Posted on December 1, 2008 by Joseph M. Wallin

Fiduciary Duties in Delaware LLCs and LPs

My colleague, Mohsen Manesh, has just completed a new paper that will be published in the spring 2009 issue of the Delaware Journal of Corporate Law. A working draft of his paper may be downloaded here.

The basic argument Mohsen makes is that given the ability of LLCs and LPs to contractually limit or eliminate fiduciary duties under Delaware law, there's virtually no reason that any new business should choose to organize itself as a corporation. He acknowledges that business managers and investors may be more familiar and therefore more comfortable with the corporate form, but gives a host of reasons for why that should not prevent the migration of businesses to unincorporated forms. Ultimately, he predicts the eventual extinction of the corporation as a business entity!

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Posted on July 24, 2008 by Joseph M. Wallin

CA, Inc. v. AFSCME Employees Pension Plan

In CA, Inc. v. AFSCME Employees Pension Plan, No. 329, 2008 (Del. July 17, 2008), the Delaware Supreme Court held that a stockholder proposed bylaw that would require the company to reimburse a stockholder's reasonable proxy expenses in event that the stockholder succeeded in having at least one director elected pursuant to a proposed short slate would violate Delaware law.

"This case involves a binding bylaw that the shareholders seek to impose involuntarily on the directors in the specific area of election expense reimbursement. Although this case is distinguishable in that respect, the distinction is one without a difference. The reason is that the internal governance contract—which here takes the form of a bylaw—is one that would also prevent the directors from exercising their full managerial power in circumstances where their fiduciary duties would otherwise require them to deny reimbursement to a dissident slate. That this limitation would be imposed by a majority vote of the shareholders rather than by the directors themselves, does not, in our view, legally matter."

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