Legal Memorandum: Consolidation of a LLC's Financial Data in DE

Issue: Under Delaware law, can a member of an LLC that holds a controlling interest in the LLC consolidate the LLC’s financial data with the majority member’s other businesses?

Generally, financials should be prepared in accordance with Generally Accepted Accounting Principles (GAAP).  Ameristar Casinos Inc. v. Resorts Intern Holding Co. at *8 (Del. Ch. 2010).  With respect to corporations, “[u]nder Generally Accepted Accounting Principles, the purpose of consolidated statements is to present, primarily for the benefit of the stockholders and creditors of the parent company, the results of operations and financial position of a parent company and its subsidiaries essentially as if the group were a single company with one or more branches or divisions.”  BASF Corp v. POSM Props. II P’ship LLP No. 3608 (Del. Ch. Mar. 3, 2009).  Under GAAP, “[a]ll majority-owned subsidiaries . . . shall be consolidated except [for subsidiaries that the majority-owner does not control].”  Id.  The S.E.C., for example, requires consolidated balance sheets and statements of cash flow and income for its registrants.  Id.

However, no authority was located that specified whether a member of an LLC that holds a controlling interest in the LLC may consolidate the LLC’s financial data with the majority member’s other businesses. 

As stated by the court in BASF, merely because consolidated financials are permitted or required for some purposes, does not mean they are appropriate for all purposes or that they negate the separate legal existence of the subsidiary:

This line of reasoning is not, well, really reasoning.  A holding corporation like LyondellBasell must present reports of their affairs on a consolidated basis.  The fact that holding corporations do […]