Table of Contents

Research Handbook on Partnerships, LLCs and Alternative Forms of Business Organizations

Research Handbook on Partnerships, LLCs and Alternative Forms of Business Organizations

Research Handbooks in Corporate Law and Governance series

Edited by Robert W. Hillman and Mark J. Loewenstein

Presenting alternatives to the corporate form of organization, the Handbook explores partnerships, LLCs, business trusts and other alternatives. Specially commissioned chapters by leading scholars in the field examine issues such as: fiduciary duties, agency principles, contractual freedom, tax treatment, the special circumstances of law firms, and dissolution. While much of the emphasis is on US law, a number of chapters include treatments of Japan, the UK, Russia, China, Taiwan, India and Brazil.

Chapter 5: Achaian and interest transfers among existing partners and members

J. William Callison

Subjects: law - academic, corporate law and governance

Extract

Under most general partnership, limited partnership and limited liability company statutes, in the absence of contrary contractual provisions partners or members can freely transfer their economic interests, but the transferee is not admitted as a member of the entity unless the other members consent to the admission. Thus, without member consent, the transferee is entitled only to receive the share of profits or other distributions and the return of contributions to which the transferor would otherwise be entitled, and has no right to participate in the management of the entity’s business or to become a member. In addition to an inability to participate in member voting or management, it is probable that the transferee has no record inspection or disclosure rights and that no fiduciary responsibilities run to him or her. This hybrid arrangement, in which economic interests can be freely transferred but non-economic interests cannot, has been justified as part of the “pick-your-partner” (“PYP”) rule. PYP generally works well, or at least it is well understood and easily applied, when the transferee is not already a member of the entity. However, the partner having been “picked,” the result is less certain when the transferee is already a member of the entity and is acquiring an interest from another member. Achaian, Inc. v. Leemon Family LLC addresses this issue, but leaves the result uncertain in situations where the partnership agreement or operating agreement does not provide an answer.

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