De LLC Act: Everything You Need to Know
De LLC Act refers to the Delaware Limited Liability Company Act that governs specific business entities in the state of Delaware.3 min read
De LLC Act
De LLC Act refers to the Delaware Limited Liability Company Act that governs specific business entities in the state of Delaware.
The most common business entity that can also be described as “alternative” is the DLLC. DLLC stands for Delaware limited liability company. The Act that governs these types of entities states that no personal liability or debts exist for members or managers in a DLLC due to their status as member or manager. This particular limited liability company is very popular because of its ease, flexibility and it’s bias toward the ability to contract.
The Tax Advantages of a DLLC
This type of company structure makes the legal existence of the company distinct from its owners. The tax advantages of this structure over corporations have made the DLLC the entity of choice for investors, advisors and owners. Basically, DLLCs are treated as a pass-through in the area of tax. It combines attractive features from partnerships and corporations.
What Can a DLLC Do?
A Delaware limited liability company is able to engage in lawful business activity of almost any kind. “Members” of a DLLC are actually the owners of the company. “Managers” are the individuals who actually run the business. Members can also be managers but that is not a requirement. This means that investors can reap the rewards from owning part of a DLLC. Personal liability is limited; indemnification available and other benefits are better in the minds of many investors, than the benefits enjoyed by owners, directors and officers of corporations in Delaware.
The Limited Liability Company Agreement and the DLLC Act
While most limited liability companies define the roles and responsibilities of their managers and members in their LLC agreement, the DLLC Act addresses all matters that have been left unaddressed in that agreement. The DLLC Act allows parties to create and enforce their business relationships for the good of the business.
Examples of business structures that may be addressed in the LLC agreement:
• Classes of members
• Classes of managers
• Classes of LLC assets
• Classes of LLC interests
• Nearly every aspect of the business relationship
• Duties of members
• Duties of managers
Delaware has a history of “freedom of contract” favorability. Contractual freedom is at the heart of this flexibility. How much or little a member is involved in the management of the company can appear in the LLC agreement with no impact on the benefits of limited liability for that member. All of the duties, powers, rights and classes of managers and members can be defined by the limited liability company agreement. Voting rights can also be defined specifically by the LLC agreement.
Flexibility of the DLLC
DLLCs are flexible in their creation, operations, and in their ability to restructure the company structure. Mergers, acquisitions, consolidations, and other business structures are all allowed under the DLLC Act.
Asset sales, transfers or conversions are all permitted in Delaware for LLCs. Even conversion to a DLLC from a LLC in another jurisdiction is allowed in Delaware. They may do this even without having to jump additional hurdles (like winding business down or termination of the original business). This flexibility can be very attractive to businesses who need to make changes to their organization.
The Ease of Forming a DLLC
The steps to forming a DLLC are relatively easy:
An agreement of the members must be created for the limited liability company
A certificate of formation must be filed with the Delaware Secretary of State’s office
When the certificate of formation is filed, the DLLC is recognized as having been formed. Certificates of formation for a DLLC must include the name, address, registered agent name, registered agent address and the DLLC registered office in Delaware. An unusual aspect of a DLLC is that the business and owners of the DLLC do not need to be US citizens, residents or natural persons. Also, the principal place of business for the DLLC does not need to be in Delaware. This flexibility can be very attractive to businesses all over the world.
If you need help with setting up a DLLC, you can post your legal need on UpCounsel’s marketplace. Upcounsel is a marketplace providing legal help for you and your business. UpCounsel accepts only the top 5-percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with, or on behalf of companies like Google, Menlo Ventures, and Airbnb.