Tuesday, January 3, 2017

LLCs Are Still Not Corporations, Despite 1898 New Contrary Claims

Today is my annual check-up on the use of "limited liability corporation" in place of the correct “limited liability company.”  I did a similar review last year about this time, and revisiting the same search led to remarkable consistency. This is disappointing in that I am hoping for improvement, but at least it is not getting notably worse. 

Since January 1, 2016, Westlaw reports the following using the phrase "limited liability corporation":

  • Cases: 363 (last year was 381)
  • Trial Court Orders: 99 (last year was 93)
  • Administrative Decisions & Guidance: 172 (last year was 169)
  • Secondary Sources: 1116 (last year was 1071)
  • Proposed & Enacted Legislation: 148 (last year was 169)

As was the case last year, I am most distressed by the legislative uses of the phrase, because codifying the use of "limited liability corporation" makes this situation far murkier than a court making the mistake in a particular application. 

New York, for example, passed the following legislation:

Section 1. Subject to the provisions of this act, the commissioner of parks and recreation of the city of New York is hereby authorized to enter into an agreement with the Kids' Powerhouse Discovery Center Limited Liability Corporation for the maintenance and operation of a children's program known as the Bronx Children's Museum on the second floor of building J, as such building is presently constructed and situated, in Mill Pond Park in the borough of the Bronx. The terms of the agreement may allow the placement of signs identifying the museum.

NY LEGIS 168 (2016), 2016 Sess. Law News of N.Y. Ch. 168 (S. 5859-B) (McKINNEY'S).

This creates a bit of a problem, as Kids' Powerhouse Discovery Center Limited Liability Corporation does not exist.  The official name of the entity is as Kids' Powerhouse Discovery Center LLC and it is, according to state records, an LLC (not a corporation). Does this mean the LLC will have to re-form as a corporation so that the commissioner of parks and recreation has authority to act?  It would seem so.  On the one hand, it could be deemed an oversight, but New York law, like other states, makes clear that an LLC and a corporation are distinct entities. 

Several other states enacted legislation using “limited liability corporation” in contexts that clearly intended to mean LLCs.  Hawaii, West Virginia (sigh), Minnesota, Alabama, California, and Rhode Island were also culprits.  

There was one bit of federal legislation, too. The “Communities Helping Invest through Property and Improvements Needed for Veterans Act of 2016” or the “CHIP IN for Vets Act of 2016." PL 114-294, December 16, 2016, 130 Stat. 1504.  This act authorizes the Secretary of Veterans Affairs to carry out a pilot program in which donations of certain property (real and facility construction) donated by the following entities:

(A) A State or local authority.

(B) An organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and is exempt from taxation under section 501(a) of such Code.

(C) A limited liability corporation.

(D) A private entity.

(E) A donor or donor group.

(F) Any other non-Federal Government entity.

I have to admit, it is not at all clear to me why one needs any version of (C) if one has (D) as an option.  Nonetheless, to the extent it was not intended to be redundant of (D), part (C) would appear to be incorrect.  

I addition, I'd be remiss not to note the increase to 1116 uses in secondary sources last year, though only 43 were in law reviews and journals.  That part is, at least a little, encouraging.

Last year, I wished “everyone a happy and healthy New Year that is entirely free of LLCs being called ‘limited liability corporations.’”  This year, I have learned to temper my expectations.  I still wish everyone a happy and healthy New Year, but as to the use of “limited liability corporations” I am hoping to reduce the uses by half in all settings for 2017, and I hope at least three legislatures will fix errors in their existing statutes. That seems more reasonable, if not any more likely. 

http://lawprofessors.typepad.com/business_law/2017/01/llcs-are-still-not-corporations-despite-1898-new-contrary-claims.html

Corporate Personality, Corporations, Joshua P. Fershee, Legislation, LLCs, Partnership | Permalink

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