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Editorial 10 MIN READ

Delaware's 2021 LLC Act amendments, a preview

What the Corporation Law Council is likely to send to Legislative Hall this spring, and why the pandemic provisions and the registered-series cleanup are the ones to watch

The Editors
Staff, Incorporator.org
10 min read Updated
Contents 8 sections
  1. The annual loop, and where 2021 sits in it
  2. The pandemic provisions, probably made permanent
  3. UETA alignment, and the electronic-signatures question
  4. Registered-series cleanup
  5. The definitional seams, and a standard conforming round
  6. What is almost certainly not in this bill
  7. How to read the bill when it lands
  8. Sources

he 2021 amendment package to the Delaware Limited Liability Company Act has not yet been introduced. The Corporation Law Council of the Delaware State Bar is in the final weeks of its drafting window, the synopsis is not yet public, and a Senate sponsor has not yet filed a bill number. Based on how the Council has worked the last several years, the introduction is a few weeks away.

This piece is a preview, written for drafters and general counsel who want to know what to leave alone until August and what to plan around when the text lands. Three themes are likely: making the pandemic provisions from last April permanent, pulling the Act into better alignment with Delaware's electronic-signatures regime, and cleaning up loose ends in the registered-series framework that went live in 2019.

The annual loop, and where 2021 sits in it

Title 6, Chapter 18 of the Delaware Code is the LLC Act, and the Act has been amended in nearly every legislative session since 1992. The work is done by the Corporation Law Council, a standing body of the Delaware State Bar with a large working membership of practitioners from Delaware firms and national firms with Delaware practices. The Council tracks Chancery opinions, interstate developments, and drafting problems that surface in commercial practice. It prepares a package over the fall and winter, approves it in late winter, and a Senate sponsor (usually a member of the judiciary committee) introduces the bill in March or April. Hearings are short. The bill passes both chambers in May or June. The Governor signs. The statute, by its own terms, takes effect on August 1 of the year of enactment.

Our 2019 preview walked through the mechanics in detail and flagged the registered-series project that eventually landed in that year's Senate Bill 89. The 2017 piece covered the Section 18-407 delegation rewrite that followed Obeid v. Hogan. The pattern is the same each year: one or two substantive items, a handful of conforming fixes, an effective date of August 1. What makes 2021 different is that 2020 broke the rhythm, and the 2021 package has to do some cleanup that a normal year would not require.

The pandemic provisions, probably made permanent

The biggest event in Delaware entity law in the last twelve months was not an LLC Act amendment. It was House Bill 341, passed in nine days in April 2020 and signed by Governor Carney on April 6. HB 341 rewrote the DGCL's emergency-bylaws section and added remote-meeting authority to § 211, and it made parallel changes to the LLC Act and the Limited Partnership Act. Our write-up on HB 341 walked through the statutory mechanics. The LLC-side amendments let the managers or members of a Delaware LLC whose agreement contemplates meetings move those meetings to a remote-only format during a declared state of emergency, without re-noticing, and over contrary provisions in the operating agreement to the extent necessary to respond to the emergency.

The text of those amendments, as drafted, is tied to "an emergency condition" that includes a declared epidemic, pandemic, or federal or state emergency. When Delaware's state of emergency eventually lifts, the statutory hook lifts with it. That design was intentional. It kept the expanded board and manager authority from becoming a standalone governance track that could be invoked outside an actual emergency.

A year in, the Council will have to decide whether to leave the hook as-is or to convert some of the remote-meeting authority into a permanent feature of the Act that does not require a gubernatorial declaration to activate. The middle path, and the one the parallel DGCL drafting pattern suggests, is to keep the § 110-style emergency authority intact and separately amend the ordinary meeting provisions to confirm, in statute, that an LLC agreement can provide for remote-only member or manager meetings in any conditions, emergency or not. Much of that authority already exists under the contractarian baseline of the LLC Act, but a confirming sentence in §§ 18-302 and 18-404 (or a new subsection) would remove an argument that a pre-pandemic operating agreement requiring a meeting at a physical location cannot be satisfied by a remote platform.

Watch for new language explicitly permitting members and managers, to the extent the agreement does not provide otherwise, to participate in and act at a meeting by means of remote communication. Watch for a clarifying sentence on consent actions confirming that electronic transmission satisfies any writing requirement. And watch for the emergency provisions added by HB 341 to survive largely intact, with editorial polish rather than substantive change.

UETA alignment, and the electronic-signatures question

Delaware enacted its version of the Uniform Electronic Transactions Act in 2000 at 6 Del. C. Ch. 12A. Chapter 12A treats an electronic record and an electronic signature as legally equivalent to their paper counterparts for most commercial purposes. The LLC Act has always sat alongside Chapter 12A rather than expressly incorporating it. In most cases that is fine; a member signs an operating agreement using an e-signature platform, the platform's audit trail is adjudicated under Chapter 12A, and no one notices the seam.

The seam shows up at the edges. The Act requires "a writing" in several places, and while Chapter 12A defines an electronic record to satisfy a writing requirement in most contexts, there are specific exclusions and specific places in the LLC Act where practitioners have wondered whether the Chapter 12A translation reaches. The certificate-of-formation filings themselves are an obvious example; those are governed by Division of Corporations filing rules rather than ordinary contract-formation rules. The less-obvious examples include written consents under § 18-302(d), written demands for information under § 18-305, and the execution of amendments to an operating agreement where the agreement is silent on electronic execution.

