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LLC History

The limited liability firm is a triumph of comparative law in action. The origin of this relatively new institution is generally attributed to the German law of 1892, authorizing the Gesellschaft mit beschrnkter Haftung... . While drawing some inspiration from the English practice of the private limited company, it was nevertheless an original creation. However, the claim that it was without precedent is negated by the fact that the State of Pennsylvania had enacted a law in 1874 authorizing the limited partnership association, which was extensively used. This form of business organization, as we shall note later, bears a striking resemblance to the limited liability firm current today in Europe and Latin America. Eder, Limited Liability Firms Abroad, 13 Univ Pitt L Rev 193 (1952).

LLCs are neither new nor strange to the business community in the civil law countries of Europe and Latin America. This business form has its origin in the 1892 German company law known as Gesellschaft mit beschrnkter Haftung (GmbH). German not only was the first civil code country to enact this legislation, but Germany's enactment became the discussional focal point for the countries which subsequently adopted this commercial enterprise. Molitor, Die Auslandisch Regelung der G.m.b.H. und die deutsch Reform, (1927); and 12 Zeitscrift fur auslandisches and internationales Privatrecht 341 (1938).

Once established in Germany, the concept of the LLC had a very active and fast growth. Success in Germany soon caused the German model act to become the focus of extensive debate. Within a short period of time after enactment in Germany, the following countries joined the limited liability bandwagon: Portugal (1917); Brazil (1919); Chile (1923); France (1925); Turkey (1926); Cuba (1929); Argentina (1932); Uruguay (1933); Mexico (1934); Belgium (1935); Switzerland (1936); Italy ( 1936); Peru (1936); Columbia (1937); Costa Rica (1942); Guatemala (1942); and Honduras (1950). In France, by the late 1940's, the limited liability entity known as "societes de responsabilite limitee" was more popular than the more traditional stock corporation and comprised approximately one-third of all French societes. Eder, Limited Liability Firms Abroad, 13 Univ Pitt L Rev 193 (1952).

In addition to the limited liability, the LLC laws of each of the above countries have the following four basic characteristics which distinguish this entity from other business forms: (1) all require some use of the word "limited" in the entity's name; (2) the entity is given full juristic personality; (3) the partnership concept of "delectus personae," permitting a member to control admission of new members to the entity; and, (4)codes that allow limited liability firms to be dissolved by death of a member, unless otherwise expressly stated in the articles of association; in addition, some provide for probate or sale of a deceased's share. Eder, Limited Liability Firms Abroad, 13 Univ Pitt L Rev 193 (1952); for additional information on foreign LLCs, see Devries & Juenger, Limited Liability Contract; The GmbH, 13 U Pitt L Rev 193 (1952) and Bagts, Reforming the "Modern" Corporation: Perspectives from the German, 80 Harv L Rev 23 (1980).

In the United States, several states passed legislation creating entities similar to the LLC. In the last quarter of the nineteenth century, Pennsylvania, Virginia, New Jersey, Michigan and Ohio enacted legislation permitting "limited partnership associations" or "partnership associations." These associations were created to provide a form of limited liability coupled with some of the beneficial characteristics of the partnership association. Burke and Sessions, The Wyoming Limited Liability Company: An Alternative to Sub S and Limited Partnerships, 54 J Tax'n 232 (1981). The enabling legislation for these associations requires that either the principal office or place of business be located in the enacting state. As a consequence of this restrictive legislation, these associations were not attractive to many entities active outside of these localities. They have not been used extensively.

In 1977, Wyoming became the first American state to enact a true LLC act modeled after the 1892 German GmbH Code and the Panamanian LLC. The Wyoming LLC Act permits the formation of LLCs organized for any lawful purpose execpt the business of banking and insurance. Wyo Stat §17-15-103. In addition to limited liability, the Wyoming Act has the same four basic characteristics of the European and Latin American codes that distinguished this entity. First, WYoming requreis a form of the word "limited" in the entity's name. Second, the entity is given full juristic personality. THierd, the partnership concept of "delectus or intuitus personae" which permits a partner to control addmission of new partners to the partnership is present. Fourth, Wyoming's Act provides that LLCs must be dissolved by death of a member and provides for probate or sale of a deceased's share. In addition, the Wyoming Act contains a provision that excludes members or managers from litigation involving the business. Most LLC acts have followed this lead.


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