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District of Columbia Enacts New Laws Governing Business Organizations, including Limited Liability Companies

Real Estate Law Update

The District of Columbia recently enacted a major and comprehensive revision of its laws regarding business entities, including corporations, nonprofit corporations, limited partnerships and limited liability companies (LLCs) – the entity of choice for a large number of real estate investors and developers in D.C. The changes took effect on January 1, 2012, with the exception of the changes applicable to limited liability companies, for which there is a one year transition period.

Similar to the old LLC law, the new LLC law is a default statute. This means that if the members of an LLC have not agreed on a particular issue, then the statute governs with respect to that issue. The new law sets forth provisions governing the extent to which the members of the LLC can, by agreement, alter, eliminate or restrict certain statutory default provisions. Significantly, among the items which can be altered (but not eliminated) are the duty of loyalty, the duty of care, any other fiduciary duty and the contractual obligation of good faith and fair dealing.

In addition, the new LLC law contains specific provisions relating to obtaining charging orders against a member’s LLC interest, and actions by members against the LLC, including derivative actions. The new law also makes D.C. one of the growing number of jurisdictions providing for the formation of “Series LLCs” – a form of LLC in which the members may segregate the company’s assets and operations into discrete “series” under one organizational umbrella, similar in structure and function to a parent corporation with multiple subsidiaries.

David Kay is an attorney at Lerch, Early & Brewer in Bethesda, Maryland who advises businesses and individuals regarding business transactions, commercial lending, real estate transactions, real estate finance, commercial leasing and entity formation. For more information about the new DC laws, contact David at dekay@lerchearly.com or (301) 657-0724 or one of our other business and taxation attorneys.

This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.

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