Tuesday, October 21, 2014
Remaining Vigilant: Getting Courts to Recognize LLCs Aren't Corporations
In Business Organizations today, I spent some time reviewing the differences between varying entity types. I made the point that courts often make mistakes on this front, especially with LLCs and corporations, and it reminded me I needed to follow up on my own pet LLC protection project.
Over the years, I have taken more than a passing interest in how often courts refer to (and ultimately treat) LLCs. I have this thing where I think LLCs are not treated as well doctrinally as they should. In February of this month, I made the argument, Courts Should Get the Doctrinal Distinction Between LLCs and Corporations, and I have made other similar arguments (here, here, and here).
As part of this I committed to noting when courts refer to LLCs as "limited liability corporations" and not "limited liability companies," as they should. Almost one year ago, I noted this continuing theme, repeating the search I did for a 2011 article, where I found in a May 2011 search of Westlaw’s “ALLCASES” database that there were 2,773 documents with the phrase “limited liability corporation," in describing an LLC. (That article is here.) Things are not getting much better. Since Oct. 15, 2013, there have been 410 more cases making that same mistake. Just since my February 4, 2014 post, reference above, there have been 300 of those cases.
As I read through some of these cases, many of which don't seem to turn on whether the entity is a limited liability company or a corporation, I have noticed that some of the cases may have an entity structure issue that no one is raising. That's a failure of at least one of the parties, and potentially the court. I plan to follow up with a few example of such cases, but for now, I'll part with my familiar refrain: as long as courts keeping describing limited liability companies as corporations, I'll keep pointing it out.