LLCs

Question 1

How is an LLC formed?

Answer 1

1. Filing certificate of organization with Secretary of State, and
2. Having at least one member.

Question 2

Can court pierce the corporate veil of an LLC?

Answer 2

Yes, but failure to observe corporate-type formalities is not grounds to do so.

Question 3

How can an LLC be managed?

Answer 3

Member-managed: presumption

Manager-managed: if operating agreement says so (similar to board of directors)

Question 4

What fiduciary duties do members and managers owe in member-managed and manager-managed LLCs?

Answer 4

They owe duties of care and loyalty to company and other members.

In a mangager-managed LLC, only the managers owe duties.

Question 5

What ownership interests in an LLC can be transferred unilaterally?

Answer 5

Financial rights, but not management rights. Can only become a member through unanimous vote.

Question 6

When can a member dissociate from an LLC?

Answer 6

Any time (whether rightful or wrongful).

Question 7

What events cause the dissolution of an LLC?

Answer 7

1. Occurrence of a dissolution event in the Operating Agreement;
2. Consent of all members;
3. The passage of 90 consecutive days where the LLC has no members; OR
4. Judicial dissolution.

Question 8

On what grounds may a court grant an application for judicial dissolution of an LLC?

Answer 8

1. Managers or controlling members acted in an illegal/fraudulent manner;
2. Managers or controlling members acted in an oppressive and directly harmful manner to the member;
3. The conduct of all (or substantially all) of the LLC’s activities is unlawful; OR
4. It’s not reasonably practicable to carry on the business.

Question 9

What is an LLC’s tax scheme?

Answer 9

Pass through taxation: no entity-level tax.

LLC income is passed through to the individual owners who then pay taxes – the LLC itself doesn’t pay taxes.