Forming an LLC in Mississippi can provide a number of legal benefits.
Freedom of Contract
The Mississippi LLC Act expressly states its purpose is to give “maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”
The Act gives LLC members contractual freedom to customize their capital contributions and their shares of profits and losses. Section 79-29-503 allows an LLC’s members to specify a method for allocating profits and losses in a certificate of formation or an LLC agreement that is greater or lesser than their portion of capital contributions. This gives members contractual flexibility to tailor their income and risks of loss to further their big-picture asset management plans.
In addition, a certificate of formation or an LLC agreement may establish classes of membership interests with different rights, powers, and duties, including voting and non-voting interests. Under section 79-29-304, they may also “make provision for the future creation in the manner provided therein of additional classes or groups of members having such relative rights, powers and duties as may from time to time be established, including rights, powers and duties senior to existing classes and groups of members.” This facilitates everything from complex, multi-million dollar business deals to succession planning in family businesses and estate planning by gifts of non-voting interests.
Privacy for Owners
A “person” may organize an LLC by filing its certificate of formation with the Mississippi Secretary of State. The definition of “person” is not just a natural person, but includes almost any kind of business or legal entity. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s certificate of formation.
Benefits for Business Partners
The Mississippi LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties. Section 79-29-402 has a default rule that managers owe limited fiduciary duties of good faith, care, and loyalty. It states “[a] manager shall discharge his duties as a manager (1) in good faith, (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and (3) in a manner he reasonably believes to be in the best interests of the limited liability company.”
But the Act gives members and managers contractual freedom to “opt out” of most of the default rules. Section 79-29-403 provides that with three exceptions, a certificate of formation or an LLC agreement may “contain a provision eliminating or limiting the liability of a manager or a member to the limited liability company or its members for money damages for any action taken, or any failure to take any action, as a manager or member.” The three exceptions are that a certificate of formation or an LLC agreement may not limit or eliminate liability for (1) the amount of a financial benefit received by a member or manager to which he is not entitled, (2) an intentional infliction of harm on the limited liability company or the members, or (3) an intentional violation of criminal law. These provisions make minority interests safer investments and therefore more valuable.
Protections Against Unwanted Parties
The Mississippi LLC Act allows members to protect their control of an LLC. Under sections 79-29-702 and 79-29-704, a certificate of formation or an LLC agreement may prohibit members from assigning their membership interests. But if they do not prohibit it, an assignment does not dissolve the LLC or entitle the assignee to participate in management or to become a member. Instead, the assignee may receive only the distributions and allocations of profit and loss to which the assignor would have been entitled, and all the non-assigning members must consent to the assignee becoming a member.
Creditors Only Get Passive Rights, Not Control Rights
Section 79-29-703 provides that if a judgment creditor of a member obtains a charging order against the member’s membership interest, the judgment creditor has “only the rights of an assignee.” That is, a charging order requires the LLC to pay the judgment creditor any distribution that would otherwise be paid to the member. But the judgment creditor does not have a right to participate in management.
In addition, section 79-29-307 states that unless a certificate of formation or an LLC agreement provide otherwise or all members give consent, a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors, files a voluntary petition in bankruptcy, is adjudicated insolvent or bankrupt, or fails to contest a petition seeking his or her reorganization, liquidation, dissolution, or similar relief. These events are considered “events of dissociation.”
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