., Aspen Publishers 2002) ("UPAs schizoid approach").
75. Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928).
76. Wilkes v. Springside Nursing Home, Inc., 353 N.E.2d 657, 663 (Mass. 1976).
77. RUPA i 404(e).
78. ULPA (2001) § 408(e) and ULLCA § 409(e).
79. Re-ULLCA § 409(e), cmt. In place of the omitted language, subsection 409(e) makes an important point about the duty of loyalty: "It is a defense to a claim under subsection (b)(2) [conflict of interest; adverse dealings] and any comparable claim in equity or at common law that the transaction was fair to the limited liability company." Re-ULLCA § 409(e). Although the subsection states "a well-established principle of judge-made law," the statement is useful: "Given this Act's very detailed treatment of fiduciary duties and especially the Acts very detailed treatment of the power of the operating agreement to modify fiduciary duties, the statement is important because its absence might be confusing." Re-ULLCA § 409(e) cmt.
80. See infra at notes 111-32 and accompanying text.
81. RUPAS 404(c).
82. ULPA (2001) § 408(c) and ULLCA § 409(c).
83. The 2006 Annual Meeting Draft contains the following history of the Drafting Committees discussions of this issue: This sections history was conceptually tumultuous. For some time, the uncertainty pertained to the appropriate standard for the duty of care. At its November, 2003 meeting, at the urging of Commissioner Blackburn, the Drafting Committee decided to try to (i) eschew the "gross negligence" standard of care first promulgated in RUPA and afterwards followed in ULLCA and ULPA (2001); and (ii) incorporate something like the standard of care/standard of liability dichotomy recently adopted in MBCA §§ 8.30 and 8.31. Under the MBCA, that dichotomy exists principally for directors and not for officers, cf. MBCA 8.42(c) (stating that director standard of liability principles apply to officers if they "have relevance), and those positions reflect categorically different kinds of responsibilities. In response, the co-reporters drafted and the Committee considered a version of this section and a companion section, Section 410, that together attempted to parallel functionally the MBCAs positional distinction by using the defined terms "governance responsibility" and "operational responsibilities." (The draft also differed from the MBCA approach by leaving unaffected the traditional rules for duty of loyalty violations.) At its April 2004 meeting, the Drafting Committee discussed the proposal at length and with good-natured intensity. When the dust cleared, no one had moved to change any language. However, there was considerable sentiment expressed in favor of collapsing the two sections into one provision and somehow reinstating the gross negligence standard in combination with a business judgment rule formulation. The chair of the Committee then directed the co-reporters to draft a single section, which was presented to and adopted by the Committee during a teleconference, That single section was distributed to the 2004 Annual Meeting as a supplement to the Act and was read in place of the Sections 409 and 410 included in the Annual Meeting draft. At its October, 2004 meeting, the Drafting Committee again vigorously debated the topic of fiduciary duty, but no changes were moved. At its February, 2006 meeting, the Committee returned again to the vexing question of the appropriate standard of care and reached a compromise-maintaining an ordinary negligence standard but expressly superimposing the business judgment rule. 2006 Annual Meeting Draft § 409 cmt. At the 2006 Annual Meeting, the Conference considered and defeated a motion from the floor to return to the gross negligence standard, Transcript of 2006 Annual Meeting, supra note 43, at 47-51.
84. Sandra K. Miller, The Role of the Court in Balancing Contractual Freedom With the Need For Mandatory Constraints on Opportunistic and Abusive Conduct in the LLC, 152 U. PA. L. REV 1609, 1658 (2004) (article has two tables in the appendix summarizing state LLC statutes standard of care: 21 states with "good faith prudent person" language and 19 states using "gross negligence or willful misconduct" language);
85. Elizabeth S. Miller and Thomas E. Rutledge, The Duty of Finest Loyalty and Reasonable Decisions: The Business Judgment Rule in Unincorporated Business Organizations?, 30 DEL. J. CORP. L. 343, 366-68 (2005) ("Approximately eighteen state LLC statutes parallel language formerly used in the MBCA and require managers and managing members to act in good faith and exercise the care of an ordinarily prudent person in a like position under similar circumstances.").
86. Re-ULLCA § 409(c) and (g)(1).
87. Re-ULLCA § 409(c) cmt. The new Act also approaches this subject from the other direction - i.e., by expressly authorizing the operating agreement to exculpate a member or manager from liability for breach of the duty of care. Re-ULLCA § 110(g). See infra notes 172-75 and accompanying text.
