LLC Default Rules Are Hazardous to Member Liquidity

Abstract

This article is based on the author’s Keynote Address at the 2019 LLC Institute sponsored by the American Bar Association’s Business Law Section. It traces and critiques the shift in the default rules in LLC law away from partnership law and toward corporate law, using the Uniform LLC Acts of 1996 and 2006 as exemplars of the national trend. It focuses on two key issues: the removal of liquidity rights, both the right to dissolve and the right to be bought out, and the removal of easy access to member remedies. It argues that, on both key issues, the default rules have moved away from enforcing the presumed intent of small groups of entrepreneurs who form businesses without the benefit of counsel. By forming LLCs, entrepreneurs across the country are now unwittingly locking themselves in to perpetual entities that offer them no liquidity and present them with costly procedural obstacles to enforcing both their rights under the operating agreement and their statutory rights.