Limited Liability Companies MEE

Question 1

Limited Liability Company

Answer 1

hybrid business organization between a corporation and partnership that is (1) taxed like a partnership, (2) offers its owners (members) the limited liability of shareholders of a corporation, and (3) can be run like either a corporation or a partnership

Question 2

Separate Entity

Answer 2

LLC is treated as a separate legal entity distinct from its owners

Question 3

Operating Agreements

Answer 3

LLC members may adopt operating agreements to control most aspects of the LLC’s business and management

Question 4

RULLCA

Answer 4

revised uniform limited liability company act

Question 5

LLC Formation

Answer 5

an llc is formed by filing a certificate of organization with the secretary of state - LLC must have one member

Question 6

Certificate of Organization Requirements

Answer 6

(i) name of the LLC
(ii) the address of the LLC’s registered office AND
(iii) name and address of its registered agent

Question 7

Name of the LLC

Answer 7

the name should contain words “limited liability company” or the abbreviation LLC or L.L.C.

Question 8

Management and Operation - Operating Agreement

Answer 8

the operation and governance of an LLC is typically found in an operating agreement - can displace almost all of the statutory provisions

Question 9

Management and Operation - Operating Agreement May Alter Duties

Answer 9

(a) agreement may eliminate the duty of loyalty and alter the duty of care if doing so is not manifestly unreasonable
(b) similarly the operating agreement may not eliminate the contractual obligation of good faith and fair dealing but it may prescribe standards for measuring the performance of the obligation if doing so is not manifestly unreasonable

Question 10

Presumption of Management and Operation

Answer 10

management of the LLC is presumed to be by all members

Question 11

Ordinary Business Decisions

Answer 11

a majority vote of the members (or managers) is required to approve most decisions - ordinary business decisions

Question 12

Authority to Bind the Company in Member Managed LLC

Answer 12

each member of a member managed LLC has authority to bind the company to contracts apparently carrying on the ordinary business of the company unless the member lacks actual authority to do so and the other party to the contract has notice that the member lacks authority

Question 12

Authority to Bind the Company

Answer 12

each member of a member managed LLC has authority to bind the company to contracts apparently carrying on the ordinary business of the company unless the member lacks actual authority to do so and the other party to the contract has notice that the member lacks authority

Question 13

Authority to Bind the Company in the Manager Managed LLC

Answer 13

only the manager(s) have authority to bind

Question 14

Extraordinary Business Decisions

Answer 14

a unanimous vote of members (or managers if manager-managed) is required to approve extraordinary business decisions, including amending the operating agreement

Question 15

Financial Rights LLC

Answer 15

if an LLC makes any distributions to its members the distribution must be made to the members in equal shares unless the operating agreement provides otherwise

Question 16

Rights to Demand Distributions in Other Forms

Answer 16

a member or transferee does not have a right to demand or receive a distribution from the LLC in any form other than money

Question 17

Liability of Members and Managers

Answer 17

generally are not personally liable for the LLCs obligations

Question 18

Liability of Members and Managers

Answer 18

members and managers generally are not personally liable for the LLCs obligations and can lose only the amount of their investments

Question 19

Piercing the LLC Veil

Answer 19

courts may pierce the LLC veil of limited liability to reach the members and managers personal assets to satisfy the LLC obligations under circumstances similar to those under which courts would pierce the veil of a corporation

Question 20

Fiduciary Duties owed by Manager or Member

Answer 20

the fiduciary duties owed by members and managers to the LLC and to its other members are the fiduciary duties of care and loyalty - must discharge their duties and exercise any rights consistently with the contractual obligation of good faith and fair dealing

Question 21

Duty of Care - Only to Managers

Answer 21

members or managers must act with the care that a person in a like position would exercise under similar circumstances, in a manner reasonably believed to be in the best interests of the LLC

Question 22

Business Judgment Rule

Answer 22

members or managers cannot be held liable for negligent decisions

Question 23

Duty of Loyalty - Only to Managers

Answer 23

a member must:
(1) account to and hold for the LLC any benefit they derive from the LLC’s activities or from the appropriation of an LLC opportunity;
(2) refrain from dealing with the LLC as, or on behalf of, a person who has an adverse interest in the LLC
(3) refrain from competing with the LLCs business

all members may authorize or ratify a specific act by a member

Question 24

Members Ability to Ratify Acts of Manager

Answer 24

only the members may authorize or ratify an act by a manager that would otherwise violate the duty of loyalty

