The Two Worlds of LLCs: A Conversation With Professor Peter Molk (Part Two)

January 06, 2020

As is my custom, I devote a post on this blog to each new episode of my Business Divorce Roundtable podcast. Episode 20, featuring Part Two of my interview of Professor Peter Molk on the topic of LLCs, is now available and can be heard by clicking on the link at the bottom of this post.

If you haven’t already listened to Part One, I highly recommend you do so before listening to Part Two. This link will bring you to last month’s post with a link to Part One, in which I set the stage for the interview focusing on Professor Molk’s recently published law review article entitled Protecting LLC Owners While Preserving LLC Flexibility. In his article, Professor Molk develops the case for bifurcating LLC law depending on LLC owners’ projected sophistication. As he states in an online companion to his article, the proposed bifurcation “accomplishes the incompatible twin goals of giving LLC owners flexibility to set their internal governance rules while protecting relatively unsophisticated owners.”

In Part One of the interview, we mostly discuss the pros and cons of freedom-of-contract versus mandatory rules in what I call the two worlds of LLCs, the one generally involving larger and/or highly capitalized firms with “sophisticated” LLC owners who have bargaining power and access to competent legal and financial advisors, and the other generally involving smaller and/or thinly capitalized firms with “unsophisticated” LLC owners lacking similar expertise and means.

Part Two focuses on the mechanics of Professor Molk’s novel proposal for qualified LLCs. For those interested, his article contains a far more detailed exploration of his proposal while also anticipating and addressing potential criticisms.

Will Professor Molk’s proposal gain traction in any of our state legislatures? I’m not holding my breath, especially as regards the New York legislature which has barely tinkered with the state’s LLC  Law since its adoption 25 years ago while most other states have made major advances including adoption of the Revised Uniform LLC Act.

But even if it doesn’t produce concrete results, Professor Molk’s scholarship in this area of the law brings needed attention to the growing pains of the LLC form which, within the relatively short span of 30 or so years, has risen from obscurity to become the entity of choice across the country.