88. Daniel S. Kleinberger, The Closely Held Business Through the Entity-Aggregate Prism, 40 WAKE FOREST L. REV. 827, 872-73 (2005) [hereinafter "Prism"] and Progress Report, supra note 12, at 11 (2006). Other "theorists" point out that the LLC departed from its partnership moorings when LLC statutes recognized the single member LLC. Id.
89. Re-ULLCA, 2006 Annual Meeting Draft, § 401 cmt. The Comment to the final statutory text has a less dramatic tone: "No topic received more attention or generated more debate in the drafting process for this Act than the question of the 'shelf LLC-i.e., an LLC formed without having at least one member upon formation. Reasonable minds differed (occasionally intensely) as to whether the 'shelf approach (i) is necessary to accommodate current business practices; and (ii) somehow does conceptual violence to the partnership antecedents of the limited liability company." Re-ULLCA § 201 cmt.
90. Transcript of 2006 Annual Meeting, supra note 43, at 23 (Remarks of Chairman Walker stating that the committees amendment to the annual meeting draft "does reveal a compromise").
91. Re-ULLCA § 201(b)(3) and (d)(1) (providing that, unless the certificate of organization states that "the company will have no members when the [Secretary of State] files the certificate," a "limited liability company is formed when the [Secretary of State] has filed the certificate of organization and the company has at least one member, unless the certificate states a delayed effective date").
92. Re-ULLCA, Prefatory Note, Noteworthy Provisions of the New Act. Re-ULLCA § 201(b)(3).
93. Re-ULLCA § 201(a).
94. Id. § 201(b)(3).
95. Id. Prefatory Note, Noteworthy Provisions of the New Act.
96. Id. § 201(e)(1)(B).
97. Id. § 201(e)(1) (placing the number 90 within brackets). See NCCUSL Drafting Rule 406, cmt. (characterizing bracketed material as suggested).
98. Re-ULLCA § 201(e)(1).
99. Re-ULLCA § 201(e)(2). As a practical matter, the complexity inherent in the Act's compromise will be of greatest interest to lawyers asked to provide third party opinion letters. A detailed treatment of that subject is beyond the scope of this article, but the following summary may be helpful. (1) The principal purpose of a third party opinion letter is to indicate that a business organization has the legal capacity to bind itself to a particular, significant transaction. (2) To have that capacity, the organization must, of course, exist as a legal entity. In this connection, third party opinion letters traditionally consider both whether a business organization was "duly formed" and is "validly existing." (3) Under Re-ULLCA, due formation involves the limited liability company having at least one member upon formation-either: (i) when the filing officer files the certificate of organization, ReULLCA § 201(d)(1), or (ii) when, subsequent to that filing, the organizer admits a person as an initial member, delivers to the filing officer a statement so indicating, and the filing officer files the statement. Re-ULLCA §§201(e)(2) and 401(c), (4) The filing officer's act of filing the certificate under §201(d)(1) or the statement under § 201(e)(2) is, as a statutory matter, "conclusive proof that the organizer satisfied all conditions to the formation of a limited liability company." Re-ULLCA §201(d)(3) and (e)(3). (5) As for the opinion letter concept of "validly existing," it may be appropriate to ascertain that at the moment of formation the limited liability company did indeed have at least one member. For a more detailed discussion of opinion issues concerning limited liability companies, see Robert R. Keatinge, Shelf LLCs and Opinion Letter Issues: Exegesis and Eisegesis of LLC Statutes, Vol. XXIII, No. 2, PUBOGRAM 15 (March 2006).
100. See also TriBar Opinion Committee, Third-Party Closing Opinions: Limited Liability Companies, 61 BUS. LAW. 679 (2006).
101. RESTATEMENT (THIRD) OF AGENCY, Introduction (2006) [hereinafter "R. 3d Agency"] ("This Restatement ... discusses at length the application of agency doctrine to organizations. Many agents hold positions in organizations. This Restatement thus covers applications of agency doctrine to persons who act as representatives of corporations, partnerships, other business organizations, and private not-for-profit entities. In that context, the focal point for the application of agency doctrine is determining either the duties owed the organization by those holding positions within it or the consequences of interactions between actors in positions defined by one organization with individuals external to the organization or with actors who hold positions in another organization.");
102. id. §1.03 cmt. b ("If the principal places a person in a position or office with specific functions or responsibilities, from which third parties will infer that the principal assents to acts by the person requisite to fulfilling the specific functions or responsibilities, the principal has manifested such assent to third parties.");
103. id. § 3.03 cmt. b ("A principal may also make a manifestation by placing an agent in a defined position in an organization.... Third parties who interact with the principal through the agent will naturally and reasonably assume that the agent has authority to do acts consistent with the agent's position... unless they have notice of facts suggesting that this may not be so.");
104. id. § 3.03 cmt. c ("Apparent authority in an organizational setting may also arise from the fact that a person occupies a type of position that customarily carries specific authority although the organization has withheld such authority from that agent.").
