The Corporation Section of the Delaware State Bar Association has proposed a number of amendments to the Delaware Limited Liability Company Act (the "LLC Act") and the Revised Uniform Limited Partnership Act (the "LP Act"). If the proposed amendments are approved by certain groups in the Delaware State Bar Association and the Delaware legislature, Governor Jack Markell could sign the amendments into law in July.
The following is a summary of the most important of the amendments impacting limited liability companies ("LLCs") and limited partnerships ("LPs"). These amendments modify statutory provisions covering (i) powers of attorney and proxies, (ii) class or group votes in connection with several types of transactions and (iii) delegation of rights and powers to manage alternative entities.
Power of Attorney and Proxy Amendments
The operating agreements for LLCs and LPs and the related subscription agreements often contain powers of attorneys and proxies. The proposed amendments concerning powers of attorney clarify that the power of attorney rules are default rules (i.e. they can be altered by agreement) and that they apply to proxies as well as to powers of attorney. For example, the LLC Act's general rule for a power of attorney, as amended, states that "unless otherwise provided in a limited liability company agreement, a power of attorney or proxy with respect to a limited liability company granted to any person shall be irrevocable if it states that it is irrevocable and it is coupled with an interest sufficient in law to support an irrevocable power or proxy" (emphasis added).
Class or Group Votes Amendments
The current versions of the LLC Act and the LP Act contain default rules for voting by classes or groups of members or partners, respectively. The proposed amendments delete the default requirements for class or group votes in connection with a broad range of transactions, including mergers and consolidations, transfers, domestications or continuances, termination and winding up of series, conversions and dissolution and winding up of an LLC or LP. The amendments do not remove the default voting rules for members and partners in connection with the above-referenced transactions.
The class or group amendments shall apply to LLCs and LPs whose certificates of formation or certificate of partnership, respectively, were filed with the Delaware Secretary of State after July 31, 2015. For LLCs and LPs formed prior to July 31, 2015, the existing, pre-amendment class and group voting default rules shall continue to govern such LLCs and LPs, unless otherwise provided in the entity's governing agreement.
Irrevocable Delegation of Rights and Powers Amendments
The LLC Act and the LP Act provide that members, managers and general partners, as applicable, may delegate the rights and powers to manage and control the business and affairs of the entity. The proposed amendments provide a default rule that the delegation of rights and powers is irrevocable if it states that it is irrevocable.
In addition to the above-described legislative proposals, the Corporate Section proposed some additional amendments aimed at deleting surplus language and updating the records provided by the Delaware Secretary of State.