Ann E. Conaway

The Global Use of the Delaware Limited Liability Company for Socially Driven Purposes

Ann E. Conaway — Wed, 15 Feb 2012 10:43:07 PST

In the past, United States “for-benefit” entities were generally organized as non-profit corporations. The same choice is available in the United Kingdom, but the entity’s purpose is traditionally limited to charities. However, a true non-profit entity does not allow an investor to receive any return on her investment, i.e., all “profits” are redistributed to the entity and not to its members/investors. In the present economy, entrepreneurs increasingly wish to invest capital in socially responsible businesses and to receive an internal return - a true admixture of “profit” and “social benefit.” In addition, these “social entrepreneurs” increasingly seek capital from private investors or foundations with “program related investments” or, “PRIs,” that include low-interest loans or loan guarantees to non-profit charities or organizations engaged in socially beneficial efforts. Examples of hybrid organizations blending “profit” with “benefit” in the United States include the “B,” or “benefit,” corporation, and the L3C. Each of these hybrid entities carries significant pre-packaged disadvantages.

The thesis of this Article is that presently the Delaware LLC provides global investors maximum internal efficiency as well as asset protection at a decreased agency cost for businesses operating solely within or outside the United States for socially driven enterprises. The Delaware LLC offers contractual freedom to investors, managers, owners, funds and foundations to structure a for-benefit, for profit socially responsible business internal plan with limited liability for owners and investors, including maximum tax efficiencies within the United States or the United Kingdom due to its completely mobile, contractual character.

Challenging Traditional Thought: Chief Justice Steele’s Proposition on Default Contractual Duties for Delaware Limited Liability Companies Tests Delaware Jurists and Practitioners’ Presumptions that All Business Entities Must Necessarily Be Formed with Fiduciary Duties

Ann E. Conaway — Tue, 06 Dec 2011 15:22:15 PST

I agree with Chief Justice Myron T. Steele in his article, Freedom of Contract and Default Contractual Duties in Delaware Limited Partnerships and Limited Liability Companies, that the proper default rule for Delaware limited liability companies (“LLCs”) formed under the Delaware Limited Liability Company Act (“DLLCA” or “Act”) is the contractual duty of good faith and fair dealing. As his history as Vice Chancellor of the Delaware Court of Chancery and Justice of the Delaware Supreme Court, before taking the helm as Chief Justice has proven, Myron T. Steele is a judicial scholar of rare business prescience. Because Chief Justice Steele willingly examines Delaware’s popular alternative entity statutes with exceptional rigor and demand is laudable and demands reasoned – not kneejerk - legal reaction and examination. It is my hope in this article to set forth rational, reasoned principles supporting the Chief Justice’s article. I invite each reader to set aside bias, pre-conceived legal opinions, and rote legal training and to listen. Hearing each legal argument and searching for– not assuming – the most appropriate answer to the question of default duties is our quest.

Unlike my “bomb-throwing” colleagues who mask legal arguments behind clever rhetoric, my opinion is based upon the construction of DLLCA, the lack of extant common law at the enactment of DLLCA, the absence of vicarious liability for members or managers of a Delaware LLC, and the ability of contract policing techniques to render “equity” in the circumstance of an unsophisticated, unrepresented party to a Delaware LLC agreement.

Why No Respect? The Contractual Duties of Good Faith and Fair Dealing in Delaware

Ann E. Conaway — Tue, 03 Aug 2010 12:34:20 PDT

The thesis of this paper focuses on the statutory policy of "freedom of contract" in Delaware unincorporated entity law and the confusion of some courts in applying these contractarian principles in the face of, what would have been, traditional fiduciary duties. What has resulted is a muddle in the case law caused by the similarity in the terms good faith, in the context of the duty of good faith in contract law, and the term good faith as it is used in the law of business organizations to describe a fiduciary duty of care or the standard of conduct for a director in a corporation. Similarly, puzzlement results when litigators or courts mistakenly interchange the contract term fair dealing with the judicial standard of entire fairness traditionally reserved for the review of conduct by disloyal fiduciaries. In Delaware, it is time for corporate principles to remain in the realm of corporate law and the corpfuscation of unincorporated law to end.

Trenwalla: A Call for Rationalizing Fiduciary Duties to Creditors in Delaware

Ann E. Conaway — Tue, 03 Aug 2010 12:29:21 PDT

In 2007, the Delaware Supreme Court considers two cases: North American Catholic Educational Programming Foundation, Inc. v. Gheewalla and Trenwick America Litigation Trust v. Ernst and Young, et al., both involving fiduciary duties to creditors. Not since Bovay v. H.M. Byllesby & Co., a 1944 corporate insolvency case decided upon the historical trust fund doctrine, has the Delaware Supreme Court had the opportunity to reexamine the state of Delaware case law on directorial duties to creditors at insolvency or the "vicinity of insolvency." On May 18, 2007, the Court held that "individual creditors of an insolvent corporation have no right to assert [direct] claims for breach of fiduciary duty against corporate directors." Given that these issues are equally applicable to direct or derivative fiduciary duties to creditors, will the Delaware Supreme Court will take the opportunity presented in Trenwick to eliminate the troublesome fiduciary derivative duty to creditors in favor of more rational, creditor-particular remedies.