105. Re-ULLCA § 301(a) cmt.
106. Uniform Partnership Act § 9(1) (1914) [hereinafter "UPA"] (providing) that "the act of every partner... for apparently carrying on in the usual way the business of the partnership... binds the partnership").
107. RUPA § 301; ULLCA § 301; ULPA (2001) § 402.
108. For a discussion of this approach in LLC statutes, see BISHOP AND KLEINBERGER, supra note 19, ¶ 7.05 [3].
109. Progress Report, supra note 12, at 10 (emphasis in original).
110. Re-ULLCA § 301(a) cmt. See also R.3d Agency, supra note 85, § 3.03 cmt. c ("Moreover, the fact that any given organization has a particular legal form does not mean that its actual operational practices conform perfectly to legal form. Organizations vary widely in the degree to which they operate informally or formally in making decisions and in interacting with third parties external to the organization. Organizations also vary in the degree to which authority is associated solely with a position within an organizational hierarchy or is personalized to a particular individual regardless of the organization's formal association of authority with defined positions."),
111. Re-ULLCA § 301(a) and (b).
112. Re-ULLCA § 301(b) cmt.
113. Id.
114. Id.
115. Re-ULLCA § 1104 (citing RESTATEMENT (THIRD) OF AGENCY § 3.11 cmt. c (2006)) (Application to Existing Relationships), Legislative Note (stating that "[sjection 301 (de-codifying statutory apparent authority) does not require any special transition provisions").
116. Re-ULLCA § 302(a)(2) cmt.
117. RUPA § 303.
118. Re-ULLCA § 302(a)(2). The section also permits statements of authority as to "a specific person." Id. § 302(a)(3).
119. Id, § 302 cmt.
120. BISHOP AND KLEINBERGER, supra note 19, H 7.02 [2] and [3].
121. Re-ULLCA § 407(a). If the operating agreement does not specify manager-management, for purposes of the Acts operative provision the LLC will be member-managed. That is, "member-managed" is the default setting. Id. § 102(10) ('"Manager-managed limited liability company' means a limited liability company that qualifies under Section 407(a).");
122. id. §102(12) ('"Member-managed limited liability company' means a limited liability company that is not a manager-managed limited liability company").
123. See, e.g., Re-ULLCA § 110(f) ("To the extent the operating agreement of a member-managed limited liability company expressly relieves a member of a responsibility that the member would otherwise have under this [act] and imposes the responsibility on one or more other members, the operating agreement may, to the benefit of the member that the operating agreement relieves of the responsibility, also eliminate or limit any fiduciary duty that would have pertained to the responsibility.").
124. Daniel S. Kleinberger, Carter G. Bishop, Thomas Earl Geu, Charging Orders and the New Uniform Limited Partnership Act-Dispelling Rumors Of Disaster, 18 PROBATE AND PROPERTY 30, 30 (July/ August 2004).
125. BISHOP AND KLEINBERGER, supra note 19, ¶ 8.06 [2] [a] [iv].
126. Re-ULLCA, Prefatory Note, Noteworthy Provisions of the New Act.
127. Re-ULLCA § 503(a).
128. Id. § 503(b).
129. If the judgment debtor is a mere transferee, the entitlement is nil until dissolution. See id. § 502(a)(3)(B) and (c) (stating that a mere transferee is not entitled to "have access to records or other information concerning the company's activities... [except that] [i]n a dissolution and winding up of a limited liability company, a transferee is entitled to an account of the Companys transactions only from the date of dissolution").
130. Id. § 503(b)(2) cmt.
131. 2003 NCCUSL Annual Meeting Briefing Memo, at 64-72, available at http://www.law.upenn. edu/bll/ulc/ullca/ann-meet-draft03.pdf.
