An Empirical Glimpse into Limited Liability Companies: Assessing the Need to Protect Minority Investors

摘要

This article reports the findings of an empirical study of the choice, creation, and governance of LLCs. The findings challenge the stereotype of the minority member as unsophisticated and unrepresented. Nevertheless, the study shows a disparity in the rates of legal representation of controlling members and active minority members. A closer look at the use of buyout clauses reveals that only a small percentage of attorneys representing active minority interests negotiated a buyout clause on behalf of their clients on a frequent basis. The study revealed widespread formation of LLCs without operating agreements and the prevalent use of no-frills LLC agreements. These findings, in conjunction with emerging case law involving abusive conduct by majority or controlling interests, contradict the assumption that parties effectively protect themselves contractually. The skewed nature of the legal representation should be kept in mind as legislators begin to debate the many controversial issues surrounding the LLC. Statutory-mandated dissolution and buyout rights, along with other judicial or statutory remedies, may be needed in light of the practical realities of the contractual playing field.