LLC Flashcards
Limited Liability Company (LLC ) - Difference w/corp
- Gral rule: shareholders with limited liability similar to corp shareholders but with different mgmt, continuity and transferability of shares
- Some states allow for only 1 member
LLC - Formation /filing reqs (2) / failure effect
File with Secretary of state:
1) Articles of organization
2) Certificate of formation
[Failure to file: treated as gral psx, hence general and several liability to all members]
LLC- Articles of formation - Content NOMAD
- Name - trade name LLC - not use copr, inc, psx, ltd, etc.
- Organizer name + address (not necessarily member of LLC)
- Manager or member managed (default)
- Address + Register Agent
- Date of dissolution or statement of perpetual nature (3- years is common duration)
LLC - Operating Agreement (OA)
- Oral/written + Agreed by members
- Similar to Corps’ by-laws or PSX’s partnership agreement
- Provides regulation and mgmt of LLC affairs in manners consistent with law and for the protection of 3rd parties
LLC - Management rules according to OA
-Either by 1) Managing member
OR
by 2) All members (default if no specific designation)
LLC - Mgmt - Standard of Care
- Duty of care - liable for gross N, recklessnes, intentional misconduct or knowingly violate law
- Possible application business judgment rule protection
LLC - Managing Member /designation, removal, resignation
- Designated in articles or OA
- Elected/removed by majority rule + filing of articles as constructive notice of authority for 3rd parties
- Resignation w/notice: dissolution if not replace within 90 days
LLC - All members mgmt
- Default if no member manager designated in articles or OA
- In proportion to membership interest
- Dissociation doesn’t dissolve LLC
- New member require unanimous approval to be able to engage in mgmt)
LLC - Management Liaiblity
- No direct action by members when mismgmt affect only LLC
- Possible derivative actions from gross N, recklesness, intentional misconduct, knowing violation
- Some states allow for business judgment rule to protect manager
LLC - Member rights (4)
1) Inspection and copy of records (reasonable request)
2) When member managed - all w/= rights
3) Voting: gral rule of majority
4) Distribution (subject to manager decision and when assets exceed liabilities)
LLC - Transfer of ownership rules
- Can be in part or all interests UNLESS otherwise agreed by op agreement
- Asignee receives = share of profit/loss/distribtuion as asignor BUT no mgmt rights unless all other members approve
LLC - Distribution Allocation - whose decision?
Manager decission
- Possible ONLY when assets exceeds liabilities and other funds required for superior preferential rights in case of potential dissolution
LLC - Mgmt fiduciary duties (2)
- To LLC and to other members
1) Loyalty - account AND hold property, benefit or profit dereived form LLC activties, OR appropriation of LLC opp, OR have competing interest with LLC (possible waiver but express and manifestly reasonable)
2) Due Care: refrain from grossly N, intentional misconduct, knowingly violation of law
LLC- Liability of Members - Agency Rules
- Members not with automatic authority
- Authority has to come specifically from OA
LLC - Liability of members - Members to other members and LLC
- Member can bring possible derivative actions
- Usually no liability to LLC or other members for ordinary N
LLC- Liability of members - Liability of member to LLC or other members (i.e. 4)
1) Breach of contract
2) Use of proprietary info
3) Breach of fiduciary duty
4) Distribution when knowing it will cause LLC insolvency
LLC - Liability of Members - To 3rd parties (2)
1) For contracts: no personal liability UNLESS member as co-maker, guarantor, or acting w/out authority
2) For torts:
- LLC for employee’s actions within scope and regular course
- Members and/or manager not personally liable UNLESS personally involved OR failed to supervise tortfeaser OR for torts related with own gross N, intentional misconduct, breach of fiduciary duty, knowingly violation of law
LLC - Liability of Members - Professional LLC Rules
- Members only for own N or person under supervision/control
LLC - Liability of Members - Pierce of corporate veil
- Court ordered, allows for creditor to sue shareholder directly
- Similar factors as Corp (2) (1) entity used to avoid payment duty and intentionally grossly undercapitalized and/or (2) Disregard of corp form to prevent aiding fraud/wrong suffered by innocent injured party
+
- And also for failure to comply with formalities
LLC - Dissociation Causes WIDE
- Withdrawal - w/notice and w/o right to have interest purchased (effective upon notice of intention)
- Insolvency: bankruptcy / appointment of trustee, receiver, liquidator
- Death or Incapacity: OJO economic rights go to decendent’s PR
- Expulsion (3):
1) judicial order
2) breach of operating agreement
3) unanimous vote by other members
LLC - Dissociation - Effects
- IF it doesnt cause dissolution
- Entitled to distributions (similar to assignee)
LLC - Dissolution - grounds (4)
1) Possible term/event in agreement
2) Consent by all members
3) Dissociation of last members (90 days to continue by assignee) OR resignation of manager and no replacement within 90 days.
4) Court petition
LLC - Dissolution - Asset Distribution Gral Rule
Pro rata of shares of each class + no contribution requirement
LLC - Dissolution - Asset Distribution - Priority (4)
1) Creditors
2) Members/former members owed distributions
3) Return of member’s contribution
4) Shares of profits to members
