Equity in LLC Law?

50 Pages Posted: 9 May 2016 Last revised: 30 Mar 2018

See all articles by Mohsen Manesh

Mohsen Manesh

University of Oregon School of Law

Date Written: May 5, 2016

Abstract

To what extent does equity play a role in LLC law? To what extent do courts retain the judicial discretion “to do right and justice” in circumstances in which the LLC statute and the applicable LLC agreement do not otherwise offer an adequate remedy to an aggrieved LLC member or manager? Until recently, the answer to these questions was quite clear: Equity is subordinate to the freedom of contract and the express terms of the agreement governing an LLC. But the Delaware Chancery Court’s decision in In re Carlisle Etcetera has upended this basic percept of LLC law and practice. Carlisle suggests that courts need not sheepishly defer to the express terms of an LLC agreement. Instead, where justice dictates a different result, Carlisle suggests that courts retain the equitable power to apply fiduciary standards or recognize other equitable rights or duties, despite the statutorily mandated freedom of contract under LLC law. Thus, this Article argues that Carlisle represents a true paradigm shift. It inverts the long assumed supremacy of contract over equity in LLC law. Instead, the freedom of contract must be exercised always in the shadow of equity.

Keywords: LLC, limited liability company, LP limited partnership, alternative entities, freedom of contract, contract, Delaware, Chancery, Equity

JEL Classification: K20, K22, K29

Suggested Citation

Manesh, Mohsen, Equity in LLC Law? (May 5, 2016). Florida State University Law Review, Vol. 44, pp. 93-141, 2016 . Available at SSRN: https://ssrn.com/abstract=2776728

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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