BE (LLC) Flashcards
LLC Functions
- limited liability that shareholder of corporations have
- tax treatment of a partnership
Personal Liability
neither owners (members) nor managers are personally liable for any debts
Tax Benefits
not subject to federal or LA income tax at entity level
Compare - S corps
largely the same except limits to who qualifies as s corp
Compare - Limited Partnership
general partner is still personally liable for entities debts
Formation Requirements
Articles of organization AND initial report must be filed with secretary of state
existence begins upon issuance of a certificate of organization by secretary of state
Promotor Liability
Statute is silent
probably same rules as pre-incorporation
Articles of Incorporation Formalities
- must be in english
- signed by AT LEAST ONE person (need not be member or manager
Mandatory Words in Articles
- name of the LLC
- Purposes for LLC is formed or purpose is to engage in any lawful activity (EXCEPT INSURANCE UNDERWRITING)
- whether the LLC is a low-profit LLC
Initial Report
1.must be signed by each person (or agent) who signed the articles
- must state the name, location, and municipal address of LLC itself (no PO BOX) OR each of its registered agents, and the persons with power to manage LLC
- Must contain a notarized affidavit of acknowledgement and acceptance signed by each of the registered agents
Name Requirement
must contain words or abbreviation indicating LLC (L.L.C., L.C., limited liability company)
Operating Agreement
written or oral of the members of an LLC as to the affairs of the LLC and the conduct of its business (analogous to corp bylaws)
Conversions
any type of already formed LA business can convert to LLC by submitting a conversion application to the secretary of state
Mergers
can be merged or consolidated with other business by filing a merger or consolidation agreement with the secretary of state and the conveyance records of each parish
Members’ inspection rights
- inspect and copy LLC record upon reasonably request during business hours
- obtain a) trues and complete information regarding state of business and financial condition b) copy of tax returns c) other information regarding affairs
- demand formal accounting of the LLCs affairs whenever reasonable
Operational Requirements
only need to continuously maintain a registered office and one registered agent in the state
Members
no restrictions on who can be a member
Member-managed
unless delegated to managers ALL members will manage the business
subject to provisions in articles or WRITTEN operating agreement
Risk of Managing Members
no risk to limited liability of members if they participate in management and control of the LLC
Manager-Managed
if members want one or more board person to be nonmembers, articles must specifically state it will manager managed need not be members
Selecting and Removing
each manager position will be filled by plurality vote of the members (straight voting)
manager may be removed w/o cause by a majority vote
Duties
fiduciary relationship and must act in good faith with the diligence, care, judgment, and skill which an ordinary prudent person in a like position would
duty of care and duty of loyalty
Limits on Liability
articles or written operating agreement may
1. eliminate or limit monetary liability
2. provide for indemnification (no automatic like corps)
Piercing the Veil
commingling member and LLC funds
inadequate capitalization, or failure to maintain separate entity identity
statute allows courts to pierce for fraud, breach of professional duty, other negligent or wrongful conduct
Agency Authority
each manager/member is a mandatary for all matters in ordinary course of its business EXCEPT alienation, lease, or encumbrance of the LLCs immovable property
Removal of Authority
mandatary authority may be taken away
1. in the articles
2. operating agreement
3. by majority vote provided 3p knows they lack authority
Nonmanager Members
in a manager-managed LLC nonmanagers do NOT have manadatary authority OR duties of care or loyalty
Purely equity
Voting Requirements - Management Decisions
each manager/member entitled to single vote, all decisions made by majority vote (UNLESS PROVIDED OTHERWISE)
Voting by Members
unless provided otherwise, majority vote of the MEMBERS is required (even if management is vested in less than all members) when:
1. dissolution and winding up
2. disposal or encumbrance of all or substantially all LLCs assets
3. merger or consolidation
4. debt other than ordinary course of business
5. alienation, lease, or encumbrance of immovables
6. amendment to articles or operating agreement
Proxy Vote
must be written and signed by member or agent and filed in the registered office of LLC
automatically expire 11 months after execution
no case longer than 3 years
conflict of interest
not void provided:
1. interest was disclosed and disinterested majority approved; OR
2. transaction was fair to the LLC at the time it was approved
Profits and Losses
shared equally unless provided otherwise
Contributions
may be in any form (cash, property, services, promissory note, binding obligation)
Promise to contribute must be in a signed writing
Distributions
not allowed if:
1. LLC would be unable to pay debts
2. would be insolvent
3. violate a provision
Withdrawal w/LLC term
only if:
1. unanimous consent of members
2. just cause for withdrawal arising out of another member’s failure to perform a material obligation
Withdrawal NO term
may withdraw either
1. immediately upon the occurrence of an event specified in written operating agreement
2. any reason if given 30 days notice
Entitlements upon withdrawal
entitled to continue to receive the profits (unclear about losses) until LLC pays FMV within a reasonable time
Removal of Member
no procedure provided by statute
Dissolution
- even specified in articles or operating agreement
- consent of a majority
- judicial decree
Winding Up
give notice of authorization of dissolution and file articles of dissolution with SOS
Distribution of Assets upon dissolution
- creditors
- members owed approved distributions
- members receive return of capital contributions
- members divide the rest in proportion the share in distributions
