Vol. 8, No. 1, Pg. 60. New Limited Liability Company Act.

• Author: By Burnet R. Maybank III and Rick Handel

South Carolina Lawyer

1996.

Vol. 8, No. 1, Pg. 60.

New Limited Liability Company Act

60NEW LIMITED LIABILITY COMPANY ACTBy Burnet R. Maybank III and Rick HandelOn May 20, Governor David Beasley signed into law the S.C. Uniform Limited Liability Company (LLC) Act. This legislation was cosponsored in the House by Judiciary Committee Chairman Jim Harrison and in the Senate by Sen. Wes Hayes.

An LLC is an unincorporated business association that provides its owners (members) limited liability and flexible management and financial alternatives. It has become a popular new form of business entity because a properly formed LLC provides the favorable pass-through tax treatment of partnerships and the limited personal liability of corporations.

South Carolina first adopted a Limited Liability Company Act in 1994. The original Act was largely written in 1992 and did not include a series of pro-taxpayer pronouncements issued by the Internal Revenue Service in 1994 and 1995.

Since the Uniform Limited Liability Company Act (approved and recommended for enactment in all states in August 1995 by the National Conference of Commissioners on Uniform State Laws) addresses these issues, the decision was made to completely replace the South Carolina act with a South Carolina version of the Uniform Act.

The S.C. Uniform Limited Liability Act (Act) is very flexible but also contains a comprehensive set of default rules designed to substitute as the essence of the bargain for small entrepreneurs and others. The Act is flexible because the vast majority of its provisions may be modified by the owners in a private agreement. To simplify, provisions that cannot be waived or modified are set forth in a single subsection. Thus, sophisticated parties will negotiate their own deal.

On the other hand, recognizing that small entrepreneurs without the benefit of counsel should not be denied the use of LLCs, the great bulk of the Act sets forth default rules designed to operate a limited liability company without sophisticated agreements and to recognize that members may also modify the default rules by oral agreements defined in part by their own conduct.

Further, the Act has comments following most if its sections. These comments will be of great assistance to those who use and...