A. When a deed or other instrument of a limited liability company (“LLC”), whether foreign or domestic, appears in the chain of title, and with respect to a domestic LLC, such instrument is dated and recorded on or after 1 July 1996, and is executed by a person or persons described therein as managers or members of the limited liability company, it may be presumed that such person or persons was or were authorized to execute such deed or other instrument for and on behalf of the limited liability company named therein, and that the limited liability company was legally in existence at the time the instrument took effect.
B. Where a limited liability company is designated as the grantee or releasee in a deed or other instrument and with respect to a domestic LLC, such instrument is dated and recorded on or after 1 July 1996, it shall be presumed that such limited liability company was legally in existence at the time of delivery of such deed or other instrument.
Comment 1. On 1 July 1996, 11 V.S.A. Chapter 21 became effective creating a new type of statutory business entity in Vermont known as the limited liability company (“LLC”). The LLC has characteristics of both partnerships and corporations, but unlike either of these, the LLC does not have any significant history of judicial interpretation. For example, there is presently no judicially recognized concept of a de facto limited liability company as there is with respect to corporations. Nevertheless, it would be unreasonably burdensome to require that the title searcher examine the Secretary of State’s records for each limited liability company in a chain of title to determine its legal existence at the time of the conveyance. It is probable that the concept of a de facto LLC would be applied by Vermont courts to deal with the problem of acquisition of title to real property by an LLC which initial articles of organization had not been filed with or accepted by the Secretary of State at the time of a conveyance into a purported LLC. Similarly, a conveyance by an LLC of property in its name where the LLC had not been properly formed, or which having been properly formed, had been dissolved, raises the same question as in the corporate context. It would seem reasonable and practical to assume that courts would apply a de facto LLC doctrine to recognize the validity of such conveyances.
For these reasons the title examiner may presume that a grantee named in a deed in the chain of title which is described as a limited liability company was in fact legally in existence at the time the instrument took effect, provided the deed was dated and recorded on or after 1 July 1996.
The title examiner may also presume that, where a deed or other instrument of conveyance has purportedly been executed on behalf of an LLC, the LLC was in existence at the time of the execution and delivery of such deed or other instrument.
Comment 2. Any member of a member-managed LLC or any manager of a manager-managed LLC may execute an instrument affecting the interest of the LLC in real property unless the articles of organization limit their authority. The instrument is conclusive in favor of a person who gives value without knowledge of the lack of the authority of the person executing the instrument. 11 V.S.A. §3041(c).
Based on this statute, an attorney representing a grantee from an LLC in a current transaction must establish 1) that the LLC is member-managed or manager-managed, 2) that the person executing the LLC instrument is a member/manager at the time of execution, 3) that the articles of organization do not limit the authority of the member/manager to execute the instrument. However, it is recommended that the attorney be satisfied, to the extent it is practical, that 1) the LLC is in existence at the time of conveyance (NOTE: pursuant to 11 V.S.A. §3028(a), the Secretary of State will furnish a Certificate of Existence which may be relied upon as conclusive evidence that the LLC is in existence), 2) the person executing the deed or other instrument is authorized to do so under the provisions of the operating agreement or by statute, and 3) the specific conveyance is approved and authorized by appropriate vote of the members or managers of the LLC. The attorney may rely on an affidavit from the seller’s attorney to establish these facts or personally examine the articles of organization, operating agreement, membership list, and other available LLC documents.
Comment 3. When an attorney is merely examining a recorded deed or other instrument in the chain of title which names an LLC as the grantor and has been executed by a person on behalf of the LLC, in the absence of actual knowledge to the contrary, the following presumptions may be made by the title examiner: a) if the instrument was executed by a person described as a member of the LLC, it may be presumed that the management of the LLC is in its members and that the person who executed the instrument was, at the time of such execution, a member of the LLC; b) if the instrument was executed by a person described as a manager of the LLC, it may be presumed that the management of the LLC was vested in one or more managers under its articles of organization and that the person executing the instrument was, at the time of such execution, a manager of the LLC; and c) it may be presumed that the person who executed the instrument on behalf of the LLC was duly authorized to execute and deliver the deed or other instrument on behalf of the LLC and that the conveyance had been approved by the necessary vote of the members or managers of the LLC as required by statute or by the operating agreement of the LLC.