Friday, April 25, 2014

A Curious Louisiana Statute on the Formation of LLCs

A Curious Louisiana Statute on the Formation of LLCs
         It is axiomatic, or least we thought it to be, that an LLC cannot enter into an agreement prior to the LLC’s formation.  It is also taken as axiomatic, or at least it was, that the existence of an LLC cannot commence prior to the filing of the Articles of Organization (however denominated) by the appropriate Secretary of State.  To that end, a contract entered into on behalf of a not yet formed LLC (a) binds the purported agents of the LLC as principals in that the purported principal did not yet exist; (b) the LLC will have any interest in that contract only if assigned by the purported agents; and (c) the LLC lacks the capacity to ratify, as contemplated by § 4.02(1) of the Restatement (Third) of Agency, the transaction.
         It turns out there is at least one exception to these rules.  Louisiana has a most curious statute, L.S.A. § 12:1310.1, which provides:
Retroactivity of company's existence; acquisition of immovable property prior to limited liability company's existence
Whenever any immovable property is acquired by one or more persons acting in any capacity for and in the name of any limited liability company which has not been issued a certificate of organization as provided by law, and the limited liability company is subsequently issued a certificate of organization in accordance with the provisions of R.S. 12:1304, the limited liability company's existence shall be retroactive to the date of acquisition of an interest in such immovable property, but such retroactive effect shall be without prejudice to rights validly acquired by third persons in the interim between the date of acquisition and the date that the limited liability company was issued the certificate of organization.
      By my reading of the statute, but not having engaged in any other investigation, it is not required that the real property by in Louisiana, something to think about if ever caught in this situation.
    Still, this is a circumstance that should avoided.

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