USA Law and Practice Contributed by: Matt Hurd, Melissa Sawyer and Scott Crofton, Sullivan & Cromwell LLP
to establish a general partnership, however, sophisticated parties often enter into a partner - ship agreement to specify the rights and obliga - tions of the partners. Certain states provide for a limited liability partnership, which is a special type of general partnership. In a limited liabil - ity partnership, each partner is only personally responsible for liabilities arising from their own conduct on behalf of the partnership. A limited partnership is an entity with two class - es of partners: general partners and limited part - ners. A limited partnership is formally established by the filing of a certificate of limited partnership or similar filing with the secretary of state. The general partner manages the day-to-day affairs of the limited partnership and is personally liable for the partnership’s obligations. Limited partners are mostly passive investors, and their liability is capped at their investment as long as they do not exert active control over the limited partnership. State law governing limited partner - ships is generally flexible, and the governance of limited partnerships can be customised to the preferences of the contracting parties. Limited Liability Companies A limited liability company (LLC) is an entity formed by one or more members by filing a cer - tificate of formation or similar document with the secretary of state. Similar to a corporation, members of an LLC benefit from limited liability. As with a limited partnership, state law generally permits the governance formalities of an LLC to be customised to the parties’ preferences in an operating agreement. 1.2 Sources of Corporate Governance Requirements The principal sources of corporate governance requirements for US companies are state statu - tory and common law, the entity’s organisational
documents, federal securities laws and regula - tions, the stock exchange regulations and influ - ential (but non-binding) non-legal guidelines, such as proxy advisory firms’ guidelines and institutional investor voting policies. State Law State law is derived from a state’s corporations code and related case law. The specific state’s law that applies to an entity generally depends on its chosen state of incorporation. In the USA, the most common state of incorporation for public companies is Delaware, where the Dela - ware General Corporation Law (DGCL) governs the affairs of Delaware corporations. The DGCL consists of a set of default and mandatory rules. Incorporators may generally opt out of the DGCL’s default rules in a corporation’s organisa - tional documents, but a corporation is required to adhere to the DGCL’s mandatory rules. The expertise of the Delaware judiciary and its active role in the development of corporate case law have generally been perceived as an advan - tage for Delaware corporations. Entity forms other than corporations are governed by other statutes and case law under state law. Organisational Documents An entity’s organisational documents set forth its governance rules, including any modifica - tions the entity adopts to the default provisions under state law. The nature of these documents generally depends on the corporate form and state of incorporation of the entity. For example, a Delaware corporation is governed by a certifi - cate of incorporation and by-laws and, in cer - tain circumstances, a stockholders’ agreement. A general partnership and limited partnership are governed by a partnership agreement, and an LLC is governed by an operating agreement.
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