Delaware Amends Renowned Business Statutes 2003

Scott E. Waxman, Nicholas I. Froio, Eric N. Feldman, Mark A. Beaver

INTRODUCTION

In the months before the end of the 142nd General Assembly, Delaware's Governor Minner signed into law bills amending the renowned Delaware Revised Uniform Partnership Act, 6 Del. C. §§ 15-101, et seq. ("DRUPA"), Delaware Revised Uniform Limited Partnership Act, 6 Del. C. §§ 17-101, et seq. ("DRULPA"), and Delaware Limited Liability Company Act , 6 Del. C. §§ 18-101, et seq. ("DLLCA").  A number of these amendments are technical in nature while others represent a continuing effort by Delaware to create a progressive haven for business organizations.  The balance of this article will touch upon some of the more significant amendments to DRUPA, DRULPA and DLLCA.

AMENDMENTS TO DRUPA, DRULPA AND DLLCA

Conversion to Non-Delaware Entities

The recent amendments to DRUPA, DRULPA and DLLCA permit general partnerships, limited partnerships and limited liability companies ("LLCs") to convert to non-Delaware entities.  Under previous law, general partnerships, limited partnerships and LLCs could only convert to other Delaware entities.  If a general partnership, limited partnership or LLC wishes to convert to a non-Delaware entity, it must, in addition to complying with the other requirements to convert listed in DRUPA, DRULPA and DLLCA, respectively, file a certificate of conversion with the Office of the Secretary of State of the State of Delaware (the "Secretary of State") setting forth:

  • The name of the general partnership, limited partnership or LLC and, if its name has been changed, the name under which its statement of partnership existence, certificate of limited partnership or certificate of formation was originally filed;

  • The date of the filing of its original statement of partnership existence, certificate of limited partnership or certificate of formation;

  • The jurisdiction in which the business form, to which the general partnership, limited partnership or LLC is to be converted, is organized, formed or created;

  • The future effective date or time (which must be a certain date or time) of the conversion if it is not to be effective upon the filing of the certificate of conversion;

  • That the conversion has been approved in accordance with Section 15-903 of DRUPA, Section 17-219 of DRULPA or Section 18-216 of DLLCA, as applicable;

  • The agreement of the general partnership, limited partnership or LLC to be served with process in the State of Delaware in any action, suit or proceeding for the enforcement of any obligation of the general partnership, limited partnership or LLC arising while it was a general partnership, limited partnership or LLC of the State of Delaware, and that it irrevocably appoints the Secretary of State as its agent to accept service of process in any such action, suit or proceeding; and

  • The address to which a copy of the above-referenced process can be mailed to the general partnership, limited partnership or LLC by the Secretary of State.

(6 Del. C. §§ 15-903(e), 17-219(e), 18-216(e)).

Upon the filing with the Secretary of State of the certificate of conversion or upon the future effective date or time of the certificate of conversion and payment to the Secretary of State of all fees prescribed in DRUPA, DRULPA or DLLCA, as applicable, the Secretary of State shall certify that the general partnership, limited partnership or LLC has filed all documents and paid all fees required by DRUPA, DRULPA or DLLCA to convert to a non-Delaware entity, and thereupon the general partnership, limited partnership or LLC will cease to exist as a general partnership, limited partnership or limited liability company of the State of Delaware.  Such certificate of the Secretary of State shall be prima facie evidence of the conversion of the general partnership, limited partnership or LLC out of the State of Delaware.  (6 Del. C. §§ 15-903(f), 17-219(f), 18-216(f)).

The conversion of a general partnership, limited partnership or LLC out of Delaware and the resulting cessation of such entity's existence as a Delaware entity pursuant to a certificate of conversion shall not, under Delaware law, be deemed to affect any obligations or liabilities of such general partnership, limited partnership or LLC incurred prior to such conversion or the personal liability of any person incurred prior to such conversion.  (6 Del. C. §§ 15-903(g), 17-219(g), 18-216(g)).

