Sunday, September 11, 2011

An Interest in an LLC is Personal Property, Except …

An Interest in an LLC is Personal Property, Except …

The Kentucky LLC Act is quite explicit on the point – an interest in an LLC is personal property.  KRS § 275.250.  The statute provides as well that the property of the LLC is not the property of the members.  KRS § 275.240(1).
In order to receive a commission on a land sale in Kentucky, one must be licensed as a broker.  KRS §§  324.020(1), (2).
Assume that ABC, LLC holds assets including real property.  May Broker (not licensed as a real estate broker) collects a commission when he successfully arranges a sale of the LLC interest in ABC, LLC?  Based upon the fact that the assets being sold, the LLC interests, are personal property and of themselves give rise to no interest in the LLC’s property (see also Baker v. Erpenbeck (In re Erpenbeck), 2004 Bankr. LEXIS 739, at *8 (Bankr. E.D. Ky. April 1, 2004) (holding that property of LLC is not property of the members; members have no equitable interest in LLC’s property)), it would appear that the commission is due and owing.  Appearances, however, can be deceiving.
In Lairsen v. Figuerado, 2010 WL 1740881 (E.D. Ky. 2010), relying upon Kirkpatrick v. Lawrence, 908 S.W.2d 125, 128 (Ky. App. 1995), the Court (Judge Hood) held that no commission could be paid on the sale of LLC interests when the LLC’s asset included real property.
“Where … the business has an interest in real estate as one of its major assets, Kentucky courts have announced the bright-line rule that a person negotiating the sale for another party must be licensed as a real estate broker to be entitled to any commission on the sale.”

The Court stuck down as well efforts to recover in quantum meruit and on the basis that there existed an oral partnership for the sale of the LLC interest.  As to the alleged oral partnership, it was rejected on the basis that as the subject of the oral partnership was an interest in real property (held through an LLC), the statue of frauds (KRS § 371.010(6), (8) and (9)) applied.  In that the partnership agreement was not in writing, it could not be enforced.
            Let the broker beware!

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