Limited Liability Company Flashcards
LLC
A limited liability company (“LLC”) is a hybrid business organization between a corporation and a partnership that (1) is taxed like a partnership (except for a single-member LLC), (2) offers its owners (called members) the limited liability of shareholders of a corporation,
and (3) can be run like either a corporation or a partnership. This is not a corporation, nor is it a partnership. It is its own business form. An LLC is treated as a separate legal entity distinct from its owners (called “members”).
FORMATION
An LLC is formed by filing a certificate of organization (or, in some states, articles of organization) with the secretary of state. The LLC must have at least one member
Operating Agreement
The real detail on the operation and governance of an LLC is typically found in an operating agreement. The operating agreement can displace almost all of the statutory provisions.
Management and Operation
Management of the LLC is presumed to be by all members. Other management arrangements can be made (for example, management by outside managers), but they must be specified in the operating agreement. Each member (or manager, if the LLC is manager-managed) has equal rights in the LLC’s management. A majority vote of the members (or managers) is required to approve most (that is,
ordinary business) decisions. Thus, consistent with general agency law principles, 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 such authority.
FIDUCIARY DUTIES
The fiduciary duties owed by a member (if member-managed) or a manager (if manager-managed) to the LLC and to its other members are the fiduciary duties of care and loyalty.
