Choosing the Right LLC Act: Massachusetts vs. Delaware

However, use of the Delaware Act can involve significant hazards.

  1. The complexity of the Delaware Act. The Delaware Act is the lengthiest and most complex of U.S. LLC acts, and it contains many pitfalls for lawyers unfamiliar with it. For example, it contains several key provisions that appear on their face to be merely permissive provisions but that are probably best construed as default provisions—i.e., as provisions that will govern an LLC as if they were mandatory provisions unless the LLC agreement expressly alters them. See, e.g., Delaware Act §18-601 (concerning interim distributions); and Delaware Act §18-402 (third sentence) (concerning manager removals). Thus, you shouldn’t form Delaware LLCs unless either (i) you yourself possess substantial Delaware Act expertise; or (ii) you associate yourself with another lawyer who possesses it.
  2. Delaware litigation of internal LLC disputes. Delaware LLCs and their managers are subject under the Delaware Act to Delaware service of process. See Delaware Act § 18-104(a) (requiring Delaware LLCs to have Delaware registered agents and offices); § 18-109(a) (providing that serving as a Delaware manager constitutes consent to Delaware service of process). Excellent as the Delaware courts may be, your LLC clients and the members and managers of their LLCs may not want to face the risk of defending Delaware lawsuits.
  3. Exposure of non-Delaware lawyers to Delaware long-arm jurisdiction. Under a Delaware Court of Chancery decision called Sample v. Morgan, 935 A.2d 1046 (Del. Ch. 2007), non-Delaware lawyers, even if they have only the most minimal Delaware contacts, may be subject to the long-arm jurisdiction of the Delaware courts in malpractice claims and other claims relating to Delaware LLCs.

To sum up: There are many situations in which you may owe it to your Massachusetts LLC formation clients to form LLCs for them under the Delaware Act. But doing so may involve significant risks not only for them but also for you.