132. Id. at 70.
133. Id. at 71-72 (citations omitted).
134. Transcript of 2006 Annual Meeting, supra note 43, at 62-64.
135. Re-ULLCA § 701(a)(5).
136. Id. § 701(b).
137. Id. § 110(c)(7) (stating that an operating agreement may not "vary the power of a court to decree dissolution in the circumstances specified in Section 701(a)... (5)). Section 110(c) does not mention section 701(b). Therefore, the operating agreement has plenary power over that provision. Id. § 110(a) (stating that ("[e]xcept as otherwise provided in subsections (b) and (c), the operating agreement governs: (1) relations among the members as members and between the members and the limited liability company;... [and] (3) the activities of the company and the conduct of those activities").
138. Daniel S. Kleinberger, Direct Versus Derivative and the Law of Limited Liability Companies, 58 BAYLOR L. REV. 63, 120 (2006) [hereinafter "Direct v. Derivative"].
139. See generally BISHOP AND KLEINBERGER, supra note 19, ¶ 10.09.
140. Re-ULLCA, 2005 Annual Meeting Draft, § 701, Reporters' Notes, available at http://www.law. upenn.edu/bull/ulc/ullca/2005annmtgdraft. htm.
141. See also Harvey Gelb, Fiduciary Duties and Dissolution in the Closely Held Business, 3 WYO. L. REV. 547 (2003);
142. Sandra K. Miller, The Role of the Court in Balancing Contractual Freedom with the Need for Mandatory Constraints on Opportunistic and Abusive Conduct in the LLC, 152 U. PA. L. REV. 1609 (2004);
143. Douglas K. Moll, Minority Oppression and the Limited Liability Company: Learning (or Not) from Close Corporation History, 40 WAKE FOREST L. REV. 883 (2005);
144. Pinnacle Data Serv., Inc. v. Gillen, 104 S.W3d 188, 196 (Tex, App. 2003) (expressly applying close corporation doctrine); Wyoming.com, LLC v. Lieberman, 109 R3d 883, 886 (Wyo. 2005) (Kite, J., concurring) ("We have not had the occasion to address Mr. Liebermans rights as a minority owner in the LLC nor the obligations of the LLC to him as a minority interest owner. Those rights and responsibilities in the context of other forms of business organizations are well developed and may provide guidance in the realm of the LLC").
145. See 2005 Annual Meeting Draft, § 701(a)(5), Reporters' Notes, which explain: At its April, 2004 meeting, the Drafting Committee deleted language that would have cabined somewhat the vague term "oppressive." The deleted language provided that: oppressive conduct has occurred only if the conduct complained of has directly harmed the applicant and: (1) constitutes a material, uncured breach of the operating agreement or of the obligation of good faith and fair dealing stated in Section 409(d); or (2) although not constituting a material, uncured breach under paragraph (1), has substantially defeated an expectation of the applicant which is entitled to protection because the expectation: (A) is not contradicted by any term of the operating agreement nor by the reasonable implication of any term of that agreement; (B) was central to the applicant's decision to become a member of the limited liability company or for a substantial time has been centrally important in the member's continuing membership; (C) was known to other members, which expressly or impliedly acquiesced in it; (D) is consistent with the reasonable expectations of all the members; and (E) is otherwise reasonable under the circumstances.
146. Re-ULLCA § 409(d) cmt. (quoting the Comment to ULPA (2001), § 305(b); brackets and first ellipsis added).
147. Re-ULLCA § 701(b).
148. Re-ULLCA, 2005 Annual Meeting Draft, § 701(b), Reporters' Notes.
149. Compare ULPA (2001), § 1206(c)(5) (providing that, for limited partnerships "dragged into" the new limited partnership act, "Section 603(5) [authorizing a court to expel a general partner without dissolving the limited partnership] does not apply and a court has the same power to expel a general partner as the court had immediately before [the effective date of this [Act]]") (first set of brackets added). The pre-ULPA (2001) case law was divided as to whether - absent an authorizing provision in the partnership agreement - a court had the power to expel a general partner without dissolving the limited partnership. See e.g., Miltland Raleigh-Durham v. Myers, 807 F. Supp. 1025,1059-60 (S.D.N.Y 1992) ("[t]his Court has the power to remove... general partners of the Limited Partnerships in issue and elevate a limited partner to the position of managing partner in order to preserve the partnership...."); Heikel v. 268 Ltd., No. 87-2464, 1989 WL 123632, at *1 (9th Cir. Oct. 2,1989), ("to be legitimate, the
150. Donahue v. Rodd Electrotype Co. of New England, Inc., 328 N.E.2d 505, 515 (Mass. 1975) is perhaps the seminal case, but other examples abound.
