LLCs Flashcards
What are the 2 main advantages of an LLC?
An LLC has the tax advantages of a partnership combined with the limited liability of a corporation
How is an LLC formed?
Requires filing articles of organization with the state
Who manages an LLC?
LLCs may be managed by “members” or by “managers.” It is presumed that an LLC is member-managed unless otherwise specified in the articles of organization or operating agreement.
When can members be held personally liable for LLC obligations?
When piercing the veil applies
To whom do members owe fiduciary duties?
To other members and to the LLC itself
What is the duty of loyalty of a member-managed LLC?
Members managing an LLC must account to the LLC for any profit or benefit, must refrain from dealing with the LLC on behalf of an adverse interest, and must refrain from competing with the LLC
What is the duty of care of members of an LLC?
Members must act reasonably. Their actions are subject to the BJR.
What types of lawsuits can members bring?
Direct Action: A member brings suits against the LLC or other members to enforce the member’s rights
Derivative Action: A member brings suit on behalf of the LLC against other members (or against themselves)
When can a member dissociate?
A member can withdraw at any time and for any reason with oral or written notice
When can an LLC dissolve?
(1) When all members agree,
(2) If there are not enough members remaining after 90 days,
(3) By court order, or
(4) Any other reasons stated in the operating agreement
When can an involuntary dissolution occur?
When a member shows that a controlling member has acted oppressively and harmed the member seeking dissolution, a member may ask for a court order to dissolve the LLC
What occurs when an LLC winds up?
The LLC must pay off debts to creditors before distributing assets to members
Does an LLC member have authority to bind the LLC?
Member-managed: Members of a member-managed LLC have broad authority to bind the LLC. When the act was in the ordinary course of business, apply agency law principles.
Manager-managed: Members of a manager-managed LLC do not have authority to bind the LLC
Does a member’s dissociation result in dissolution of the LLC?
No, a member may dissociate at any time for any reason without notice
Does a dissociating member
