Limited Liability Companies

Question 1

Limited Liability Company

Answer 1

a hybrid business organization that is taxed like a partnership, offers its owners the limited liability of shareholders of a corporation, and can be run like either a corporation or a partnership.

Question 2

Owners of LLCs are also referred to as . . .

Answer 2

members

Question 3

Is there a limit on the number of owners an LLC can have?

Answer 3

no

Question 4

Who is fully personally liable for an LLC’s debts?

Answer 4

no one

Question 5

How is an LLC formed?

Answer 5

by filing a certificate of organization with the secretary of state.

Question 6

An LLC must have at least one . . .

Answer 6

member

Question 7

In an LLC, who has the right to management rights of the LLC?

Answer 7

all members have an equal right to management of the LLC unless otherwise stated in the operating agreement.

Question 8

There must be what kind of vote for an LLC to make decisions?

Answer 8

a majority of the members must vote in the affirmative.

Question 9

What two types of LLCs are there?

Answer 9

member-managed and manager-managed

Question 10

Member-Managed LLC

Answer 10

an LLC where the members owe to each other and the LLC duties of care and loyalty. They must perform these duties using good faith and fair-dealing.

Question 11

Manager-Managed LLC

Answer 11

an LLC where only the managers are bound by the duties of loyalty and care and only the members can authorize or ratify an act by a manager that would otherwise violate the duty of loyalty.

Question 12

The operating agreement may eliminate the duty of loyalty and alter the duty of care if doing so is not . . .

Answer 12

manifestly unreasonable.

Question 13

Are members and managers personally liable for the obligations of LLCs?

Answer 13

no

Question 14

What does piercing the corporate veil mean?

Answer 14

the court can pierce the corporate veil and take the personal property of the members and managers in certain circumstances despite their not being liable for the obligations of the LLC.

Question 15

Is failure to observe corporate-type formalities enough to subject members and managers to piercing the corporate veil?

Answer 15

no

Question 16

Under RULLCA, distributions in an LLC must be made how?

Answer 16

equally among the members and managers

Question 17

In most states, how are distributions made?

Answer 17

according to contributions to the LLC.

Question 18

Can a member demand their distribution in a form other than cash?

Answer 18

no

Question 19

Can members and managers of LLC be indemnified for costs incurred by them for the company?

Answer 19

yes

Question 20

In a member-managed LLC, who is entitled to information about the company at any time?

Answer 20

members

Question 21

In a manager-managed LLC, who is entitled to information about the company at any time?

Answer 21

managers, whereas members are allowed to inspect the books.

Question 22

Can a member who has been injured by their LLC bring a direct action against it?

Answer 22

yes

Question 23

Can a member transfer their interest in an LLC?

Answer 23

yes

Question 24

Does transferring one’s interest in an LLC give the transferee the right to management of the LLC?

Answer 24

no

Question 25

When can a person dissociate from an LLC?

Answer 25

at any time

Question 26

Someone who wrongfully dissociates from an LLC is liable to the LLC for what?

Answer 26

damages

Question 27

What events will cause an LLC to dissolve?

Answer 27

where 1) an event happens that in the operating agreement says terminates the LLC; 2) the consent of all the members; or 3) the passage of 90 consecutive days with no members.

Question 28

An LLC which has been terminated is still in existence until what?

Answer 28

until it is wound up.