Ch 17 - Limited Liability Flashcards
Limited Liability Company
Hybrid entity that combines limited liability of a corporation and tax advantages of partnership
What is increasingly the entity of choice for businesses?
LLC
Owners are called _____ and ownership is ____
Members, interest
Piercing the corporate veil
Courts put aside limited liability and hold members liable (abuse and to achieve justice)
Similarities to corporations
Separate legal entity from owners, can hold property separately, “foreign” designation if doing business in state other than where LLC formed
Pre-formation contracts
If promoter forms one prior to formation, they may be personally liable
Promoters
Owners of firm prior to charter
Jurisdictional requirements
- Legal entity separate from owners
- Citizenship of LLC is citizenship of members
Advantages:
- Limited liability
- Members can choose to be taxed as pass-through or double-tax
Disadvantages
- Lack of uniformity with state laws
- Business operating in multiple states may not receive consistent treatment
Fiduciary duties
Managers in manager-managed LLC owe duties to LLC and its members
Effects of dissociation
- Member loses right to participate and right to act as an agent
- Has right to have interest bought out by other members
Winding Up
Members collect and liquidate LLC assets and honor prior contracts
Who WILL get paid first>
CREDITORS
Limited Liability Partnership
Hybrid form of business designed mostly for professionals who normally do business as partners
LLP allows partnership to continue as
Pass-through entity but limits personal liability of partners
Liability
Only liable for own actions. But if partner supervised wrongful individual, then partner is liable too.
Outside State of Formation
LLP formed in NC can do business elsewhere, but both states may provide different liability protection
Limited Partnership
Business organizational form that limits liability of SOME owners (the limited partners)
General partner
Assumes management responsibilities
HAS FULL RESPONSIBILITY FOR ALL PARTNERSHIP DEBTS
Limited partner
Contributes cash or property and owns interest on firm
Not personally liable for debts UNLESS they partake in management of business
Liabilities of LP
General partners personally liable to partnership’s creditors
Franchise Price Arrangements
Franchises can advise franchisees on prices to set but they cannot mandate them
An LLC is a citizen in every state its members are citizens T/F?
True
All partners are liable in a partnership T/F?
True
Limited partner liable to the extent of
Capital contribution
