UCC Article 9 Overrides, as applied to LLC and Partnership Transfer Restrictions

At Business Law Today, Carl S. BjerreDaniel S. KleinbergerEdwin E. Smith, and Steven O. Weise discuss the 2018 amendments to Article 9 of the Uniform Commercial Code, and their impact on statutory and contractual restrictions on transfer of limited liability company or transfer restrictions:

Any co-owner of a privately held business organization may have a substantial stake in determining who the other co-owners are. If a second co-owner has the power to transfer its interest to a stranger, then the second co-owner can, in effect, force the first co-owner into a venture with the stranger/transferee without the first co-owner’s consent. The policy and effect of the pick-your-partner principle under LLC and partnership law is to prevent such an outcome.

UCC Article 9, by contrast, has the very different policy orientation of facilitating voluntary transfers of personal property. Article 9’s most familiar application is to transfers of property as security for the repayment of loans, but Article 9 also applies to outright sales of certain types of personal property. Some of these transfers and outright sales are precisely those that the pick-your-partner principle seeks to prevent, and as a result, for personal property consisting of LLC or partnership interests, the interaction of the pick-your-partner principle with Article 9 has been complex and thorny.

For the full piece, see Carl S. Bjerre, et al, "LLC and Partnership Transfer Restrictions Excluded From UCC Article 9 Overrides" (Business Law Today, February 7, 2019).