Delaware LLC Act Adopts New “Divisive Merger” Provision

The Delaware Limited Liability Company Act will now allow a Delaware LLC to implement a “divisive merger” to divide into multiple LLCs and allocate the assets, liabilities, rights, and duties of the initial LLC among the new LLCs. The provision became effective on August 1, 2018. Under the new rule, the LLC seeking division must create a plan of division containing four elements, including terms and conditions and names and addresses. The plan must be adopted in the same manner as a plan of merger. This new divisive merger provision may result in an increase in covenants in financing documents prohibiting the division of a borrower’s assets.