LLC

Question 1

What is required for Formation of LLC?

Answer 1

Filing Articles of Organization with SOS and paying fees.

Question 2

What is in the Operating Agreement?

Answer 2

details about how LLC will be operated.
- Purpose of LLC, rights and duties of manager, rights and obligations of members, provisions for meeting of members, and contributions of capital/investment.

Question 3

Does Operating Agreement have to be in writing?

Answer 3

o RULLCA: Can be oral, implied, in a record, or in any combination thereof.
o Delaware Act: Operating Agreement means any agreement, written, oral or implied, of the Member or Members as the affairs of a limited liability company in the conduct of its business.

Question 4

What is the rule from Elf-Atochem North America v. jaffari?

Answer 4

• Rule: Can “contract away” arbitration requirement and forum selection, as well as special jurisdiction.

Court will recognize, under DE formed company, and give full maximum effect ot the principle of freedom of contract and enforce LL agreement.

Question 4

DE Default voting right

Answer 4

Pro rata: % of financial interest or sometimes the term units is used.

Question 4

RULLCA Default voting right

Answer 4

RULLCA Default: Per capita
* Management and conduct of companies are vested in member and each member has equal rights in company’s management.

Question 5

Member-Managed Characteristics

Answer 5

• Often default under DE and RULLCA.
• each member has apparent authority in ordinary course of LLCs business to bind LLC.

Question 5

Ordinary Course of Business Vote Requirement

Answer 5

Majority Vote
- Member-Managed: majority of all members
- Manager-Managed: majority of all managers

Question 6

Significant Matters Vote Requirement

Answer 6

Unanimous Consent
- Member-Managed: unanimous consent of all managers
- Manager-Managed: consent of all members.

Question 7

Manager-Managed Characteristics

Answer 7

• ex: CEO, COO, CFO, CIO, CTO, etc.
• managers may duly serve in member roles.
• managers run ordinary operations of company.
• each manager has equal right in management conduct of companies activities and affairs (RULLCA Default).
• Members designate managers.
• only Managers have apparent authority.

Question 8

LLC Default Rule for Allocation of Profit and Losses

Answer 8

DE: allocated on pro rata basis (according to members contributions %)
RULLCA: only default right to share in distributions.
(Operating agreement governs first, if silent, then default rule)

Question 9

Default Rule for Distributions

Answer 9

DE: Pro Rata
RULLCA: Per capita

Question 10

LLC Statute (RULLCA) Information Rights

Answer 10

Member-Managed: everyone has right to information - has to be reasonable.

Manager-Managed: shareholders get information access and shareholder can get info “as is just and reasonable” if “the member seeks information for a purpose related to the member’s interest as a member.”

Question 11

DE LLC Information Rights

Answer 11

Operating agreement where the manager can set forth reasonable standards to obtain information from LLC reasonably related to members interest as a member.

Manager-managed LLC: Managers also have rights to information to exercise their duties.

Question 12

What does the duty of loyalty include in RULLCA?

Answer 12

(1) Account to company and hold as trustee for it any property, profit, or benefit derived:
o (a) In conduct or winding up of company’s activities and affairs;
o (b) from use of company’s property; OR
o (c) From appropriation of company’s opportunity;
(2) Refrain from dealing with Company and conduct or winding up of Company’s activities affairs or on behalf of person having interest adverse to Company;
(3) refrain from competing with Company and conduct of Company’s activities and affairs before dissolution of company.

Question 13

What does the duty of care include in RULLCA?

Answer 13

o Refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or knowing violation of law.
o Members/managers discharge their duties and obligation under statute or operating agreement consistent with contractual obligation of good faith and fair dealing.

Question 14

What does RULLCA allow LLC to do to fiduciary duties?

Answer 14

If not manifestly unreasonable, operating agreement may:
(a) Alter or eliminate aspects of duty of loyalty;
(b) Identify specific types or categories of activities that do not violate duty of loyalty;
(c) Alter duty of care, but may not authorize conduct involving bad faith, willful or intentional misconduct, or knowing violate of law.

Cannot eliminate good faith and fair dealing duty.

May prescribe standards, if not manifestly unreasonable, for how performance of obligation is measured.

Question 15

What does DE Act allow LLC to do to fiduciary duties?

Answer 15

Broader flexibility for private ordering of fiduciary duties in LLCs

Rules of law and equity relating to fiduciary duties govern.
* Fiduciary duties can be expanded, restricted, or eliminated in operating agreement.
* Only contractual covenant of good faith and fair dealing cannot be eliminated.

Question 16

What are Direct lawsuits?

Answer 16

Brought by Members for injury to THEM.
 Against another member, manager, or LLC to enforce and protect their rights and interest.
 Member must plead and prove actual threatened injury that is not solely the result of injury suffered or threatened to be suffered by LLC.

Question 17

What are derivative suits?

Answer 17

Brought by members ON BEHALF of Company.

Demand requirement: must demand to corporation to bring suit.

Question 18

DE LLC dissolution events

Answer 18

(1) At the time, or upon the happening of events, specified in Operating Agreement;
(2) Unless otherwise provided in the Operating Agreement, upon the vote or consent of members who own more than 2/3rds of the current % interest in LLC.
(3) Within 90 days of event that terminated membership of the last remaining member (with limited exceptions); OR
(4) Upon entry of Decree of Judicial Determination.

Question 19

RULLCA dissolution events

Answer 19

(1) Event or circumstance that operating agreement states causes dissolution;
(2) Consent of all members to dissolve Company;
(3) Passage of 90 days consecutive of LLC not having members;
(4) On application by member, entry by a Court of an Order for Judicial Dissolution; OR
(5) Administrative dissolution by State: such as failure to pay required fees or timely make filings.