Effective Time of Filings of Statements and Certificates

Numerous amendments have been enacted clarifying the general rule that the date and time of the filing of a statement or certificate with the Secretary of State is the date and time of its delivery to the Secretary of State.  The amendments address concerns arising out of the practice whereby the Secretary of State would honor requests for specific filing dates and times despite the fact that the instrument may have been delivered at a later date or time. Recently, in Liebermann v. Frangiosa, No. 19821-NC, 2002 Del. Ch. LEXIS 142, at *46-47 (Del. Ch. Dec. 4, 2002), the Court of Chancery of the State of Delaware criticized this practice for its susceptibility to fraud and abuse.  DRUPA, DRULPA and DLLCA have each been amended to provide that upon delivery to the Secretary of State of any statement or certificate, the Secretary of State shall record the date and time of its delivery.  (6 Del. C. §§ 15-105(c), 17-206(a), 18-206(a)).  Further, each of DRUPA, DRULPA and DLLCA now provides that, except in limited instances, the date and time of the filing of a statement or certificate shall be the date and time of its delivery to the Secretary of State.  (6 Del. C. §§ 15-105(c)(1), 17-206(a)(1), 18-206(a)(1)).

The following includes a list of the instances where the date and time of delivery of a statement or certificate to the Secretary of State may not necessarily be the date and time of the filing of such statement or certificate:

  • Request - Upon request made upon or prior to delivery, the Secretary of State may, to the extent deemed practicable, establish as the date and time of the filing of a statement or certificate a date and time after its delivery.  (6 Del. C. §§ 15-105(c)(5), 17-206(a)(5), 18-206(a)(5)).

  • Filings in Suspension - If the Secretary of State refuses to file any statement or certificate due to an error, omission or other imperfection, the Secretary of State may hold such statement or certificate in suspension.  Upon delivery of a replacement statement or certificate in proper form for filing and tender of the required fees within five (5) business days after notice of such suspension is given to the filer, the Secretary of State shall establish as the date and time of the filing of such statement or certificate the date and time that would have been the date and time of filing of the rejected statement or certificate had it initially been accepted for filing.  Importantly, the amendments also provide that the Secretary of State shall not issue a certificate of good standing with respect to any general partnership, limited partnership or LLC with a statement or certificate held in suspension.  (6 Del. C. §§ 15-105(c)(5), 17-206(a)(5), 18-206(a)(5)).

  • Time Zone Accommodation - If the information on a statement or certificate is entered into the Secretary of State's computer system by an authorized user, including permitted registered agent companies, the Secretary of State may establish as the date and time of the filing of such statement or certificate the date and time at which such information is entered so long as the actual statement or certificate is delivered on the same date and within four (4) hours after such information is so entered.  (6 Del. C. §§ 15-105(c)(5), 17-206(a)(5), 18-206(a)(5)).  This rule facilitates the filing of documents for parties in different time zones by allowing the information about the filing to be entered into the Secretary of State's computer system by a registered agent company processing the filing before the filing is submitted, provided that the actual filing is then received within four (4) hours thereafter.

  • Extraordinary Condition - If, along with the actual delivery of a statement or certificate and tender of the required fees, (i) either (A) a separate affidavit that attests that an earlier effort to deliver such statement or certificate and tender such fees is delivered to the Secretary of State or (B) the Secretary of State provides a written waiver of the requirement for such affidavit and (ii) the Secretary of State determines that an extraordinary condition existed at the date and time of such earlier effort which caused such earlier effort to be unsuccessful and actual delivery of the statement or certificate and tender of the required fees were made within a reasonable period (not to exceed two (2) business days) after the cessation of such extraordinary condition, then the Secretary of State may establish the date and time of the earlier effort as the date and time of the filing of such statement or certificate.  (6 Del. C. §§ 15-105(c)(6), 17-206(a)(6), 18-206(a)(6)).

      > "Extraordinary condition" means any emergency resulting from an attack on, invasion or occupation by foreign military forces of, or disaster, catastrophe, war or other armed conflict, revolution or insurrection, or rioting or civil commotion in, the United States or a locality in which the Secretary of State conducts its business or in which the good faith effort to deliver the statement or certificate and tender the required fees is made, or the immediate threat of any of the foregoing; or any malfunction or outage of the electrical or telephone service to the Secretary of State's office, or weather or other condition in or about a locality in which the Secretary of State conducts its business, as a result of which the Secretary of State's office is not open for the purpose of the filing of statements and certificates or such filing cannot be effected without extraordinary effort.  (6 Del. C. §§ 15-105(c)(6), 17-206(a)(6), 18-206(a)(6)).