A 2021 amendment package that adds an express electronic-records provision to the LLC Act, paralleling the sort of language DGCL § 116 now carries for corporations, would remove several years of low-intensity practitioner grumbling. The pattern for this kind of alignment is also well established. The DGCL has been pulling expressly electronic language into individual sections for more than a decade, and the LLC Act has largely followed, one section at a time. A consolidated "electronic transmission and electronic signatures" provision in Chapter 18, cross-referencing the relevant portions of Chapter 12A, would finish the work.

This is the kind of amendment that looks technical and is. For a founder signing an operating agreement in DocuSign this quarter, nothing about what they are doing will change. The change is in what a Chancery judge is willing to enforce in 2024 against a member arguing that an electronically signed consent was never "in writing" under § 18-302(d). The Council has been narrowing that argument for several years, and the 2021 bill is a natural place to narrow it further.

Registered-series cleanup

The registered-series regime came in with Senate Bill 89 of the 150th General Assembly, took effect August 1, 2019, and became operational on August 1, 2019 with a longer transition window. Registered series exist on the Division of Corporations' rolls, have their own names, can obtain their own Certificates of Good Standing, and qualify as registered organizations for UCC Article 9 purposes. Protected series under the older § 18-215 framework continue to exist alongside registered series; the statute now contemplates both.

Eighteen months in, a few edges have surfaced. Conversion mechanics between a protected series and a registered series have been a practical question for drafters restructuring existing series arrangements into the newer form. The cross-references between §§ 18-218, 18-219, 18-220, and 18-221 are dense and, in places, not as crisp as they could be. The Division's forms have been iterated through at least one revision, and several of the substantive questions the forms expose (name distinguishability, registered-agent designation at the series level, the handling of an LLC's cancellation when registered series are still active underneath it) are better handled in statute than in form notes.

The 2021 package is the logical place for that cleanup. Expect edits that tighten the inter-series conversion and merger provisions, clarify the handling of a registered series whose parent LLC cancels, and confirm the Division's practice on distinguishable names. None of this is headline material. It is the slow finish work that a substantive amendment like the 2019 registered-series rollout always generates over the first two or three years.

There is also a narrower question about annual-tax treatment. Registered series owe a $75 annual tax separate from the parent LLC's $300, a schedule the 2019 package established. The economics are still favorable compared with forming separate LLCs for each special- purpose vehicle, but at some margin the registered-series premium starts to matter, and the Council's drafting committee has heard that feedback. A change to the annual-tax rate would require a separate revenue bill rather than an amendment to Chapter 18, so it will not ride in with the LLC Act package even if the Council wanted it to; watch for any parallel revenue legislation rather than the Chapter 18 bill.

The definitional seams, and a standard conforming round

Alongside any substantive item, the 2021 package will carry the conforming amendments the Council never fails to include. The usual suspects: edits to § 18-101 where defined terms have drifted, conforming language in § 18-104 on registered-office and registered-agent mechanics, and sentence-level polish in the merger, conversion, domestication, and division sections (§§ 18-209, 18-212, 18-214, 18-216, 18-217). Division provisions are still relatively young, added in 2018, and they continue to accumulate small fixes as practitioners run them through live transactions.

There is also the question of whether the 2021 bill addresses any Chancery opinion that has surfaced a drafting ambiguity over the last twelve months. The Council tracks opinions continuously, and the thirteen-to-fourteen-month loop from a bench opinion to a statutory fix is well documented. No single opinion from 2020 or early 2021 appears, at this point, to have generated the kind of practitioner unease that Obeid produced in 2016 or that the earlier series cases generated before 2019, but a narrow fix in response to a decision on indemnification, inspection rights, or the interaction of an operating agreement's forum clause with § 18-111 jurisdiction would not be a surprise.

What is almost certainly not in this bill

Two items keep being asked about and almost certainly will not appear.

The first is anything responsive to the late-2020 federal tax developments. Federal tax policy is not the Council's lane, by long practice. The Delaware LLC product is a governance product, and the Council has been studious about keeping federal pass-through tax policy from driving amendments to Chapter 18. That posture is likely to hold.

The second is a broad rewrite of § 18-215 to sunset the protected- series regime in favor of registered series. The 2019 drafting was explicit that both forms would continue to coexist. Moving protected series off the books would strand a meaningful number of existing structures and require a transition mechanism that the Council has shown no interest in designing.

How to read the bill when it lands

When the 2021 bill is introduced, read the synopsis first. It is short, written by practitioners, and it will identify which sections are substantive and which are conforming. Read any new language on electronic transmission and remote meetings against Chapter 12A and against the HB 341 drafting pattern to see whether the Council is making HB 341 permanent, codifying what practice has already absorbed, or both. Read any amendments to §§ 18-218 through 18-221 against the 2019 text to see what registered-series drafters have been finding in the field.

For a founder forming a Delaware LLC this spring, none of this should change anything about what you do now. The formation mechanics, the registered-agent requirement, the $300 annual tax due June 1, the six-line Certificate of Formation: all unchanged. If you are planning a registered-series structure and the bill tightens the conversion mechanics, revisit your drafting in the fall, after the Division has updated its forms and the annotated practice resources have caught up.

The reliably interesting question each year is not whether the bill will pass. It will. The interesting question is which of the year's cleanup items turns out, five years later, to have been the fix that mattered. The registered-series regime in 2019 looked like a practitioner curiosity at introduction and is now a standard item on fund-formation closing checklists. A permanent remote-meeting rule in 2021, if it comes, may look similarly modest at introduction and similarly consequential by 2025.

Sources

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