Limited Liability Corporation (LLC) Flashcards
if a limited liability company chooses to operate as manager managed limited liability company, can the board of managers consist entirely of members?
yes, a LLC may operate as a manger managed llc and still have a board of managers ocmposed entirely of members.
what steps must be taken to form an LLC?
- articles of incorporation must be filed with Secretary of State
- articles must contain: name of LLC and purposes for which it was formed
- initial report must be filed with location and address of LLC’s registered office, each registered agent, and initial managers (if manager managed) or members (if member managed). There is no requirement for anything to be filed in the mortgage office of the parish of LLC principal office like for corproation formation
Q: What are advantages and disadvantages of LLC and Partnership in Commendam regarding objectives for (limited liability of investors, equal voice for investors with no personal liability beyond investment amount, ensure profit and loss can be reported as income; minimize legal formalities to create and run)
- Limited Liability- while all members of an LLC have no personal liability for the debts of the LLC, in a commendam partnership only the commendam partners have such limited liability. The general partners will remain secondarily personally liable for the debts of the partnership, and there must be at least one general partner.
- Avoiding double taxation
Neither type of entity would be taxable as an entity and both would have profits taxed directly to the equity owners rather than the company. Neither an LLC nor a commendam partnership is taxable, so neither form has an advantage in this respect - Equal management authority
a. LLC members are allowed to be, and usually are, involved in management of LLC (just as general partner is in a partnership), commendam partners aren’t allowed to participate in the management of the partnership or deal with third parties. If they do, they lose their commendam status and become personally liable for debts of the partnership. - Minimizing legal formalities
a. In their minimal form, neither an LLC nor a commendam partnership requires much legal complexity. Both require filing with secretary of state, articles of organization and initial report for LLC, and partnership agreement with commendam partnership. Neither has an advatrage over the other here,
Q: What is the difference between manager managed and member managed llc?
Q: What is the difference between manager managed and member managed llc?
A member managed LLC is one managed directly by all of the members of the LLC. If articles do not provide otherwise, this is the form wthat will apply. Alternatively, the articles may provide for the LLC to be manager managed. This is managed by a board fo managers, consisting of one or more person elected by the members who may be, but don’t have to be, members. If the LLC is member managed, each member is a mandatary of the LLC for all matters in the ordinary course of the business, except for dispositions of the immovable property. Each member gets one vote. All matters xcept for admission of new members or compromise of a members contribution obligation (which require unanimity), may be decided by majority vote. If the LLC is manager managed, the same authority and voting pwower are held by the managers rather than members, except for unanimous decsions requiring approval by members (admission of new members or compromise of members contribution obligation); and other matters such as merger or amendment to articles or operatriing agreement.
what liability protection is afforded in LLC?
Members/ Managers of LLC are not personally liable for debts of LLC unless:
- there are rare and extraordinary circumstances that would lead a court to determine the LLC veil should be pierced because the LLC is undercapitalized and is a sham OR
- the member/ managers with management authority failed to act in good faith with the diligence, care, judgment, and skill withc an ordianary prudent person in like position would exercise (a breach of fiduciary duty of care or loyalty)
Q: Can creditors force payment arising from claims for amount X agrees to contribute over next 3 years? Is that agreement to contribute required to be a public record?
A promise to contribute is not enforceable unless it is made in a writing signed by the promising member. If this is not done, creditors nor LLC can enforce the promise. There is no provision that requires a written and signed promise by LLC member to contribute to the LLC to be made a public record.
Q: Agreement that first distributions would go to X until X gets all his money back, and afterward distributions split equally. Shaking of hands and agreed on. Is this enforceable as an operating agreement?
The handshake agreement is not enforceable. Distributions prior to any member’s withdrawal must be made equally to all members unless some other distribution method is set forth in a written operating agreement. This agreement was not in writing so it is not enforceable.
what legal duties do the manager of a limited liability company owe 1. the company and 2 the employees?
Each manager of a LLC stands in a fiduciary relationship to the LLC and must act in good faith, with the diligence, care, judgment and skill which an ordinary person in like position would exercise and in the manner he reasonably believes to be in the best interests of the LLC. This language creates a duty of care and a duty of loyalty, identical to those owed by officers and directors to corporation. There is no language in statute indicating managers of LLC have any legal duty to members of the LLC.
Q: Is a member in a limited liability company automatically entitled to reimbursement from company for fees incurred in successfully defending a lawsuit by third party by firtue of his status as member?
No, there is no provision in the statute, so no statutory requirement automatically requiring an LLC to reimburse a member or manager for costs associated with this. However, it is probable that mandate law would require the member to be reimbursed for such costs.
Q: What type of vote is required by members of a llc to transfer or sell immovable property owned by LLC?
Unless articles of organization or written operating agreement provides otherwise, the disposition of immovable property can be authorized only be a majority vote of the members, whether or not the LLC is member managed or manager managed.
Q: Can a member of a limited liability company withdraw? What does he get for interest in company?
The rules are the same for when a partner in apartnership can withdraw. It is based on term, if LLC is for term, a member may withdraw only with approval of all other members OR there is just cause arising out of another member’s failure to persorm a material obligation. If not for a term, may withdraw for any reason at any time given notice, or immediately without notice on occurrence of event specified in articles that triggers right to withdraw. An LLC does require a 30 day notice where notice is due, partnership is just good faith and reasonable notice.
A member who withdraws is entitled to continue to receive share of profits until LLC pays fair market value of membership interest as of date of withdrawal, which must be done in reasonable time.
Q: How do you prohibit sale or transfer of interest in LLC to third parties? How do they make this binding on third parties?
Without provision in the articles or operating agreement, members equity in an LLC is assignable in whole or part to a third party, but this is only the right to receive distributions, not exercise other rights. If they are only worried about assigning management or governance rights, nothing needs to be done, as this is barred by statute. If they want to bar from assigning right to receive distributions, then they must include a provision in either the articles or operating agreement stating this. There is no provision in LLC statute indicating how to make this binding on third party.
Q: In a 4 member limited liability company, what percentage of members must vote in favor of selling assets? How is voting calculated, by ownership or number of members?
Presumably selling assets constitutes a disposal of all or substantially all of LLC’s assets, majority of members voting as members must approve. Unless the articles provide otherwise, each member has one vote regardless of amount of capital contributed or ownership percentage. So ¾ would be needed.
Q: If member/ manager dies, and daughter wants to joint, and only minimum requirements are met in organizational documents, explain legal consequences of members death with respect to whether daughter is entitled to be member?
The heir of a deceased LLC member is treated as an assignee of the member’s interest. However, as an assignee, the third party does not become a member of the LLC and does not participate in management of LLC unless and until other members unanimously consent to her becoming a member. She is not automatically a member to take dad’s place.
Q: By what vote do members or managers of an LLC make decisions? Counted by heads or membership shares? When would this not apply?
All management decisions of LLC made by majority vote of managers with each manager having one vote. Voting power is one person, one vote, not by shares. Decisions on which members are required to vote as members, which include the members not entrusted with management authority , are also by a majority vote with each getting one vote. The exception is that to admit a new memer requires unanimous written consent of members.
