Tuesday, December 12, 2017

Getting LLC Definitions Wrong: It's Not Always the Judge's Fault

As I have noted in the past, it is not just judges that make the mistake of calling limited liability companies (LLCs), "limited liability corporations."  Today, I got a notice of a Texas case using the later definition.  Here's the excerpt:

The statute defines a “licensed or registered professional” to mean “a licensed architect, licensed professional engineer, registered professional land surveyor, registered landscape architect, or any firm in which such licensed or registered professional practices, including but not limited to a corporation, professional corporation, limited liability corporation, partnership, limited liability partnership, sole proprietorship, joint venture, or any other business entity.” Tex. Civ. Prac. & Rem. Code Ann. § 150.001(1-a) (emphasis added).

CH2M Hill Engineers, Inc., v. Springer, No. 09-16-00479-CV, 2017 WL 6210837, at *2 (Tex. App. Dec. 7, 2017). 
 
My first thought was, "Doesn't everyone cut and paste statutory language these days?  How could they get that wrong?"  I went to look up the code, and even before the code section had loaded, it dawned on me:  Of course, they cut and pasted it.  It's the code that's wrong.  Sure enough, it is.
 
Another recent example comes from a Westlaw source: Business Transactions Solutions § 60:358. I am going to tread lightly here because my mission is not to be a snarky jerk (I can be one sometimes, but that is not my goal).  The source provides what appears to be a model letter to an LLC client that has some very useful information, but I am going to be critical of a couple parts.  The letter opens: "[T]he following is a summary of our discussion concerning business responsibilities that must be met to maintain your LLC status."  Good start.  And then: "Failure to comply with LLC formalities can result in individual liability to the members if the 'corporate veil is pierced.'" I know this is colloquial talk, but couldn't it just say "if the limited liability veil is pierced?"
 
The draft letter continues:
You can also be liable for the company's debts by implied actions or negligent conduct. If you disregard LLC formalities or commingle your personal interests with the company's assets or interests, you can open the door for an adverse party to “pierce the corporate veil” and render you personally liable for the LLC's debts. To avoid such consequences, you should never refer to your company as “my” business or “our” business. Such a statement could later be used against you as being a material representation that the business was a proprietorship or a partnership rather than a corporation.
There's a lot here with which I disagree. For example, LLCs don't, in my view, have formalities. And an LLC is not a corporation.  The letter also explains that "[m]anagers control the policy of the LLC, (this is similar to a director in a corporation)" and refers to the LLC's "corporate name " and "corporate records." Some of this is accurate colloquially, but don't you hire a lawyer for precision?  I appreciate the idea that lawyers should share a lot of this kind of information with clients, and a lot of this is useful, but this really can be better. The LLC letter should be different than the corporation letter.  

Anyway, this is another example where a lot of my complaints are simply nits, and they probably impact nothing.  But it's not all nits.  Some of this is substance that matters.  So, I keep picking nits. 

 

https://lawprofessors.typepad.com/business_law/2017/12/getting-llc-definitions-wrong-its-not-always-the-judges-fault.html

Joshua P. Fershee, LLCs | Permalink

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