Limited Liability Companies

Question 1

Limited Liability Company

Answer 1

a form of business entity that offers liability protection for its principals, flexible operation, and pass-through taxation; a “hybrid” entity

Question 2

members

Answer 2

owners of a LLC

Question 3

Uniform Limited Liability Company Act

Answer 3

the early version of a model law adopted by most states related to the formation and organization of LLCs
designed to promote uniformity amongst states

Question 4

Revised Uniform Limited Liability Company Act

Answer 4

a model law adopted by most states related to formation and organization of LLCs to clarify technical aspects of LLC governance
modified ULLCA’s areas of formation, organizational matters, and operating agreement

Question 5

What are two main advantages of forming an LLC?

Answer 5

it’s. easy and inexpensive to form

Question 6

articles of organization

Answer 6

“certification of organization”; the document filed to create an LLC; in most states, it requires only basic information such as the name of entity, location of principal’s place of business, and members’ names
approved by STATE authority

Question 7

Are LLCs required to file an agreement?

Answer 7

no

Question 8

Do LLCs issue shares to the public?

Answer 8

no

Question 9

How do LLCs capitalize?

Answer 9

(1) debt via private lenders
(2) debt via commercial lenders
(3) sale of equity in the LLC itself

Question 10

operating agreement

Answer 10

the document that governs an LLC; sets out the structure and internal rules for operation of the entity

Question 11

Describe a benefit of a LLC.

Answer 11

members have a great deal of flexibility in terms of the rights and responsibilities of each member

Question 12

the flexibility of a LLC…

Answer 12

(1) structure of governance and voting rights
(2) death, incapacity, and dissolution
(3) RULLCA

Question 13

MEMBER-managed LLC

Answer 13

LLC management structure similar to that of a general partnership with all the members having the authority to bind the business

Question 14

MANAGER-managed LLC

Answer 14

LLC management structure in which members name a designated manager (or authorized representative) who generally has the day-to-day operational responsibilities, while the non-managing members are typically investors with little input on the course of business taken by the entity except for major decisions

Question 15

What is the most important feature of a LLC?

Answer 15

the limited liability for its members (members are protected from personal liability for any business debt/liability)

Question 16

List the advantages of a LLC.

Answer 16

(1) a lot of flexibility
(2) 1+ owners
(3) limited liability
(4) management flexibility

Question 17

List the disadvantages of a LLC.

Answer 17

(1) newer business entity
(2) not for going public

Question 18

What are the advantages of pass-through taxation?

Answer 18

(1) ability for investors to assume tax deductions and losses that are typically generated by an emerging company or a company with significant upfront debt
(2) ability to distribute earnings to owners without incurring double-level taxation

Question 19

dissolution

Answer 19

a liquidation process triggered by an event that is specified in the operating agreement or by the decision of the majority of membership interests to dissolve the company or because the term has ended

Question 20

to continue a LLC…

Answer 20

members must have an unanimous vote to fix an additional term OR a majority of member interest may vote to continue the LLC at its will

Question 21

Kirksey v. Grohmann

Answer 21

Plaintiff = Kirksey
Defendant = Grohmann
State regulation
The LLC battle between the “city sisters” (Kirksey) and the “farm sisters” (Grohmann)
Reasoning of the court…
- the amount of work level isn’t important because it’s an LLC and that doesn’t factor in
- not reasonably practical
- the court can’t order action
- was a split decision