Contractual Freedom under Delaware Alternative Entity Law: Evidence from Publicly Traded LPs and LLCs
Citation: Mohsen Manesh (2011/12/01) Contractual Freedom under Delaware Alternative Entity Law: Evidence from Publicly Traded LPs and LLCs. Journal of Corporation Law (RSS)
Internet Archive Scholar (search for fulltext): Contractual Freedom under Delaware Alternative Entity Law: Evidence from Publicly Traded LPs and LLCs
Download: https://ssrn.com/abstract=1939920
Tagged: delaware (RSS)
Summary
Fiduciary traditionalists decry the contractualization of fiduciary duties advocated by contractarians who foresee tailored uncorporate rules instead.
For long time, Delaware limited partnerships (LPs) and limited liability companies (LLCs, and collectively with LPs, alternative entities) have been permitted to contractually modify, limit, and even [since August 1, 2004] eliminate the fiduciary duties of their managers arising under common law, as corporations cannot.
Paper analyzes the operating agreements of every publicly traded Delaware alternative entity in existence as of June 2011 [count=85; 73 LPs, 12 LLCs; mostly in energy industry for tax reasons].
Publicly traded is a limitation of study; contractarians suggest investors in closely held firms may be more sophisticated and able to use uncorporate mechanisms. Tax reasons for companies with large passive assets such as energy companies to be public alternative entities may also bias study.
Study finds that the use of fiduciary waiver and exculpation provisions among publicly traded Delaware alternative entities is widespread [75 of 85, or 88% of which 33 waive fiduciary liability and 42 eliminate fiduciary duties, with only 2 of the remaining 10 unambiguously embracing full fiduciary duties]. Also finds that publicly traded alternative entities have either not adopted uncorporate substitutes or adopted uncorporate substitutes that only trivially constrain managerial discretion, suggesting that publicly traded alternative entities have largely utilized the freedom of contract to reduce managerial accountability to investors without committing to significant offsetting constraints on managerial discretion.
