Chapter 24 - Limited Liability Companies

Question 1

Formation of an LLC

Answer 1

• File an “articles of organization” with the state (around $75)
• Owners of LLC are called members
• Very popular as a new entity

Question 2

Operation

Answer 2

• “Manager-managed” or “member-managed”
• Must identify this in articles of organization
• Managers have the ability to bind the LLC by contract
• Members can legally bind by contract

Question 3

Operating Agreement

Answer 3

Agreement among members of the LLC on how it is going to be operated, new members, right ot buy part in the LLC

Question 4

Taxation

Answer 4

1. Flow-through entity. Only members pay tax, LLC doesn’t.
2. Multi-member LLC - flow through (like partnership)
3. Single-Member LLC - disregarded for income tax purposes (all items of income are reported on the member’s income tax return)

Question 5

Owner Liability

Answer 5

1. Members of an LLC are not held liable for LLC debts.
2. “Piercing of the LLC Veil” - go past the LLC and pierce my pockets - can take my assets.
3. Don’t co-mingle assets, and to sign sign with LLC title.

Question 6

Breen v. Judge

Answer 6

• Breen loans LLC money and LLC doesn’t pay back the loan.
• Breen hopes he can “pierce the LLC veil” and sue the LLC and judge (owner/member)
• Ultimately, Breen was not able to pierce the LLC veil.
• The LLC shield help up and Jdudge was safe.
• Breen did win agains the LLC but they couldn’t pay even after court judgement.

Question 7

Sturm v. Harb Development, LLC

Answer 7

• Sturm veyr upset because Harb LLC didn’t do a good job building a home.
• Sturm sues LLC and Harb because bad stuff.
• Sturm sued Harb individually under a tort claim.
• The court held that a member of an LLC can be sued for a tort even if you can’t pierce the LLC veil.