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Creatures of Contract: A Half-Truth about LLCs

Mohsen Manesh, University of Oregon School of Law


CORPORATE LAW: LLCS, CLOSE CORPORATIONS, PARTNERSHIPS,
& OTHER PRIVATE ENTERPRISES eJOURNAL

"Creatures of Contract: A Half-Truth about LLCs" Free Download
Delaware Journal of Corporate Law (DJCL), 2018 Forthcoming

MOHSEN MANESH, University of Oregon School of Law
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Courts reflexively describe LLCs — the nation’s most popular form of business entity — as “creatures of contract,? the contract being, of course, the LLC agreement that governs the rights and obligations of the parties that own and manage the entity. The judicial reflex to use this maxim is especially pronounced in Delaware, where today LLCs outnumber corporations by more than two to one. And because Delaware LLC law, like its corporate law, enjoys an outsized influence in the business world, courts in other jurisdictions have now predictably embraced the “creatures of contract? maxim, too.

But to describe LLCs as “creatures of contract,? while perhaps useful shorthand, is simply misleading. LLCs are also creatures of statute. And they are also creatures of equity. This claim is not normative; it is a legal reality.

Therefore, the singular aim of this Article is to puncture the persistent fantasy that LLCs are “creatures of contract.? More accurately, this Article shows that LLCs embody a complex interaction of contract terms, statutory rules, and judge-made doctrine. Thus, LLCs are creatures of contract, statute, and equity.

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This eJournal distributes working and accepted paper abstracts related to LLCs, close corporations, partnerships, and other private enterprises. This includes the law, economics, history and policy of closely-held corporations and non-corporate firms, including partnerships, limited liability companies, limited partnerships, limited liability partnerships, joint ventures, and similar entities both in the US and around the world. Specific topics include private law matters such as governance, fiduciary duties, formation, litigation, arbitration, choice of law, exit, dissolution, transfer, creditors' rights, and limited liability. They also include public law matters such as bankruptcy, employment discrimination, securities regulation, competition law, and professional regulation. Articles may also focus on types of businesses or other relationships that commonly organize as limited liability companies, close corporations, partnerships or other unincorporated business entities, including venture capital, professional services, real estate, finance, family firms, domestic relationships and public-private enterprises.

Editor: Jeffrey M. Lipshaw, Suffolk University

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Directors

CORPORATE, SECURITIES & FINANCE LAW EJOURNALS

BERNARD S. BLACK
Northwestern University - Pritzker School of Law, Northwestern University - Kellogg School of Management, European Corporate Governance Institute (ECGI)
Email: bblack@northwestern.edu

RONALD J. GILSON
Stanford Law School, Columbia Law School, European Corporate Governance Institute (ECGI)
Email: rgilson@leland.stanford.edu

Please contact us at the above addresses with your comments, questions or suggestions for LSN-Sub.

Advisory Board

Corporate Law: LLCs, Close Corporations, Partnerships, & Other Private Enterprises eJournal

BARRY E. ADLER
Professor of Law, New York University School of Law

STEPHEN MARK BAINBRIDGE
William D. Warren Professor of Law, University of California, Los Angeles (UCLA) - School of Law

HENRY HANSMANN
Augustus E. Lines Professor of Law, Yale Law School, Fellow, European Corporate Governance Institute (ECGI)

ROBERT WILLIAM HILLMAN
Fair Business Practices Professor of Law, University of California, Davis - School of Law

KIMBERLY D. KRAWIEC
Professor of Law, Duke University School of Law

SAUL LEVMORE
William B. Graham Professor of Law, University of Chicago Law School

ROBERT H. SITKOFF
John L. Gray Professor of Law, Harvard Law School

D. GORDON SMITH
Glen L. Farr Professor of Law, Brigham Young University - J. Reuben Clark Law School

LYNN A. STOUT
Distinguished Professor of Corporate and Business Law Jack G. Clarke Business Law, Cornell Law School - Jack G. Clarke Business Law Institute

THOMAS S. ULEN
Swanlund Chair, Director, Illinois Program in Law and Economics, University of Illinois College of Law