151. See generally 2 F. HODGE O'NEAL AND ROBERT B. THOMPSON, O'NEAL AND THOMPSON'S CLOSE CORPORATION & LLCs: LAW AND PRACTICE § 9:27 (Rev. 3d ed. 2006);
152. Daniel S. Kleinberger, Why Not Good Faith - The Foibles of Fairness in Closely Held Corporations, 16 WM. MITCHELL L. REV. 1143 (1990);
153. Douglas K. Moll, Minority Oppression ¿V the Limited Liability Company: Learning (or Not) From Close Corporation History, 40 WAKE FOREST L. REV. 883 (2005).
154. Credentials Plus, LLC v. Calderone, 230 F Supp. 2d 890, 899 (N.D. Ind. 2002) ("Indiana LLCs, being similar to Indiana partnerships and corporations impose a common law fiduciary duty on their officers and members in the absence of contrary provisions in LLC operating agreements."); Anderson v. Wilder, No. E2003-00460-COA-R3-CV, 2003 WL 22768666, at *3 (Tenn. Ct. App. Nov. 21, 2003) ("[s]ince it is also well established as a fundamental rule of partnerships, that all partners, not just the majority, owe each other fiduciary duties (Lightfoot v. Hardaway, 751 S.W.2d 844, 849 (Tenn.Ct.App.1988)), it logically follows that a majority of the members of an "LLC" should owe a fiduciary duty to the minority members just like the duty a majority of the shareholders of an "Inc." owe the minority shareholders.") (citations and emphasis in original).
155. Re-ULLCA § 409(b)(1)-(3) ("to account to the company... [for usurped company opportunities] ; to refrain from dealing with the company in the conduct or winding up of the Companys activities as or on behalf of a person having an interest adverse to the company; and... to refrain from competing with the company....").
156. Id. §409(d) and cmt.
157. See supra text accompanying notes 45-49.
158. Re-ULLCA § 701(a)(5)(B).
159. See supra note 119.
160. Fiduciary duty is, in its origins, an equitable concept. See D. Gordon Smith, The Critical Resource Theory of Fiduciary Duty, 55 VAND. L. REV. 1399, 1493 (2002) (citing L.S. Sealy, Fiduciary Relationships, 1962 CAMBRIDGE LJ. 69, 69-72). It has been stated that "[t]he maxim of the common law that wherever there is a right there is a remedy for its infraction has never been adopted by courts of equity," Powers v. Bald Eagle Boom Co,, 17 A. 254, 255 (Pa. 1889). But here the situation is opposite. The Act creates the remedy and a right to pursue it. Articulating a duty correlative with the right may be of conceptual interest, but as a practical matter the Act's protection is sufficient as is.
161. See BISHOP AND KLEINBERGER, supra note 19, T) 10.01 [2][b][i] for a general treatment of this topic and Direct v. Derivative, supra note 118, for a detailed analysis.
162. Direct v. Derivative, supra note 118, at 118-19,
163. Re-ULLCA § 901(b). See also id. §§409(a) (formulating the duties of loyalty and care as "owe[d] to the company and, subject to Section 901(b), the other members"), 701(a)(5)(B) (permitting a member to seek dissolution on account of conduct that "was, is, or will be directly harmful to the applicant") (emphasis added).
164. See e.g., Landstrom v. Shaver, 561 N.W2d 1, 14 n.16 (S.D. 1997) ("Those who operate and manage these [small, corporate] farms and businesses, often the majority shareholders, should not be subject to the demands of minority shareholders whose concern may be solely that of dividends and not the farm or business itself, Many of these small corporations and their management are illprepared to invest the time and money required to fend off a minority shareholder suit and are therefore influenced by the mere threat of such litigation.").
165. Re-ULLCA § 905 cmt.
166. Auerbach v. Bennett, 47 N.Y.2d 619 (N.Y. 1979).
167. Re-ULLCA § 905(e).
168. See id. § 905(d) cmt. ("The standard stated for judicial review of the SLC determination follows Auerbach v. Bennett, 47 N.Y.2d 619, 419 N.Y.S.2d 920 (N.Y. 1979) rather than Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981), because the latters reference to a courts business judgment has generally not been followed in other states.") (citations in original).
169. Re-ULLCA § 905(a).
170. Id.
171. BISHOP AND KLEINBERGER, supra note 19, ¶ ¶ 12.09,12.11.
172. Re-ULLCA Article 10. The Re-ULLCA provisions are based closely on comparable provisions in ULPA (2001), except that Re-ULLCA treats domestications and conversations as separate types of transactions. ULPA (2001) treats domestications as a subset of conversions. Re-ULLCA §1001 cmt.
