Social Responsibility Limited Liability Companies (LLCs)

New York Real Estate Journal recently published an article written by Olshan Real Estate partner Thomas Kearns entitled “Social Responsibility Limited Liability Companies (LLCs)” on how owners of privately-held real estate LLCs with extended/multi-generational families can ensure that their successors comply with principles such as creating good jobs and protecting the environment after their death or disability. “With LLCs,” Mr. Kearns writes, “the vehicle typically used by real estate investors, the principles can be voluntarily written into the agreement governing the LLC.” LLCs, he explains, are ideal for investors whose businesses regularly contribute to charities through limited profit or nonprofit activities (thus reducing the LLCs short-term distributable profits) but who want to avoid the red tape and regulatory difficulties of creating a charitable trust or not-for-profit entity and also wish to circumvent the extra reporting requirements associated with public benefit company certification. “In both Delaware and New York,” he writes, “a written LLC agreement setting forth the contractual rights of the managers, including…successor managers, will bind all future members of the LLCs. Combined with the appropriate amendment clause (e.g., a unanimous or supermajority vote including, if desired, consent by the members of the two families voting separately), these provisions could control future generations.” For parameters not explicitly established in the LLC agreement, Mr. Kearns suggests that “investors may set up a governing document that will provide principles-based flexibility to the successor managers to operate in the same community spirit as the original founders of the companies intended.”