Limited Liability Companies Flashcards
Are “big” & “small” decisions treated differently in a general partnership?
The structure of governance & voting rights are outlined in an LLCs operating agreement.
In manager-managed LLCs, the named manager/authoritative representative has day-to-day operation responsibilities.
To what extent are owners liable for actions of a general partnership?
The most important feature of an LLC is that all of its members are insulated from personal liability for any business debt or liability (contract/tort) if the venture fails.
Are some owners treated differently than others in an LLC?
Depends on whether or not the LLC is member or manager - managed.
What are the pros of operating an LLC?
An LLC is a flexible type of business entity that offers its owners many advantages, including easy formation, flexible operation, limited legal liability of the owners, & options for pass-through taxation.
What are the cons of a limited liability company?
LLCs are not set up for raising venture capital & equity.
What are the owners/principals of an LLC called?
members
What laws currently govern LLCs?
Today, we use the Uniform Limited Liability Company Act (ULLCA) & its revised form RULLCA, as model statutes designed to promote uniformity among various state LLC laws
How are LLCs formed?
LLCs are relatively easy to form and inexpensive.
They are formed by filing the articles of organization/certificate of organization w/ the secretary of state or state corporation bureau.
How may LLCs capitalize?
In most cases, the operating agreement of the LLC controls the amount & methods of capitalizing the business.
Unlike a corporation, an LLC does not issue shares, but it may be financed through DEBT or SALE OF EQUITY OWNERSHIP in the LLC itself
What does an operating agreement in an LLC cover?
An operating agreement addresses:
1. structure of governance & voting rights
2. death, incapacity, & dissolution
3. RULLCA
4. distinguishing b/w manager-managed OR member-managed LLC
What is a member-managed LLC?
Similar to a general partnership, all members have the authority to bind the business
What is manager-managed LLC
Named manager (RULLCA uses “authorized representative) has day-to-day operation responsibilities.
Non-managing members generally do not have the authority to act on behalf of the business venture.
How do taxes work in an LLC?
Although many LLCs are treated as pass-through entities, LLC members may elect to be taxed as a corporation if they wish.
The main benefits advantages of pass-through taxation are the
1. ability for investors to assume the tax deduction & losses that are generate by emerging companies w/ significant up-front debt
2. ability for business to distribute earnings to its owners w/ out incurring double taxation
In what situations does dissolution of an LLC occur?
- death of a key member
- decision of majority (or % outlined in agreement)
- agreed-upon maximum term
If the term of an LLC expires, how may its members decide to continue it?
- A unanimous to fix an additional term
OR - majority of LLC member vote to continue the LLC at will (w/ no fixed term& subject to dissolution at any time)
