Do Members & Managers Desire Fiduciary Duties?

In Delaware, fiduciary duties between or among LLC managers and members may be removed through the inclusion of specific language in a written operating agreement. Absent such language, it is possible that these fiduciary obligations will not apply. This is the standard view under Delaware law. Thus, if an LLC wishes to exempt itself from these duties, it should take steps to ensure that its operating agreement contains adequate provisions regarding this matter. How To Start Your Own Roofing Business.

In Massachusetts, managers and members of LLCs are bound by the same fiduciary obligations as shareholders and officers of corporations - to act in utmost good faith and loyalty. There is no definitive answer from the state on whether these duties can be or not in an Operating Agreement, so it is uncertain how a court would rule if this issue were tested. If you wish to avoid having such obligations imposed upon your managers or members, you may want to consider incorporating your business in Delaware instead. Also, check the LLC Registration Form.

What Is the Delaware Act?

• The Delaware Act of 1704 was the first law in the United States to recognize corporations.

• It enabled companies to incorporate in any state, regardless of where their headquarters were located. Apply for Permits & Licenses through LegalRegistration.com

• This allowed them to take advantage of the laws and regulations that existed in each state, as well as conferring limited liability status on shareholders.

• The Delaware Act helped spur economic growth by making it easier for businesses to form and operate within a given state. Contact Us Now To Get a DC Registered Agent.

• It also set a precedent for other states’ corporate laws and established Delaware as a major business center. To this day, many large US companies are incorporated in Delaware because of its business-friendly environment and regulatory advantages. Do I Need a Lawyer To Start an LLC?

What Is the Massachusetts Limited Liability Company Act?

• The Massachusetts Limited Liability Company Act is a set of laws that govern the formation, operation, and dissolution of limited liability companies (LLCs) in the Commonwealth of Massachusetts.

• The Act provides legal protection to LLC members from personal liability for debts and obligations incurred by the company. Who Must Have a Business License?

• It also gives LLCs the flexibility to choose their management structure, allows them to maintain their corporate veil (to prevent creditors from pursuing members' assets), and sets forth rules regarding taxation and reporting requirements.

• LLCs are required to register with the state before they can begin operations and must renew their registration each year.

• Furthermore, LLCs are subject to certain annual filing requirements as well as other regulations.

What Type of Level of Indemnification Is a Requirement?

In Delaware, LLCs can protect any person from claims through indemnification as long as it does not conflict with public policy. Conversely, Massachusetts law does not allow for such protection if the individual holding responsibility for a claim is found to have acted without good faith or belief that their actions were in the interest of the LLC. If you’re looking for absolute legal cover from liability, incorporating an LLC in Delaware may be a suitable option. How to Avoid Using Your Home Address for Your LLC

Is an LLC Member Allowed To Unilaterally Resign?

In Massachusetts, a member of an LLC may resign after providing six months' notice and receive fair value for their interest - regardless of any contrary terms in the operating agreement. Conversely, Delaware law prohibits members from resigning if it is prohibited in the LLC's operating agreement. How to Start a Successful Mechanic Shop: A Comprehensive Guide.

When Can “Clawbacks” Take Place?

Members of LLCs under Delaware law may be held liable to the LLC if they received a distribution from it knowing that the LLC was either insolvent or would become so as a result. This can occur even if the member was unaware their actions were illegal. Therefore, LLC members need to be aware of their company’s financial standing before distributing any profits. How To Start A Background Check Company.

In Massachusetts, members can be held liable to the LLC and other members if they vote for or agree to distributions that go against the operating agreement. In contrast, Delaware law allows a clawback provision in cases where there was a knowing violation of the relevant part of the Delaware LLC Act. So if you're aiming to limit clawbacks, Delaware law might be the better option. LLC or Corporation: Which Business Entity is Right for You?

Is a Charging Order the Only Remedy When It Comes to a Member’s Judgment Creditor?

In Delaware and Massachusetts, a court may grant an LLC the right to charge interest on judgments entered against its members. This is known as a "charging order". If granted, such an order helps ensure that the LLC can adequately cover any costs associated with satisfying monetary judgments. How Do Corporations Raise Money And Resources To Expand?

When it comes to Delaware, a charging order is a sole method for a judgment creditor of an LLC member or their assignee to fulfill their judgment. In contrast, Massachusetts does not explicitly state that a charging order is the only way for such creditors to collect on their judgment. Therefore, those seeking to limit the rights of other members creditors may prefer Delaware law. Free Professional Organizer Training.

Can an LLC Enter Into a CMBS Loan or Hire Institutional Investors?

If your LLC is planning to get a serviced securitized loan or bring in an institutional investor, Delaware LLC formation might be the right option. This is because many servicers of securitized loans and venture capital firms require borrowers to be a Delaware LLC, as do other large institutional investors. To ensure a smooth process when considering these options, it makes sense to pursue forming an LLC in Delaware. Visit Underground Storage Tank Business License.

Can I Afford To Establish My LLC in Delaware?

Forming a Limited Liability Company in Massachusetts can come with some extra costs. If the business of the LLC is conducted solely in Massachusetts, the filing fee alone for forming and maintaining it stands at $500.00 plus an additional $500.00 each year thereafter. Forming an LLC in Delaware would result in higher annual fees and therefore isn't recommended unless certain benefits outweigh those associated with setting up and maintaining an LLC in your home state of Massachusetts. Starting a Crystal Business: 13 Simple Steps.

Establishing a Delaware LLC can be an affordable option, with an initial filing fee of $90 and annual fees of $250. However, if you intend to do business in Massachusetts with your LLC, it will need to qualify (register) as a foreign LLC in the state - which may double the filing fees. Any potential benefits offered under Delaware LLC law must be weighed against this increase in compliance costs. How to Draft a Series LLC Operating Agreement: Here’s What You Need to Know.