Limited Liability Companies Flashcards
Limited Liability Company
a form of business entity that offers liability protection for its principals, flexible operation, and pass-through taxation; a “hybrid” entity
members
owners of a LLC
Uniform Limited Liability Company Act
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
Revised Uniform Limited Liability Company Act
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
What are two main advantages of forming an LLC?
it’s. easy and inexpensive to form
articles of organization
“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
Are LLCs required to file an agreement?
no
Do LLCs issue shares to the public?
no
How do LLCs capitalize?
(1) debt via private lenders
(2) debt via commercial lenders
(3) sale of equity in the LLC itself
operating agreement
the document that governs an LLC; sets out the structure and internal rules for operation of the entity
Describe a benefit of a LLC.
members have a great deal of flexibility in terms of the rights and responsibilities of each member
the flexibility of a LLC…
(1) structure of governance and voting rights
(2) death, incapacity, and dissolution
(3) RULLCA
MEMBER-managed LLC
LLC management structure similar to that of a general partnership with all the members having the authority to bind the business
MANAGER-managed LLC
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
What is the most important feature of a LLC?
the limited liability for its members (members are protected from personal liability for any business debt/liability)
List the advantages of a LLC.
(1) a lot of flexibility
(2) 1+ owners
(3) limited liability
(4) management flexibility
List the disadvantages of a LLC.
(1) newer business entity
(2) not for going public
What are the advantages of pass-through taxation?
(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
dissolution
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
to continue a LLC…
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
Kirksey v. Grohmann
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
