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Does Delaware Enjoy the Same Attractions as a Domicile for LLCs as for Corporations

By Francis G. X. Pileggi, Esq.

Professors Larry Ribstein and Bruce Kobayashi have co-authored an article titled: Jurisdictional Competition for LLCs.  Here is Professor's Ribstein's blog post about it. Volumes have been written about the competition among states to attract those who form corporations, especially large, publicly held corporations, but this paper fills a void in the scholarly analysis of the issue regarding whether there is a competition for the domicile of LLCs. The authors provide the following abstract.

 Most of the work on jurisdictional competition for business associations has focused on publicly held corporations and the factors that have led to Delaware's dominant position in attracting out of state firms. Is there an analogous jurisdictional competition to attract formations by closely held firms? Limited liability companies (LLCs) offer a good opportunity to examine this question. Most LLC statutes have been adopted and changed rapidly during the past 20 years. Unlike general and limited partnerships, which have been shaped by uniform laws, LLC statutes vary significantly, and states have devoted a lot of effort to drafting their individual statues. This variation provides an opportunity to test the statutory provisions and other factors that influence LLC's choice of where to organize. We find little evidence that firms choose to form outside their home state in order to take advantage of variations in statutory provisions. Instead, we find evidence that large LLCs, like large corporations, tend to form in Delaware, and that they do so for many of the same reasons – that is, for the quality of Delaware's legal system.  (emphasis added).

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on July 11, 2009 (boomark / email).