LLCs

Question 1

Formation of LLC

Answer 1

file with the Secretary of State:
(1) articles of organization, and
(2) initial report

Secretary of State will issue a Certificate of Organization (effectiveness retroactive to date of filing)

Question 2

Ownership of Immovable Property

Answer 2

if LLC owns immovable property but doesn’t yet “exist”, issuance of certificate of organization will retroactively create existence of the LLC back to when the immovable property was acquired

*except to the prejudice of 3rd party rights

Question 3

Articles of Organization Requirements

Answer 3

(1) written in English
(2) signed by one person (but doesn’t have to be member/manager)
(3) includes the name of the LLC
(4) includes the purpose for which the LLC was formed
(5) includes whether or not the LLC is a “low profit” LLC

Question 4

Name of LLC

Answer 4

(1) must be distinguishable from all other LA names of LLCs or corporations
(2) must include LLC or Limited Liability Company (or “low profit” if applicable)
(3) must not include anything that implies an unlawful or charitable purpose
(4) may be reserved by filing application for reservation

Question 5

Purpose of LLC

Answer 5

can be for any lawful purpose

*cannot be for insurance underwriting

Question 6

Permitted Inclusions in Articles of Organization

Answer 6

(a) whether/extent of limitations on authority of members to bind LLC
(b) designation of member/manager managed LLC
(c) term/dissolution date
(d) any other provision not inconsistent with law

Question 7

Flawed Articles of Organization

Answer 7

if accepted by Secretary of State and filed, then no consequences to organizers, LLC is considered valid

Question 8

Amendment of Articles of Organization

Answer 8

file articles of amendment

Question 9

Initial Report Requirements

Answer 9

(1) signed by same person who signed articles of organization
(2) name/location/address of LLC
(3) name/location/address of manager/members (whoever is governing)
(4) name/location/address of each registered agent
(5) notarized affidavit of acknowledgement and acceptance signed by each registered agent

Question 10

Annual Report

Answer 10

must be filed 1x a year

(1) signed by a manager/member
(2) state the address of registered office of LLC
(3) state name and address of each registered agent
(4) state name and address of manager

Question 11

Failure to File Annual Report

Answer 11

after 3 years, Secretary of State will revoke Articles of Organization

Secretary of State will give 30 day warning before revocation

manager can file annual report up to 3 years after date of revocation and LLC will be reinstated (cure)

revocation does NOT affect ability of LLC to sell property belonging to the LLC in the same way it would if articles were not revoked

Question 12

Articles of Conversion

Answer 12

used to convert an entity into a different type of entity

Question 13

Articles of Merger

Answer 13

used to merge an entity into another entity

must file merger agreement with the Secretary of State AND conveyance records of each parish where title for immovable property will be transferred

Question 14

Certificate of Authority

Answer 14

foreign LLC registered to do business in LA

Requirements:
(1) name and jurisdiction of LLC
(2) conformance with LA law on naming (distinguishing name/term)
(3) date of organization and period of duration of LLC
(4) address of LLC’s registered office and principal place of business in its home jurisdiction
(5) address of LLC’s principal business, registered office, and registered agent in LA
(6) nature of business that LLC proposes to transact in LA

Question 15

Actions Foreign LLC does NOT Need a Certificate of Authority For

Answer 15

Actions in Louisiana of the following:
(1) defending or settling a lawsuit
(2) holding a director/shareholder meeting
(3) holding bank accounts
(4) maintaining offices for transfer/etc of securities
(5) soliciting/procuring orders that require acceptance outside of LA
(6) collecting debs/mortgages/liens
(7) transacting business in interstate commerce
(8) conducting isolated transaction conducted in 30 days or less
(9) acquiring and disposing of property in LA not part of any regular business activity

Question 16

Default Management of LLCs

Answer 16

Member-managed

Question 17

Election of Manager

Answer 17

Straight Voting: plurality vote of the members

Question 18

Removal of Manager

Answer 18

majority vote of members

Question 19

Fiduciary Duties of Manager/Member Manager

Answer 19

(1) duty of care: act in good faith with the diligence, care, judgement, and skill which an ordinary prudent person in a like position would exercise

(2) duty of loyalty: act in the manner he reasonably believes to be in the best interests of the LLC

Question 20

Good Faith Protection

Answer 20

any member/manager that acts in good faith in taking actions on behalf of the LLC will not be liable for those actions

