Protect Ownership in a Limited Liability Company, Limited Partnership or Corporation

By Gary M. Zimmerman

Unlike real property, where both the buyer and the buyer’s title company rely on the protections of a particular state’s recordation act to locate and identify all transfers of ownership of real property, no similar statutes or protections exist with regard to a transfer of an ownership interest in a limited liability company (LLC), limited partnership (LP) or corporation..

But a UCC insurance owner’s policy from UCCPlus can provide the buyer of an ownership interest in an LLC, LP or corporatoin with the protection that a buyer of real estate has been able to obtain for years with a real estate title insurance policy.

The UCCPlus Owner’s Policy is unique in that it is the only personal property title insurance policy that offers coverage for ownership by specific inclusion in its insuring clauses.

The UCCPlus Owner’s Policy provides coverage for the ownership interest, whether the ownership interest is:

  • a certificated or uncertificated security under Article 8 of the UCC, issued by an LLC or LP that has properly “opted-in” to Article 8;
  • a stock certificate issued by a corporation; or
  • a general intangible under Article 9 of the UCC (LLC or LP interest not “opted in” to Article 8).

The UCCPlus Owner’s Policy protects the buyer from significant risks:

  • The seller may not own the interest that it purporting to sell/assign to the buyer.
  • A buyer can only rely on the written representations, warranties and covenants in the purchase and sale agreement with respect to the ownership interest being purchased. Notwithstanding the written representations made, or whether the representations are properly drafted, third parties may hold subscriptions, warrants, options, puts, calls, rights of first refusal and other agreements or understandings with respect to the sale or transfer of the ownership interests. The buyer bears the entire risk in this situation. The UCCPlus Owner’s Policy insures the buyer that they own the ownership interest, shifting the buyer’s risk to the title company.
  • The seller may not have properly or legally transferred the interest to the buyer.
  • If the entity being sold is a corporation or a limited liability company/limited partnership that has opted in to Article 8 of the UCC, prior certificates may be outstanding or unaccounted for. UCCPlus will conduct a thorough due-diligence review of all of the securities that have been issued and determine whether all of the security certificates have been properly cancelled.
  • Existing or prior owners may have granted a security interest or allowed a lien upon the ownership interest being sold to the buyer. The UCCPlus Owner’s Policy insures that the ownership interest is free and clear of such encumbrances.
  • Fraud, on behalf of the seller, its agents and affiliates may exist. The UCCPlus Owner’s Policy insures the buyer that they own the ownership interest even if such fraud exists.

The UCCPlus Owner’s Policy is underwritten through a comprehensive due diligence review of the sellers, prior owners of the ownership interest, secured parties of the foregoing and lien creditors.

About the Author

Gary M. Zimmerman is Senior Vice President and Chief Underwriting Counsel for UCCPlus, a division of Fidelity National Title Group.