So-called “alternative” or “unincorporated” business entities, most notably limited liability companies (LLCs) and limited partnerships (LPs), indisputably have become an important and apparently permanent fixture in American business. They are becoming the entity form of choice for privately held businesses, but equity interests in LLCs and LPs are also traded publicly on national securities exchanges.
From a legal perspective, and similar to traditional corporations, state law subjects the creation, termination, and internal governance of alternative entities to a mix of statutory rules and common law doctrine that address issues of efficient allocation of capital, creditor protection, and agency costs. More so than with corporations, however, the intent of the applicable state law is to facilitate maximal private ordering and customization appropriate to the unique needs and characteristics of any individual company. This flexibility provides obvious benefits to business planners. At the same time, however, it engenders a fundamental legal challenge: how to balance that flexibility with the development of guiding precedents and predictability otherwise characteristic of the corporate and common law traditions?
This course introduces students to that very challenge. Topics covered include alternative entity formation and dissolution; the centrality of operating agreements and freedom of contract in establishing the rights and responsibilities of stakeholders; the fiduciary and contractual duties of managers, contractual modification or elimination of fiduciary duties, and the relationship between “contractual fiduciary duties” and the implied contractual covenant of good faith and fair dealing; and judicial review of self-interested transactions, especially in the increasingly litigious environment of public M&A.
Students are expected to possess a basic understanding of the law applicable to alternative entities and corporations.