Question 25

Transferability of Financial Rights

Answer 25

unilaterally transferable

Question 26

Transferability of Management Rights

Answer 26

not unilaterally transferable

Question 27

Assignment of Membership Rights

Answer 27

transfers only the members right to receive distributions

Question 28

How Does One Become a Member

Answer 28

one can become a member only with the consent of all members or as provided in the operating agreement

Question 29

Dissociation

Answer 29

a person has the power to dissociate as a member of an LLC at any time, rightfully or wrongfully, by expressly withdrawing as a member

Question 30

Dissolution

Answer 30

an LLC will be dissolved when any of the following events occur: (1) an event or circumstance that the operating agreement states causes dissolution (2) the consent of all of the members (3) the passage of 90 consecutive days during which the LLC has no members

Question 31

Judicial Dissolution

Answer 31

a member may also apply for judicial dissolution of the LLC - a court may grant if: (a) the conduct of all or substantially all of the LLCs activities is unlawful (b) it is not reasonably practicable to carry on the company's activities in conformity with the certificate of organization and the operating agreement (c) the controlling members have acted, are acting, or will act in a manner that is illegal or fraudulent (d) the controlling members have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the member applying for dissolution

Question 32

Administrative Dissolution

Answer 32

secretary of state may dissolve an LLC administratively when the LLC fails to submit a required fee or annual report

Question 33

Effect of Dissolution

Answer 33

an LLC that has been dissolved continues its existence but is not allowed to carry on any business except that which is appropriate to winding up its activities

Question 34

Barring Claims Against LLC - Undistributed Assets

Answer 34

a claim can be asserted against a dissolved LLC to the extent of the LLCs undistributed assets

Question 35

Barring Claims Against LLC - Distributed Assets

Answer 35

if the assets have been distributed to the members, a claim can be enforced against each member to the extent of the member's proportionate share of the claim or to the extent of the assets distributed to him, whichever less

Question 36

Cutting Short time For Claims Against

Answer 36

an LLC can cut short the time for bringing known claims by notifying claimants in writing of the dissolution and giving them a deadline of not less than 120 days in which to file their claim - time for filing unknown claims can be limited to 5 years by publishing notice of the dissolution in a newspaper in the county where the LLCs known place of business is located

Question 37

Taxation of an LLC

Answer 37

partnerships and LLCs are taxed on a pass through basis - business income is passed through the owners and reported to the owners individual tax returns

Question 38

Right to Information in a Member-Managed LLC

Answer 38

a member has a right to inspect and copy any record concerning the LLCs activities, financial condition, and so on, material to the members rights and duties - must automatically be furnished unless they reasonably believe the member already knows the information

Question 39

Right to Information in Manager-Managed LLC

Answer 39

the managers have the same right to information and the duty to furnish information

Question 40

Right to Information in a Manager- Managed LLC

Answer 40

pg 49

Question 41

Members' Actions against the LLC - When Injured by LLC

Answer 41

a member who has been injured personally by his LLC can bring a direct action against the LLC to recover

Question 42

Members' Actions Against the LLC - When Management Fails

Answer 42

a member may bring a derivative action on behalf of the LLC if they make a demand on the other members (or managers) unless demand would be futile

Question 43

Who May Bring a Derivative Suit

Answer 43

a derivative action may be maintained only by a person who is a member at the time the action is commenced and who remains a member while the action continues

Question 44

Indemnification

Answer 44

members of a member-managed and managers of a manger-managed LLC have a right to be indemnified for debts, obligations, and other liabilities incurred in the course of their activities on behalf of the company, provided that they complied with the duties of loyalty and care, and they also have a right to reimbursed for expenses they incur on the company's behalf

Question 45

Charge of Transferable Interest

Answer 45

a judgment creditor of a member or transferee of a member may charge (attach) the transferable interest of the judgment debtor to satisfy the judgment