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Regulation > 14.4 - Limited Liability Company (LLC) > Flashcards

14.4 - Limited Liability Company (LLC) Flashcards

1
Q

What is a limited liability company?

A
  • Non-corporate structure that combines limited liability and partnership qualities
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2
Q

Define the powers of an LLC (3)

A
  • Separate legal entity like a corporation
  • LLC may conduct legal business in own name
  • May have owner management, limited duration, restricted transfer of interest
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3
Q

Identify the 7 actions that a LLC may participate in while conducting business in its own name

A
  • Enter into contracts
  • Sue & be sued
  • Own property in its own name
  • Engage in other transactions and property
  • Make donations
  • Be a general or a limited partner
  • Appoint agents
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4
Q

How is an LLC formed?

A
  • Formed under state statute for, generally, any lawful purpose
  • Must file articles of organization
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5
Q

Does an LLC have to have “LLC” in the business name?

A

Yes

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6
Q

What must the articles of organization include (4) in forming an LLC?

A
  • Must include:
    • Name of business
    • Name / address of organizers
    • Initial agent for process servers
    • Initial managers
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7
Q

What does the articles of organizations state regarding parties being liable for obligations?

A
  • State whether one or more members will be liable for obligations
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8
Q

Is the operating agreement legally required to form an LLC?

A

No and may be oral

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9
Q

Identify the 8 procedures / actions the operating agreement mainly addresses

HINT: MVMPTCAD

A
  • Management arrangements
  • Voting rights
  • Member meetings
  • Profit sharing
  • Transfer of interests
  • Circumstances causing dissolution
  • Admission of members
  • Death of a member
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10
Q

How are LLC’s capitalized?

A

From member contributions

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11
Q

How might members capitalize an LLC?

A
  • May consist of tangible & intangible property & services
    • Including services to be performed
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12
Q

Identify 5 advantages of an LLC

A
  • Limited liability and avoidance of double taxation
  • May have entities / nonresidents as members including nonresident aliens
  • No limit on number of members
  • Can make disproportionate allocations and distributions
  • Can distribute appreciated property without incurring a taxable gain
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13
Q

True or False >>>

  • Member can contribute appreciated property to LLC without recognizing taxable gain
A

True

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14
Q

How are profits and losses allocated in an LLC?

A
  • Shared equally under ULLCA
  • Based on the value of members’ contributions according to some statutes if no agreement is formed
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15
Q

What type of property is an LLC interest?

A

Personal property

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16
Q

If a member transfers or assigns his or her interest or % of assets in an LLC does the transferee become a member?

A

No - the transferee’s interest is considered personal property

17
Q

Define the taxation of LLC’s

A
  • Members may elect to be taxed as partners or as a corporation
  • Single member LLCs - taxed as sole proprietors
  • Pass-through entity or taxable entity at members’ discretion
18
Q

When is it advantageous to an LLC to be taxed as a corporation?

A
  • if corporate rates are lower than personal rates
  • if reinvestment in the LLC is desired
19
Q

Identify the rights of members of an LLC

A
  • member-managed unless articles provide otherwise
    • members have right to participate in business matters
    • business matters decided by the manager
20
Q

Identify 5 issues of an LLC that would require unanimity?

A
  • Amendment to operating agreement
  • Dissolution requirements
  • Waiver of right to have business wound up
  • Merger
  • Admission of new members
21
Q

What liabilities are assumed by members of an LLC?

A
  • Limited liability for members
  • No claim on personal assets
  • Still liable for personal misconduct
    • Negligence, criminal behavior
  • Courts may “pierce the corporate veil”
22
Q

How is an LLC dissolved?

A
  • Expiration of entity
  • Consent of specified (agreement) percentage of members
  • Judicial determination
23
Q

Identify 5 acts or circumstances that would contribute to an LLC being dissolved under judicial determination

A
  • Frustration of purpose
  • Impracticability of continuing because of member’s conduct
  • Impracticability of continuing under articles and operating agreement
  • Inappropriate behavior
  • Equitability of liquidation
24
Q

Identify the types of unlimited liability business organizations and their filing requirements

A
  • Sole proprietorships and general partnerships
  • No registration with state is required

Regulation (67 decks)

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