Limited Liability Company – General – Delaware

The Delaware Limited Liability Company Act provides that a limited liability company may carry on any lawful business, purpose or activity, whether or not for profit, with the exception of the business of granting policies of insurance, or assuming insurance risks or banking as defined in § 126 of Title 8.”

If the limited liability company is organized to engage in the practice of a profession, then, obviously, the limited liability company is subject to provisions of other laws that control or regulate that particular profession.  A Delaware limited liability company organized to engage in the practice of professional engineering is subject to the Delaware Limited Liability Company Act as well as all rules and regulations applicable to professional engineers adopted by the Delaware Association of Professional Engineers.

The name a limited liability company:

1. Must contain the words “Limited Liability Company” or the  abbreviation “L.L.C.” or the designation “LLC”;
2. May contain the name of a member or manager;
3. Must be distinguishable upon the records in the office of the Secretary of State from the name of any corporation, limited partnership, business trust, limited liability partnership or limited liability company reserved, registered, formed or organized under the laws of the State of Delaware or qualified to do business or registered as a foreign corporation, foreign limited partnership or foreign limited liability company in the State of Delaware.
4. May contain the word Company, Association, Club,  Foundation, Fund, Institute, Society, Union, Syndicate, Limited or Trust (or abbreviations of like import).

The Delaware Limited Liability Company Act contains no specific provisions applicable to limited liability companies organized to engage in the practice of a profession.  However, the Professional Service Corporation Act contains extensive provisions applicable to a corporation organized to engage in the practice of a profession.

The Delaware Limited Liability Company Act does provide that “In any case not provided for in [the Delaware Limited Liability Company Act], the rules of law and equity, including the law merchant, shall govern.”  Therefore, it would seem both logical and prudent to look to the Professional Corporation Act for guidance on how a limited liability company should be organized and what restrictions it should adhere to.

The following are provisions from the Professional Service Corporation Act that are applicable to corporations and that appear appropriate to modify and apply to a limited liability company organized to engage in the practice of a profession.

The Professional Service Corporation Act defines a “professional service” as any type of personal service to the public which requires as a condition precedent to the rendering of the service the obtaining of a license or other legal authorization, and which could not be performed by a corporation.

No professional corporation may render professional services except through its officers, employees and agents who are duly licensed or otherwise legally authorized to render such professional services within Delaware.  This restriction does not include employees and other assistants who are not usually and ordinarily considered by law, custom and practice to be rendering professional services to the public for which a license, or other legal authorization, is required in connection with the profession to be practiced.

Nothing contained in the Professional Service Corporation Act this chapter abolishes, repeals, modifies, restricts or limits the law applicable to the professional relationship and the contract, tort, and other legal liabilities between the person furnishing the professional services and the person receiving the professional service.  The standards for professional conduct, including the confidential relationship between the person rendering the professional services and the person receiving such professional service and all confidential relationships remain inviolate.

Any officer, employee, agent or shareholder of a professional corporation remains personally and fully liable and accountable for any negligent, wrongful acts, or misconduct committed by that person, or by any person under such person’s direct supervision and control, while rendering professional service on behalf of the corporation to the person for whom the professional services were being rendered. The professional corporation is liable up to the full value of its property for any negligent, wrongful acts, or misconduct committed by any of its officers, employees, agents or shareholders while they are engaged in behalf of the corporation in the rendering of professional services.

No professional corporation may engage in any business other than the rendering of the professional services for which it was specifically incorporated.  However, the corporation is not prohibited corporation from investing its funds in real estate, mortgages, stocks, bonds, or any other type of investments, or from owning real or personal property necessary for, or appropriate or desirable in, the fulfillment or rendering of its professional services.

No corporation may issue any of its capital stock to anyone other than an individual who is duly licensed or otherwise legally authorized to render the same specific professional services as those for which the corporation was incorporated. No shareholder of a corporation, organized under this chapter, shall enter into a voting trust agreement, proxy, or any other type of agreement vesting another person with the authority to exercise the voting power of any or all of such shareholder’s stock.

If any officer, employee, agent or shareholder of a corporation, organized under this chapter, becomes legally disqualified to render professional services within Delaware, that person must immediately sever all employment with and financial interests in the corporation.

No shareholder of a professional corporation may sell or transfer his/her shares in the corporation except to the corporation, or to another individual who is eligible to be a shareholder of such corporation, and the sale or transfer may be made only after the same shall have been approved, at a stockholders’ meeting specially called for such purpose, or at an annual meeting with 10 days’ notice of such additional purpose, by such proportion, not less than a majority, of the outstanding stock entitled to be voted on that question as may  be provided in the certificate of incorporation or in the bylaws. At such shareholders’ meeting the shares of stock held by the shareholder proposing to sell or transfer that shareholder’s shares may not be voted or counted for any purpose. The certificate of incorporation may provide specifically for additional restraints on the alienation of shares, and may require the redemption or purchase of such shares by the corporation at prices and in a specific manner, or authorize the corporation’s board of directors or its shareholders to adopt bylaws restraining the alienation of shares and providing for the purchase or redemption by the corporation of its shares; provided, however, such provisions, dealing with the purchase or redemption by the corporation of its shares, may not be invoked at a time or in a manner that would impair the capital of the corporation.

Note: All Information and Previews are subject to the Disclaimer located on the main forms page, and also linked at the bottom of all search results.