Member Liquidity, Default Rules, and the Corporate-ization of LLCs: A Conversation with Dean Donald J. Weidner
May 18, 2020
I’m very excited to announce my latest podcast interview featuring Donald J. Weidner, Dean Emeritus of the Florida State University College of Law. But first . . .
LLC statutes include default rules that govern the firm’s internal affairs unless provided otherwise by an operating agreement adopted by the members. When the members lack an operating agreement, the LLC statute’s default rules are the operating agreement.
If you compare most LLC statutes today with the ones initially enacted in the ‘80s and ‘90s, albeit with some variation among the states, you’ll find a major shift away from member liquidity rights. Members generally no longer have a default right to withdraw and be bought out. Default rules for the non-judicial dissolution and winding up of LLCs were changed from those akin to an at-will partnership to those emulating the corporation’s perpetual existence. Access to judicial remedies became harder by importation from corporate law of the direct versus derivative distinction.
None of this sits well with Dean Weidner, widely recognized as one of the country’s leading experts on partnerships, limited liability companies and fiduciary duties. In addition to serving as Dean of FSU’s College of Law for almost 25 years, and where he continues to teach business law as the Alumni Centennial Professor, Dean Weidner was the Reporter for the Revised Uniform Partnership Act (1994) and is co-author of a leading treatise on RUPA published by Thomson Reuters. Dean Weidner also maintains a private practice as a mediator and arbitrator with the Florida law firm Upchurch Watson White & Max.
I first encountered Dean Weidner at last year’s LLC Institute meeting in Tampa where he gave the keynote address. His talk presented a critical analysis of the scaling back of LLC member liquidity rights and, in general, of the “corporate-ization” of LLCs contrary to what he terms the “presumptive intention” of the “target group” for LLC default rules, namely, small groups of entrepreneurs who form businesses without the benefit of counsel.
Dean Weidner’s address became the basis for his forthcoming article in the ABA’s quarterly journal, The Business Lawyer, entitled LLC Default Rules Are Hazardous to Member Liquidity, the full text of which can be downloaded at the SSRN website.
I was very pleased and grateful when Dean Weidner agreed to be interviewed for my Business Divorce Roundtable podcast, which you can enjoy by clicking on the below link. LLC member illiquidity, i.e., the inability of a non-controlling member to exit and realize the value of his or her interest, is a root cause of many of the disputes that end up in the hands of business divorce lawyers. It’s also a subject Dean Weidner discusses with great authority, insight, and passion.