Key Takeaways

  • A Delaware LLC merger can combine multiple entities into a single surviving or new LLC or corporation.
  • Mergers are governed by Section 18-209 of the Delaware Limited Liability Company Act.
  • The process requires a Certificate of Merger and careful attention to member approval, especially for older LLCs.
  • Cross-entity and cross-jurisdictional mergers are permitted under Delaware law.
  • Delaware courts have emphasized the importance of clear contractual language in merger agreements.
  • The merger can result in automatic amendments to the operating agreement unless explicitly restricted.
  • Foreign entities must comply with both Delaware requirements and those of their home jurisdictions.
  • Proper documentation and state fees are critical for a valid and enforceable merger filing.

A Delaware LLC merger happens when business agreements combine multiple entities into one sole entity. The LLC series isn't considered a separate entity according to Delaware state laws. Even though a Delaware series LLC can hold title to assets and grant security interests and liens, the series can't enter into a conversation or merger.

Delaware Merger Information

Delaware allows a domestic limited liability company to enter the conversion or merger. The process tends to be complex and requires applications to be filed with multiple government agencies. It costs $439 for a domestic entity, or $239 for a foreign entity, to file with the Delaware Department of State.

Certificate of Merger Requirements in Delaware

To finalize a Delaware LLC merger, a Certificate of Merger must be filed with the Delaware Secretary of State. This certificate must include:

  • The names and jurisdictions of each merging entity.
  • The name of the surviving or resulting LLC or corporation.
  • The date the merger is to become effective (if not immediate).
  • Any amendments to the certificate of formation of the surviving LLC, if applicable.

In addition, if a foreign entity is involved, a certificate of existence or good standing may be required from its home jurisdiction. The certificate must be executed by an authorized person from each merging entity.

It’s important to ensure the certificate complies with §18-209 of the Delaware LLC Act to avoid rejection or future disputes.

Delaware Limited Liability Company Act Updates

In 2015, Jack Markell, the governor of Delaware, signed the Senate Bills 76, 77, and 78 into law. They made changes to the Delaware Revised Uniform Limited Partnership Act, Delaware Limited Liability Company Act (De LLC Act), and the Delaware Revised Uniform Partnership Act. These changes were made effective after August 1, 2015, unless they were noted otherwise. To eliminate any uncertainty in case there was an absence of the LLC agreement provision that afforded a group vote or class, the De LLC Act needed to have a special vote by a group of members or class of members.

With the new revisions, the agreement of merger or conversion only needed to be approved on the Delaware LLC's behalf by members who had a majority of the voting interest in the company. Any dissolved LLC could be conducted by the designee or members. Parts of the De LLC Act also have been changed to get rid of the requirement that any termination and a series winding up needs to be approved by every group of members or class that's associated with that series.

So there was no prejudice to the current parties who relied on the voting rules before the amendment happened, any LLC formed before or on July 31, 2015, will still be controlled by the voting requirements that went into effect before the amendment. Delaware LLCs that were formed before August 1, 2015, needed to consider having the opt-in language for all of the relevant determinations.

Amendment-by-Merger Provisions and Recent Legal Interpretation

Section 18-209 allows the operating agreement of a Delaware LLC to be amended as part of a merger, even without direct reference to specific terms, as long as the merger agreement clearly stipulates the intended changes. Delaware courts have affirmed that if the merger agreement is properly authorized and compliant with the LLC agreement and statutory provisions, it can effectively revise an operating agreement by implication.

A 2023 Delaware court case highlighted that unless the LLC agreement expressly limits merger-based amendments, courts will uphold such changes as valid. This underscores the need for precise and thorough drafting when planning a merger, especially if certain member rights are to be preserved.

Merging Domestic Corporations and Limited Liability Companies

One or more corporations of Delaware can consolidate or merge with one or more limited liability companies in the state of Delaware or elsewhere in the United States. These corporations and limited liability companies can merge into a corporation or can merge into a limited liability company. They may also consolidate into a new limited liability company or corporation that's formed by this consolidation. This can be any limited liability company or corporation of Delaware, the District of Columbia, or any other state in the United States.

Every limited liability company or corporation needs to enter into a written agreement of consolidation or merger. It needs to state the following:

  • What the terms and conditions are of the consolidation or merger.
  • What mode of carrying is being used.
  • What manner is being used for the conversion of stock shares. If a limited liability company survives or results from a consolidation, merger, or if all interests and shares are canceled, any shares from the corporation of from LLC interests cannot remain outstanding. Any limited liability company interests or any other securities of the remaining entity or that results from a consolidation or merger are to get property, securities, cash, or rights in exchange for converting these limited liability company interests or shares.
  • Any other provisions or details that are seen as desirable that don't limit the foregoing's generality, provision of cash payment in exchange for fractional shares being issued, the surviving interests, or the resulting limited liability company or corporation.

Any agreement terms of the consolidation or merger are dependent on facts that are outside of the agreement, assuming that the facts operate on the agreement terms in a way that's expressly set forth and clear in the agreement of consolidation or merger. The word facts is used in the above sentence and includes any event occurrence, including an action by a body or person, the corporation included.

Cross-Jurisdictional and Cross-Entity Mergers

Delaware law provides significant flexibility in allowing mergers not just between LLCs but also between LLCs and corporations, whether domestic or foreign. Cross-entity mergers (e.g., LLC into a corporation or vice versa) and cross-jurisdictional mergers (e.g., a Delaware LLC merging with a Nevada LLC) are permitted, provided the merger complies with the laws of each involved jurisdiction.

Key considerations include:

  • Governance and approval requirements must be met for each entity involved.
  • Foreign entities must comply with both Delaware law and their home jurisdiction’s law.
  • If the surviving entity is not a Delaware LLC, Delaware requires that it appoint a registered agent in the state for service of process regarding the merger.

This flexibility makes Delaware a favored jurisdiction for complex mergers and corporate reorganizations.

Steps to Complete a Delaware LLC Merger

To properly execute a Delaware LLC merger, follow these steps:

  1. Draft a merger agreement – This document must outline the terms of the merger, including equity conversion and the entity that will survive.
  2. Obtain member or shareholder approval – As per the LLC operating agreement or Delaware law.
  3. File a Certificate of Merger – Submit the document to the Delaware Secretary of State with the required filing fee.
  4. Notify stakeholders – Inform creditors, customers, and vendors of the merger.
  5. Update licenses, registrations, and tax filings – This ensures legal continuity and compliance post-merger.

Completing these steps correctly helps avoid administrative or legal complications.

Frequently Asked Questions

  1. What is required to file a Delaware LLC merger?
    You must file a Certificate of Merger with the Delaware Secretary of State, along with supporting documents such as a merger agreement and possibly a certificate of good standing from foreign entities.
  2. Can an LLC merger change the operating agreement?
    Yes, Delaware law allows a merger to amend the LLC operating agreement if the merger agreement clearly includes such amendments and is properly authorized.
  3. Do all members have to approve a Delaware LLC merger?
    Generally, a majority vote of the members is sufficient, unless the LLC agreement requires a higher threshold or class vote.
  4. Can Delaware LLCs merge with corporations?
    Yes. Delaware permits mergers between LLCs and corporations, whether domestic or foreign, so long as all legal requirements are satisfied.
  5. Are there additional requirements for foreign entities in a Delaware merger?
    Yes. Foreign entities must comply with Delaware’s requirements and also file any necessary documents in their own jurisdiction, such as certificates of good standing.

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