Contractual Freedom under Delaware Alternative Entity Law: Evidence from Publicly Traded LPs and LLCs

Journal of Corporation Law, Vol. 37, No. 3, pp. 555-619, Spring 2012

65 Pages Posted: 8 Oct 2011 Last revised: 26 May 2012

Mohsen Manesh

University of Oregon School of Law

Date Written: December 1, 2011

Abstract

Notwithstanding the ongoing academic debate, little is known empirically about how unincorporated alternative entities - LLCs and LPs - actually utilize the contractual freedom afforded under Delaware law. To what extent do alternative entities take advantage of contractual freedom to wholly eliminate fiduciary duties? And to what extent do alternative entities employ so-called “uncorporate” substitutes - certain contractual devices designed to discipline and incentivize mangers - in lieu of fiduciary duties? In response to calls for empirical evidence on this issue, this study analyzes the operating agreements of every publicly traded Delaware alternative entity in existence as of June 2011. This study, the first of its kind, provides a snapshot of contractual freedom as it is applied under Delaware alternative entity law.

In particular, this study finds that the use of fiduciary waiver and exculpation provisions among publicly traded Delaware alternative entities is widespread. Yet, despite the widespread use of such provisions, this study also finds that publicly traded alternative entities have either failed to adopt uncorporate substitutes or adopted uncorporate substitutes that only trivially constrain managerial discretion. Thus, this study suggests that publicly traded alternative entities have largely utilized the freedom of contract to reduce managerial accountability to investors without committing to significant offsetting constraints on managerial discretion.

Keywords: Delaware, LLCs, LPs, limited liability companies, limited partnership, fiduciary duties

Suggested Citation

Manesh, Mohsen, Contractual Freedom under Delaware Alternative Entity Law: Evidence from Publicly Traded LPs and LLCs (December 1, 2011). Journal of Corporation Law, Vol. 37, No. 3, pp. 555-619, Spring 2012 . Available at SSRN: https://ssrn.com/abstract=1939920

Mohsen Manesh (Contact Author)

University of Oregon School of Law ( email )

70 NW Couch Street
Portland, OR OR 97209
United States
5034123749 (Phone)

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