Limited liability companies Flashcards
Ownership interests in an LLC
The “interests” of the members of an LLC are not represented by stock; the members hold interests much like partners in a partnership
An ownership interest in an LLC will likely be treated as a security when its members’ involvement in the management is akin to that of limited partners or the member is otherwise so dependent on the promoters or active managers as to be essentially a passive investor.
However, in a member managed LLC which resembles a general partnership, the active involvement of the members may preclude application of the federal securities laws, which are directed at the regulation of transferable investment interests
What is an operating agreement?
The members of an LLC usually enter into an “operating agreement” that functions much like a partnership agreement.
Many LLC statutes defer to the operating agreement to define the parties’ respective fiduciary duties
Who is an agent in an LLC?
In member managed LLCs, each of the members is an agent of the LLC and has the authority to bind it in the ordinary course of business
How are voting rights determined in an LLC?
Voting rights can also be defined by the operating agreement, in the absence of such an agreement, some states, following the partnership model, grant LLC members an equal voice, while others base it on proportional ownership
Management of the LLC
By default, management is vested in the members, but the Articles of Organization or an OA may provide for management by a manager or managers.
A member or manager may delegate the power and authority to manage to others, such as a board of managers, an officer, a director, an employee, etc. Such a delegation does not cause the member or manager to cease to be a member or manager of the LLC.
Liability
Members and managers generally are not personally liable for the company debts, so creditors of an LLC must look exclusively to the assets of the company to satisfy their claims.
Agency authority
If management is vested in the membership, individual members have apparent authority to bind the company contractually; otherwise, only the elected managers normally have such authority.
