Wednesday, September 9, 2020

An LLC Is Not a Corporation

An LLC Is Not a Corporation
      An LLC is not a partnership, and it is not a corporation. Neither is it a species of either of those business organizational forms. Rather, an LLC is a unique combination of characteristics, some which have precedents in the law of corporations and partnerships and some of which are unique to limited liability companies. There are a significant number of cases addressing the challenge of whether a statute drafted long before the existence of LLCs that references, for example, “corporations” or “partnerships” should be read as including as well LLCs. In a recent decision from Texas, with respect to a particular statute, that question was answered in the negative. D. Webb Industries, LLC v. Permian Equipment Rentals, LLC, 2020 WL 4875879 (Tx. App. - Eastland, Aug. 20, 2020).

      Under Texas law, it is possible to recover attorneys’ fees against corporations and individuals in certain cases as provided for in § 38.001 of the Texas Civil Practice and Remedies code, it being helpfully labeled “Recovery of Attorney’s Fees.” In this instance, an application was made for recovery of attorney's fees against the LLC. The defense was that the statute is restricted to recovery against corporations and individuals, and an LLC is neither.

      Following a long string of prior Texas decisions that have addressed the issue, the court refused to step outside the accepted interpretation of § 38.001, holding that attorney's fees may not be recovered against an LLC in that it is neither a corporation nor an individual.

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