Research Handbooks in Corporate Law and Governance series
Edited by Robert W. Hillman and Mark J. Loewenstein
Chapter 12: Fundamental changes in the LLC: a study in path-divergence and convergence
As most commentators note, architects of the law governing the limited liability company business form (LLC) in the United States (a relatively late entrant in the U.S. business entity race) could, and did, look to the law of partnerships, limited partnerships, and corporations in formulating LLC law. The Revised Uniform Partnership Act (RUPA) was, rather transparently, the original basis for many of the statutory rules in the Uniform Limited Liability Company Act (ULLCA). The RUPA codified partnership norms that focus on the co-equal consent of partners for the entity’s formation, maintenance, wind-up, and termination. As a result, the ULLCA’s RUPA foundation gave the LLC form, in a simple, direct way, the attributes needed to secure pass-through treatment for the entity under federal income tax law while providing limited liability to owners under state entity law, a major driving force behind the LLC. Specifically, under the pre-existing federal income tax regulations, an unincorporated business entity enjoyed pass-through tax treatment if it lacked at least two of four core characteristics of corporations: (1) continuity of life, (2) centralization of management, (3) limited liability, and (4) free transferability of interests.
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