Corporations/LLC MEE Rule Statements

Question 1

ISSUE: What type of LLC was created—member-managed or manager-managed? Explain.

Answer 1

When the certificate of organization fails to specify whether the LLC is member-managed or manager-managed, the LLC is presumed to be member-managed, UNLESS the members’ operating agreement specifies how the LLC is to be managed.

Here, ________

NOTE: Some examinees may discuss whether an LLC was properly formed. This question is not raised in the call and does not warrant additional credit. Generally, an LLC is formed when the certificate of organization (a.k.a. articles of organization) is filed with the Secretary of State and the LLC has at least one member.

Question 2

ISSUE: Is the LLC bound under the ______ contract? Explain.

Answer 2

Under RULLCA, “each member in a member-managed LLC has equal rights in the management and conduct of the company’s activities.”

THUS, consistent with general agency law principles and with the approach of other acts governing LLCs, each member of a member-managed LLC can bind the company to contracts for apparently carrying on the ordinary business of the company UNLESS the member lacks authority to do so and the other party to the contract has notice that the member lacks such authority.

THUS, a member of a member-managed LLC has the authority – both actual and apparent – to bind the LLC, much as a partner in a general partnership.

Here, ___________

Question 3

ISSUE: Is the LLC bound by the sale of the ________ ? Explain.

Answer 3

Whether there is actual authority for a non-ordinary transaction depends on the operating agreement of the LLC, which governs “relations between the members and the limited liability company” and “the activities of the company.”

Here, __________

The 2006 RULLCA does not provide for “statutory” apparent authority, but instead leaves questions of a member’s authority to agency law principles. Under RULLCA § 301, a person’s status as a member does not prevent or restrict other laws from imposing liability on a limited liability company BECAUSE of the person’s conduct.

Here, __________

In a member-managed LLC, matters “outside the ordinary course of the activities of the company” require the consent of all members. Nonetheless, some earlier LLC acts provide that, absent a contrary provision in the certificate of organization, an LLC member has authority to sign and deliver a deed of the company’s interest in real property and “the instrument is conclusive” in favor of a bona fide purchaser for value without notice. Under these earlier statutes, acts of members not “in the ordinary course of the company’s business” bind the company only if authorized by the other members.

[NOTE: Examinees might address whether the LLC could set aside the sale or seek a remedy against the cousin for his violation of fiduciary duties. This should not receive any credit, as the question asks only whether the LLC is bound by the sale of the farmland.]

Question 4

What is the legal effect of an email with language to withdraw? Explain.

Answer 4

Under RULLCA, the express will of a member to withdraw results in “dissociation.” Dissociation does not result in dissolution of the LLC. Dissolution under RULLCA requires the consent of all the members.

The result under the 2006 RULLCA (and other more modern LLC acts) is different from the result under some older LLC acts, including the 1996 ULLCA, which generally treat the withdrawal of a member of an at-will LLC (NO term) in much the same way as the withdrawal of a partner in an at-will general partnership.

[NOTE: Examinees might notice that the rights of a withdrawing LLC member are not like those of a partner in an at-will partnership, but rather more like those of a minority shareholder in a closely held corporation. Partner withdrawal in an at-will partnership, UNLESS agreed otherwise, causes the dissolution of the partnership and a right to cash payment for the pro rata share of the withdrawing partner’s interest, after satisfying any creditor claims. The withdrawal of a minority shareholder in a closely held corporation results neither in dissolution of the corporation nor in any right to pro rata payment of the corporation’s net assets. Instead, the minority shareholder remains entitled to dividends and other distributions only if and when the board of directors (majority shareholders) chooses to authorize such payments.]