Division of Delaware Limited Liability Companies
Under a new Section 18-217 of the Delaware Limited Liability Company Act, a single Delaware limited liability company (“DE LLC”) will be allowed to divide into two or more DE LLCs. As part of a division, the dividing DE LLC must adopt a plan of division setting forth the terms and conditions of the division, including the allocation of assets, property, and rights. The division plan will also control which resulting LLC will be liable for obligations such as the debts, liabilities, and duties of the dividing DE LLC. The LLC not assigned liability will only become liable for those obligations if the plan of division constitutes a fraudulent transfer under applicable law. Given the novelty of this type of reorganization, the new law provides that any terms of a written contract, indenture, or other agreement that restricts, conditions, or prohibits a DE LLC from consummating a merger, consolidation, or asset transfer will apply with equal force to a division only if (a) the DE LLC was formed prior to August 1, 2018, and (b) the DE LLC entered into such written contract, indenture, or other agreement prior to August 1, 2018. As such, when documenting a written agreement with a DE LLC, lenders and other companies should be proactive in protecting against a future division by that DE LLC. For more information concerning this topic, please contact Christopher Magette.