      > The date and time of delivery of the above-referenced affidavit or the date and time of the Secretary of State's written waiver of such affidavit shall be endorsed on such affidavit or waiver and such affidavit or waiver, so endorsed, shall be attached to the filed statement or certificate to which it relates.  (6 Del. C. §§ 15-105(c)(6), 17-206(a)(6), 18-206(a)(6)).

      > A statement or certificate filed as set forth above in this section shall be effective as of the date and time established as the date and time of filing by the Secretary of State as set forth above in this section.  As to those persons who are substantially and adversely affected by the date and time established by the Secretary of State, however, the statement or certificate shall be effective from the date and time endorsed on the affidavit or written waiver attached thereto.  (6 Del. C. §§ 15-105(c)(6), 17-206(a)(6), 18-206(a)(6)).

AMENDMENTS TO DRULPA AND DLLCA

Trustees or Receivers for Limited Partnerships or LLCs

DRULPA and DLLCA have been amended to provide for the appointment of trustees or receivers for a limited partnership or LLC following the filing of a certificate of cancellation of certificate of limited partnership or certificate of formation.  Under DRULPA and DLLCA, a certificate of cancellation is not to be filed with the Secretary of State until the completion of the winding up of the limited partnership or LLC following its dissolution, as such filing terminates the existence of the limited partnership or LLC as a separate legal entity.  However, pursuant to the amendments to DRULPA and DLLCA, even if a certificate of cancellation has been filed, the Court of Chancery may now appoint one or more of the general partners of a limited partnership or one or more managers of an LLC to be trustees, or appoint one or more other persons to be receivers of and for the limited partnership or LLC on application of any creditor, any partner (in the case of a limited partnership), any member or manager (in the case of an LLC), or any other person showing good cause why such appointment should be made.  (6 Del. C. §§ 17-805, 18-805).

The appointed trustee(s) or receiver(s) have all of the traditional powers of a liquidator to the extent necessary for the final settlement of the unfinished business of the limited partnership or LLC.  The powers of the trustee(s) or receiver(s) may be continued as long as the Court of Chancery thinks necessary for the above-referenced purposes.  (6 Del. C. §§ 17-805, 18-805).

Series of Partnership and Limited Liability Company Interests

The provisions of DRULPA and DLLCA allowing for the creation of series of partnership and limited liability company interests, as the case may be, with inter-series limitations on liability have also been amended.  The amendments confirm existing law in providing that notice in a certificate of limited partnership or certificate of formation of the limitation on liabilities of a series is sufficient whether or not the limited partnership or LLC has established any series when such notice is included in the certificate of limited partnership or certificate of formation.  Further, there is no requirement that any specific series of the limited partnership or LLC be referenced in such notice.  (6 Del. C. §§ 17-218(c), 18-215(c)).

AMENDMENTS TO DRUPA

Liability of General Partner

DRUPA has also been amended to clarify the time at which one becomes liable as a general partner of a general partnership in connection with a conversion of any other entity to a general partnership or the domestication of any non-United States entity as a general partnership.  DRUPA now provides that a person who is a partner of a general partnership at the effective time or date of the conversion of any other entity to a general partnership shall be deemed admitted as a partner of such general partnership at the effective time or date of such conversion.  (6 Del. C. § 15-901(j)).  DRUPA also now provides that a person who is a partner of a general partnership at the effective time or date of the domestication of a non-United States entity as a general partnership shall be deemed admitted as a partner of such general partnership at the effective time or date of such domestication.  (6 Del. C. § 15-904(k)).

Necessity to File Statement of Partnership Existence

DRUPA has additionally been amended to provide that if a general partnership is transferring or domesticating or continuing pursuant to Section 15-905 of DRUPA and has not filed a statement of partnership existence, then the general partnership must file a statement of partnership existence prior to or at the time of the filing of the certificate of transfer or the certificate of transfer and continuance.  (6 Del. C. § 15-905(a)).

CONCLUSION

By clarifying existing law where the clarifications were deemed beneficial and creating more flexibility where additional latitude was viewed as advantageous, the recent amendments to DRUPA, DRULPA and DLLCA continue Delaware's leadership as the jurisdiction of choice for the formation of all types of business entities.  The foregoing amendments became effective August 1, 2003.