173. For example, the Delaware corporate statute does not provide for share exchanges (DEL. CODE ANN, tit. 8, §§251-66 (2007)), and neither does California (CAL. CORP. CODE §§1100-1113 (West Supp. 2006)). But see N.Y, BUS. CORP. LAW § 913(a)(1) (McKinney 2003) ("[t]wo domestic corporations may, as provided in this section, participate in the consummation of a plan for binding share exchanges");
174. id. §913(0(1) ("[a] foreign corporation and a domestic corporation may participate in a share exchange, but, if the subject corporation is a foreign corporation, only if such exchange is permitted by the laws of the jurisdiction under which such foreign corporation is incorporated.").
175. BISHOP AND KLEINBERGER, supra note 19, 14.06[1] [e].
176. Id. If 6.01 [5].
177. DEL. CODE ANN, tit. 6, §18-215 (2007) and IOWA CODE ANN. § 490A.305 (West 1999). For an example of an ULLCA-based statute that permits series,
178. see 805 III. COMP. STAT. ANN. 180/37-40 (West Supp. 2006).
179. The draft provided, inter alia, that: "The articles of organization may provide that a designated series shall be treated as a separate entity distinct from the limited liability company, other series of the limited liability company, and members.... A designated series has the capacity to sue and be sued in its own name and the power to do all things necessary or convenient to carry on its activities." ULLCA II Series Draft, § 210(i) and (k), available at http://www.law.upenn.edu/bll/ulc/ullca/ 2006FebSerDraft. htm (last visited 11/26/2006).
180. Progress Report, supra note 12, at 9 (citations omitted).
181. Posted by Thomas E. Rutledge, Sat. Oct 21, 2006 5:39 am (PDT) (copy on file with The Business Lawyer). This posting occurred after and outside of the Re-ULLCA drafting process.
182. RobertE. Keatinge (sentto lnet-llc@yahoogroups.com; Monday, October23,2006at 3:22 p.m., on file with The Business Lawyer). Lin Hanson, who helped devise the series provisions of the Illinois statute, subsequently slated: "That would surely be true in Illinois." (sent to lnet-llc@yahoogroups.com; Friday, October 27, 2006 1:52 p.m., on file with The Business Lawyer). These postings also occurred after and outside of the Re-ULLCA drafting process.
183. Re-ULLCA § 603(a)(3).
184. Id. §§ 502 and 410(f).
185. Id. § 112(b).
186. Id. § 104(c).
187. Id. § 701.
188. Re-ULLCA § 112(b) cmt. (discussing Bauer v. Blomfield Co./Holden Joint Venture, 849 P2d 1365 (Alaska 1993). See BISHOP AND KLEINBERGER, supra note 19, ¶ 8.06 [2][e]. However, until ULPA (2001), § 104(c) provided a perpetual term for limited partnerships, partnership law did not have to take into account the problem of perpetual lock-in. See UPA § 32(2) (permitting an assignee to seek judicial dissolution of an at-will general partnership at any time and of a partnership for a term or undertaking if partnership continues in existence after the completion of the term or undertaking); RUPA § 801(6) (same except adding the requirement that the court determine that dissolution is equitable); ULLCA §801(5) (same as RUPA). Moreover, the partnership cases are few in number and may not hold in the context of a business entity that has become the vehicle of choice not only for sophisticated entrepreneurs but also for mom, pop, and the neighbors down the street.
189. Re-ULLCA § 502 cmt. See BISHOP AND KLEINBERGER, supra note 19, ¶ 8.06 [2] [a] [iv] and Kleinberger, Prism, supra note 73, at 842, 863.
190. For example, the February 2006 Meeting Draft § 701(a)(5) provided for court ordered dissolution "on application by a member, a dissociated member that has retained a transferable interest, or a transferee,...on the grounds that the managers or those members in control of the limited liability company: (A) have acted, are acting, or will act in a manner that is illegal or fraudulent; or (B) have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant." (emphasis added). The February 2006 Meeting Draft is available at http://www.law.upenn.edu/ bll/ulc/ullca/2006febmtg.htm.
191. See Re-ULLCA § 112(b) cmt. ("If the law categorically favors the owners, there is a serious risk of expropriation and other abuse. On the other hand, if the law grants former owners and other transferees the right to seek judicial protection, that specter can "freeze the deal" as of the moment an owner leaves the enterprise or a third party obtains an economic interest.").
