Friday, September 9, 2011
Choice of Entity Matters
The Delaware Courts have again addressed the simple fact that Choice of Entity Matters.
In CML V, LLC v. Bax, 6 A.3d 238, 249 (Del. Ch. 2010), the Chancery Court wrote:
“[T]here is nothing absurd about different legal principles applying to corporations and LLCs.”
Affirming the Chancery Court, the Delaware Supreme Court wrote:
“[I]t is hardly absurd for the General Assembly to design a system promoting maximum business entity diversity. Ultimately, LLCs and corporations are different; investors can choose to invest in an LLC, which offers one bundle of rights, or in a corporation, which offers an entirely separate bundle of rights.”
__ A.3d __, __, 2011 WL 3863132, at *4 (Del. 2011).
Analogy is a dangerous tool as it can often lead to incorrect conclusions. The fact that in one form of organization there may be Rule A does not mean that in another form of organization there should be Rule A; in fact that other form may use Rule B. Each form of organization as modified by its organic documents needs to be understood as its own construct.