Tuesday, December 15, 2015

International Edition: Can it be an LLC if there are Shareholders?

As I continue my mission to solidify the limited liability company (LLC) as its own entity, and not a corporation or corporate derivative, I have come to realize that U.S.-based distinctions are usually easier than international ones. One challenge we have is that we often try to find direct entity analogies from country to country, when none may exist.  

Case in point: Over at Lexology.com lat week, an article titled Is litigation funding in peril? appeared.  The article states, "In its ruling (KKO 2015:17), the Finnish Supreme Court found that under certain criteria it is possible to hold the shareholders of a limited liability company liable for the company's liabilities." So, if this were a U.S. LLC, we'd know there are no "shareholders" of an LLC.  We have members (or should).  But, I am no expert in Finnish law, but it is different than U.S. law.  According to Wikipedia (that all-knowing source), Osakeyhtiö, abbreviated Oy, means "stock company," thought others sources says it means "limited company" or limited stock company." Nonetheless, the shareholder characterization appears acceptable for a Finnish (but not a U.S.) entity.    

Finnish entities do not break down the same way as U.S. entities (this is not surprising).  Thus, in Finland, there are limited partnerships, limited companies, and public limited companies.  My suspicion is that the Osakeyhtiö is actually more like a corporation, as "the management is provided by the management board," but general parlance is that it is an LLC because of how it translates.  

The Lexology article discusses limited liability companies, but then repeatedly discusses piercing the "corporate" veil and the "corporate structure" of the entities in questions. To draw a direct analogy to U.S. entities, and to try to hold my overseas colleagues to U.S. language, would be unfair. It may be that in a non-U.S. jurisdiction, "limited liability companies" in such an instance means the more general "limited liability entities," and is not intended as a term of art for the LLC. However, there is language that can be employed globally to help make entity distinctions more clear, particularly when talking about general concepts for a more general audience.  Avoiding terms of art where specificity is not intended would be helpful.  

For example, if we talk about a "limited liability veil," we can use that to apply to all limited liability entities.  This is particularly apt when discussing situations where multiple entities are in play, and perhaps we're discussing veil piercing of a partner corporation and its subsidiary LLC.   

Similarly, we can talk about "entity structure," instead of "corporate structure," to ensure we're not assigning specific rules and obligations to the wrong entity type.  

Cross-border entity issues are inherently complex, and understanding how foreign courts will view various business arrangements is always a challenge.  Foreign courts often have to grapple with foreign entities, and must decide how to reconcile the entity choice with domestic law.  I appreciate the challenge, and recognize that there are rarely easy answers. I do think, though, that avoiding specific entity language when more general language will suffice, it's a good idea, because we can avoid inadvertently attaching domestic rules to a foreign entity. 

We use analogies as anchors to help us understand concepts.  That can be good, and it can be helpful. But we must be careful not to overdo it.  Despite some similarities, LLCs are distinct from corporations and LLPs. And the Oy is different than the GmbH or the S.A. or the NV.  Comparisons are inevitable, and often helpful.  But, if we get more specific than we need to, before we need to, we run the risk of framing the question incorrectly and prematurely.  

https://lawprofessors.typepad.com/business_law/2015/12/international-edition-can-it-be-an-llc-if-there-are-shareholders-.html

Corporations, International Business, International Law, Joshua P. Fershee, LLCs, Partnership, Unincorporated Entities | Permalink

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