192. Compare the February 2006 Meeting Draft, § 701(a)(5) with the 2006 Annual Meeting Draft, § 701(a)(5).
193. Re-ULLCA § 112(b) cmt. The reference to "heirs of business founders" recalls the seminal close corporation case of Donahue v. Rodd Electrotype Co. of New England, Inc., 328 N.E.2d 505, 515 (Mass. 1975). If the entity in Donahue had been an LLC formed under the new Act, it would have been necessary for the court to go outside to Act to find a cause of action for the widow of one of the Companys two founders.
194. Denevi v. Green Valley Corp., No. CV784721, 2005 WL 236386, at *2 (Cal. Ct. App. Jan. 21, 2005) ("[i]n general, relations among members and between the members and a limited liability company are governed by articles of organization and an operating agreement") ; Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 291 (Del. 1999) ("'[i]t is the policy of [the Act] to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements,'") (quoting DEL. CODE ANN. tit. 6, §18-1101(b)); Kinke v. R.D.C, LLC, 889 So. 2d 405, 409 (La. Ct. App. 2004) ("An operating agreement, whether written or oral, governs the operation of the LLC... [a]n operating agreement is contractual in nature; thus, it binds the members of the LLC as written and is interpreted pursuant to contract law"); Lentricular Eur., LLC v. Cunnally, 693 N.W2d 302, 307 (Wis. Ct. App. 2005) ("[t]he numerous opportunities for members of an LLC to choose to be governed by terms that differ from those in the statute plainly express the legislatures intent to provide LLC members with the flexibility to define many aspects of their relationship by contract," but holding when operating agreement is ambiguous as to whether it intended to override statutory provisions, the statutory provisions govern). See generally BISHOP AND KLEINBERGER, supra note 19, ¶ 5.06 [1] [b].
195. Re-ULLCA § 110 cmt.
196. Id. §§ 110-12. In addition, "An operating agreement is a contract, and therefore all statutory language pertaining to the operating agreement must be understood in the context of the law of contracts."
197. Id. § 102(13) cmt.
198. Id. § 102(13).
199. As to whether other statutes of fraud might apply, see Re-ULLCA § 102(13) cmt. ("This Act states no rule as to whether the statute of frauds applies to an oral operating agreement. Case law suggests that an oral agreement to form a partnership or joint venture with a term exceeding one year is within the statute. See, e.g.. Abbott v. Hurst, 643 So.2d 589, 592 (Ala. 1994) ("Partnership agreements, like other contracts, are subject to the Statute of Frauds. A contract of partnership for a term exceeding one year is within the Statute of Frauds and is void unless it is in writing; however, a contract establishing a partnership terminable at the will of any partner is generally held to be capable of performance by its terms within one year of its making and, therefore, to be outside the Statute of Frauds.") (citations omitted);
200. Pemberton v. Ladue Realty Sr Const. Co., 244 S.W2d 62, 64 (Mo. 1951) (rejecting plaintiffs contention that mere part performance sufficed to take the oral agreement outside the statute and holding that partnership was therefore at will);
201. Ebker v. Tan Jay lnt'1, Ltd., 739 E2d 812, 827-28 (2d Cir. 1984) (same analysis with regard to a joint venture). However, it is not possible to form an LLC without signing and delivering to the filing officer a certificate of organization in record form, Re-ULLCA § 201(a), and the Act itself then establishes the LLCs duration. Subject to the operating agreement, that duration is perpetual. Id. § 104(c). An oral provision of an operating agreement calling for performance that extends beyond a year might be within the one-year provision - e.g., an oral agreement that a particular member will serve (and be permitted to serve) as manager for three years. An oral provision of an operating agreement which involves the transfer of land, whether by or to the LLC, might come within the land provision of the statute of frauds. Froiseth v. Nowlin, 287 P 55, 56 (Wash. 1930) ("[The land provision] applies to an oral contract to transfer or convey partnership real property, and the interest of the other partners therein, to one partner as an individual, as well as to a parol contract by one of the parties to convey certain land owned by him individually to the partnership, or to another partner, or to put it into the partnership stock.") (quoting 27 CORPUS JURIS 220)."). In contrast, the fact that a limited liability company owns or deals in real property does not bring within the land provision agreements pertaining to the LLCs membership interests. Interests in a limited liability company are personal property and reflect no direct interest in the entitys assets. Re-ULLCA §§ 501 & 102(21). Thus, the real property issues pertaining to the LLCs ownership of land do not "flow through" to the members and membership interests.
