Stephen Bainbridge and Francis Pileggi on Obeid v. Hogan

Stephen Bainbridge has thoughts on Obeid v. Hogan: "An LLC is not a corporation but sometimes you'll get corporate law by analogy anyway":

This suggests an important wrinkle on freedom of contract. If you opt into a corporate-like LLC governance structure and you don’t want corporate law rules to apply by analogy presumably you will have to say so very explicitly in your governing documents. It also suggests that you’re going to have to be very careful about adopting some corporate-like features. How many are enough to trigger this rule? This decision is likely to result in a lot more transactional lawyering expenses for LLCs.

In "Chancery Explains that Special Litigation Committee Must Only Include Board Members," Francis Pileggi identifies a number of key principals arising out of Vice Chancellor Laster's decision, including:

(1) even in derivative litigation when a stockholder has survived a motion to dismiss under Rule 23.1, for example, in which demand futility is an issue, pursuant to DGCL Section 141, the board still retains authority over the “litigation assets” of the corporation, and if truly independent board members exist, or can be appointed, to create a special litigation committee (SLC), it is still possible for the SLC, under certain circumstances, to seek to have the litigation dismissed; (2) if an LLC Operating Agreement adopts a form of management and governance that mirrors the corporate form, one should expect the court to use the cases and reasoning that apply in the corporate context; (3) even though most readers will be familiar with the cliché that LLCs are creatures of contract, the Court of Chancery underscores the truism that it may still apply equitable principles to LLC disputes; (4) a bedrock principle that always applies to corporate actions is that they will be “twice-tested,” based not only on compliance with the law, such as a statute, but also based on equitable principles.

We previously posted on this case here: "Court of Chancery Applies Corporate Rules to Special Litigation Committee of LLC."

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