Question 21

Limitation on Liability

Answer 21

must be in a written operating agreement

(a) can eliminate or limit manager/member’s monetary liability for breach of duty of care/loyalty EXCEPT:
(i) receipt of improper benefit, or
(ii) intentional violation of criminal law

(b) provide indemnification of manager/member for any judgements/settlements/penalties/fines etc

Question 22

Piercing the LLC Veil

Answer 22

court can determine whether to pierce LLC veil based on a number of factors from a number of origins

corporation factors:
(1) commingling of funds
(2) inadequate capitalization (shell company)
(3) failure to maintain a separate identity

statutory factors:
(1) fraud
(2) breach of professional duty
(3) other negligent/wrongful conduct

LLC jurisprudence factors:
(1) whether member’s conduct could be fairly characterized as traditional tort
(2) whether member’s conduct could be fairly characterized as a crime for which a natural person could be held culpable
(3) whether conduct at issue was related to a contract between the claimant and the LLC
(4) whether conduct at issue was done outside the member’s capacity as a member

Question 23

Manager/Member Authority

Answer 23

each manager of the LLC is a mandatary for all matters in the ordinary course of business (except for lease/etc of immovable property)

Question 24

Removal/Limitation of Management Authority

Answer 24

(1) by the articles of organization
(2) by operating agreement
(3) by majority vote of the members

*but 3rd party must have knowledge that the manager is no longer a mandatary

Question 25

Nonmanager Members

Answer 25

do NOT have mandatary authority

do NOT have duty of care/loyalty

Question 26

Voting Rights

Answer 26

each member gets 1 vote and decisions need majority vote

no right to vote by proxy unless in articles or OA

*regardless of “membership units” voting is still per head UNLESS otherwise stated in the articles of organization or operating agreement

Question 27

Majority Vote of All Members

Answer 27

(1) dissolution/winding up
(2) disposal/encumbrance of all or substantially all of the LLC’s assets
(3) merger or consolidation
(4) incurrence of debt other than in the ordinary course of business
(5) alienation/lease/encumbrance of immovables
(6) amendment to articles or operating agreement

each member gets 1 vote

Question 28

Proxy Vote

Answer 28

must be written and signed

proxies expire 11 months after execution (but if longer time is provided cannot be longer than 3 years)

revocation = written notice

Question 29

Conflict of Interest

Answer 29

transaction voted on by a member having a financial interest in transaction is allowed, so long as either
(a) interest member’s interest was disclosed to other members AND disinterested majority approved the transaction, or
(b) transaction was fair to the LLC at the time it was approved

Question 30

Distribution Restrictions

Answer 30

(1) LLC would be unable to pay its debts
(2) LLC’s total assets would become less than its total liabilities
(3) distribution would violate provision in articles or OA

Question 31

Liability for Wrongful Distribution

Answer 31

all members/managers who knowingly or without exercising reasonable care and inquiry not for a wrongful distribution

they are jointly and severally liable to the LLC

2 year prescriptive period to enforce

Question 32

Assigning LLC Membership Interest

Answer 32

assignee can only receive economic benefits from LLC membership (no voting rights)

to get powers of member, must get unanimous vote of all members

Question 33

Death of Member

Answer 33

membership interest given to heir, but only gets economic benefits

if heir is not approved as a member by unanimous vote, LLC must “buy out” the dead member’s membership interest at fair market value within a reasonable time

Question 34

Contributions

Answer 34

can be cash, property, services rendered, or promissory note/binding obligation to contribute (need to be in writing to be binding)

Question 35

Withdrawal: LLC for a Term

Answer 35

(1) unanimous consent of other members, or
(2) just cause for withdrawal arising out of another member’s failure to perform a material obligation

Question 36

Withdrawal: LLC No Term

Answer 36

(1) immediately withdraw upon occurrence of an event in written operating agreement, or
(2) for any reason if the member gives the LLC and other memes 30 days written notice

Question 37

Entitlements Upon Withdrawal

Answer 37

(1) member’s fair market value of membership interest as of date of withdrawal
(2) member’s share of profits until date of payment of membership interest, and
(3) receipt of membership interest within a reasonable time

Question 38

Dissolution

Answer 38

(1) event specified in the articles or OA
(2) consent of a majority of the membership
(3) judicial decree of dissolution upon application of a member when it is no longer reasonably practicable to carry on the business of the LLC

Question 39

Distribution of Assets upon Dissolution

Answer 39

(1) creditors paid first (secured creditors as to secured assets)
(2) members paid second
(a) previously approved distributions
(b) return of capital contributions
(c) remaining assets in proportion to share of distributions