202. See, e.g., Wooten v. Marshall, 153 E Supp. 759, 763-64 (S.D. N.Y. 1957) (involving an "oral agreement for a joint venture concerning the purchase, exploitation and eventual disposition of this 160 acre tract" and stating "[t]he real property acquired and dealt with by the venturers takes on the character of personal property as between the partners in the enterprise, and hence is not covered by [the Statute of Frauds]."). For other landrelated consequences of the LLCs status as a separate entity, see BISHOP AND KLEINBERGER, supra note 19, % 5.05 [1] [e] ("An LLCs separate legal status also affects property rights. A members contribution of property to an LLC constitutes 'more than a change in the form of ownership; it is a transfer from one entity to another.' This change means that contributed property is out of the reach of the contributors creditors, unless that creditor can make a case of fraudulent transfer or persuade the court to do a reverse pierce, treating the LLC as if it were the member. Where real property is involved, the change in ownership implicates real estate transfer taxes and means that the former owner of property contributed to an LLC lacks standing to contest zoning activities pertaining to the property. Similarly, members deadlocked over the use of an LLC's real property have no right to a partition of that property and evidence of unjust enrichment as to the property of an LLC is not, by itself, evidence of unjust enrichment as to the sole owner of the LLC.").
203. Re-ULLCA § 102(13) cmt, See id. § 407(b)(5) ("The operating agreement may be amended only with the consent of all members.") (member-managed LLC)
204. and id. § 407(c)(4)(D) ("The consent of all members is required to... amend the operating agreement.") (manager-managed LLC).
205. Compare U.CC § 2-209(2) (permitting a written contract for the sale of goods to preclude modifications except through a writing signed by the parties).
206. Re-ULLCA § 110(a)(4) cmt.
207. Id.
208. Re-ULLCA § 110 cmt.
209. The operating agreement also governs a small set of non-members. Re-ULLCA § 110(a)(2) (stating that the operating agreement governs "the rights and duties under this [act] of a person in the capacity of manager"), id. § 112(b) (providing that the operating agreement controls the rights of transferees and dissociated members).
210. RUPA § 103(b)(3)(i), (b)(5).
211. Re-ULLCA § 110(h) cmt. The Comment also notes: "If a person claims that a term of the operating agreement in manifestly unreasonable under subsections (d) and (h), as a matter of ordinary procedural law the burden is on the person making the claim." Id.
212. Id. § 110(h)(1) cmt.
213. See the discussion supra at notes 28-34, 165 and accompanying text.
214. See the discussion supra at notes 26-28 and accompanying text.
215. Re-ULLCA § 112(b).
216. Id. § 603(a)(3).
217. E. ALLEN FARNSWORTH, CONTRACTS § 11,8 (4th ed. 2004).
218. Re-ULLCA § 111(b).
219. Id. § 110 cmt.
220. Id. § 112(b).
221. Id. § 112(b) cmt. For a more detailed discussion of this issue, see supra notes 153-63 and accompanying text (Section III-O).
222. BISHOP AND KLEINBERGER, supra note 19, ¶ 8.06 [2][e].
223. Re-ULLCA § 112(b) cmt.
224. Id. § 110(a)(2).
225. The Act defines the operating agreement as "the agreement, whether or not referred to as an operating agreement and whether oral, in a record, implied, or in any combination thereof, of all the members," Re-ULLCA § 102(13), but does not expressly rule out a non-member being a party. ReULLCA § 407(c)(6) recognizes that "[a] person need not be a member to be a manager."
226. See DEL. CODE ANN. tit. 6, § 18-302(e) (2007).
227. Re-ULLCA § 112(a) cmt.
228. Id. § 111(a).
229. In general, only parties to a contract are fully entitled to enforce it and fully subject to its provisions. For example, an assignee's claims are subject to the contract, but the assignee itself is not directly liable for any breach of the contract. Cont'l Cas. Co. v. Campbell Design Group, Inc., 914 S.W2d 43, 44 (Mo. Ct. App. 1996) ("What is not discussed by [the company] is the basic legal premise that a contract generally binds no one but the parties thereto, and it cannot impose any contractual obligation or liability on one not a party to it, The record does not establish that either of the individual defendants was a party to the contract. Language in a contract to which they were not parties cannot bind them.") (citations omitted.) See generally Daniel S. Kleinberger, A Crack in the Shield? Malpractice Coverage At Risk, 63 BENCH & B. OF MINN. 26 (September 2006), For a hypothesis of why the new Act (and other LLC statutes) avoid deeming the LLC a party to the operating agreement,
230. see Prism, supra note 73, at 870-71.