Since the enactment of the Delaware LLC laws in 1992 (the “Limited Liability Company Act”), Delaware has experienced unprecedented registrations within this form of structure. The fact that this type of business entity brings together aspects of a corporation and partnership, its use for various business arrangements are without measure, and particularly, the hedge fund industry.
While Delaware competes with other states, forming an LLC under Delaware law has its benefits when compared to the other states. The key factors supporting the growth of this jurisdiction rest mainly on the following, making Delaware the state of choice for LLC registrations:
1. The Court System - Delaware has a specialized Court, known as “Court of Chancery” used mainly for adjudicating business disputes. In fact, it is widely believed to have developed significant expertise on corporate law. Members of a Delaware LLC have the same rights as shareholders of a corporation to file a derivative action in the Court of Chancery;
2. Freedom of Contract - Delaware has developed a reputation for its favorable business climate for corporations, and in particularly – “Freedom of Contract” and enforcing the rights of contracting parties.
3. Confidentiality - Unlike the other states which require the filing of various documents at the time of registration that can be made public, the certificate of formation required to create a Delaware LLC does not need to include the names and addresses of the LLC’s members or managers.
4. Series LLC - Delaware has always shown an aptitude in being responsive to the needs for the corporate and investments world, and was the first state to put in place the Series LLC. Under this new structure, the series LLC can create separate series or cells in order to segregate its assets to prevent the probability of one asset from incurring the liabilities on and under – performing asset. This new provision was particularly very attractive in the “Hedge Fund” industry.
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