The Delaware Supreme Court stands at a divide and thus should adopt a rational approach to the law of creditor rights by eliminating all derivative fiduciary duties in whatever context. This rational approach is dictated by: 1) the need for corporate management to be able to "engage in vigorous and good faith" negotiations with creditors in or near insolvency; 2) creditors' inability to meet the exacting legal standards required to bring a derivative suit; 3) the unfair exposure that advisors to corporate directors suffer under the Delaware regime after Gheewalla; and 4) the lack of rationality of the present day "duty to creditors" to its historical underpinnings (the trust fund doctrine) which required unjust enrichment of corporate management at the expense of the corporate enterprise.

Fiduciary Duties of Owners and Managers in Closely-Held Businesses and Contractual Relationships or Co-Ownerships

Ann E. Conaway et al. — Thu, 02 Jul 2009 08:57:32 PDT

Structural Variations

Ann E. Conaway et al. — Thu, 02 Jul 2009 08:54:30 PDT

Structuring Management and Duties Impact of Lawyers

Ann E. Conaway et al. — Wed, 01 Jul 2009 14:32:46 PDT

A Business Review of the Delaware Series: Good Business for the Informed

Ann E. Conaway — Wed, 01 Jul 2009 14:17:33 PDT

Delaware has long attempted to provide business structures that reflect the demands of the business community in an efficient and productive manner. One prime example of this demand/response is the "series" interest available in Delaware limited partnerships, LLCs, and statutory trusts. The series structure combines the flexibility that different types of businesses desire along with the statutory and contractual support that Delaware provides to all of its unincorporated business organizations. Other states have now emulated the Delaware series concept, although there is still considerable confusion as to how a series works. This piece provides an overview of some of the more significant provisions of the Delaware series law. The author concludes that the Delaware series provides a beneficial, efficient use of a combined contractual Delaware entity form with sensible, informed planning

Lessons to be Learned: How the Policy of Freedom to Contract in Delaware’s Alternative Entity Law Might Inform Delaware’s General Corporation Law

Ann E. Conaway — Mon, 23 Mar 2009 09:45:18 PDT

This article considers whether, as a result of recent activity by alternative entities in the public markets, it is appropriate to revise the Delaware General Corporation Law (DGCL) to provide for greater contractual flexibility to shareholders in all Delaware corporations. Such revisions may seek to alter or redefine the duties of directors and officers. Two situations presently call for contractual modification of managerial duties in public corporations: (1) aiding and abetting liability of advisors to exculpated directors, and (2) nonstockholder constituencies of Beneficial Corporations (B Corporations).

Transferee and Assignee Rights: Charging Orders and Other Creditor Remedies in Uniform Unincorporated Acts

Ann E. Conaway — Wed, 11 Feb 2009 13:53:48 PST

The Model Entity Transactions Act

Ann E. Conaway et al. — Wed, 11 Feb 2009 13:42:40 PST

Transferee and Assignee Rights; Charging Orders; Piercing and Reverse Piercing; Duty to Creditors; and Other Creditor Remedies in Uniform Unincorporated Acts

Ann E. Conaway — Wed, 11 Feb 2009 13:37:24 PST

Internal Disputes and Break-Ups: Colorado, California, and Delaware

Ann E. Conaway et al. — Wed, 11 Feb 2009 13:24:34 PST

Keatinge and Conaway on Choice of Business Entity

Ann E. Conaway et al. — Tue, 13 Jan 2009 11:38:06 PST

Published annually since 2006.

The "Overloaded" PMSI in Bankruptcy: A Problem in Search of a Resolution

Ann E. Conaway — Wed, 17 Dec 2008 08:58:50 PST

"Highly Confident" Letters and Tender Offer Financing

Ann E. Conaway — Wed, 17 Dec 2008 08:57:26 PST

"De-Leveraging" the Leveraged Buyouts of the 1980s: A Prisoner's Dilemma for Unsecured Corporate Bondholders in the 1990s

Ann E. Conaway — Wed, 17 Dec 2008 08:55:57 PST

Reexamining the Fiduciary Paradigm at Corporate Insolvency and Dissolution: Defining Directors' Duties to Creditors

Ann E. Conaway — Wed, 17 Dec 2008 08:53:52 PST

The Agile Virtual Corporation

Ann E. Conaway — Wed, 17 Dec 2008 08:52:27 PST

The Multi-Facets of Good Faith in Delaware: A Mistake in the Duty of Good Faith and Fair Dealing; A Different Partnership Duty of Care; Agency Good Faith and Damages; Good Faith and Trust Law

Ann E. Conaway — Wed, 17 Dec 2008 08:46:31 PST