LLCs Flashcards
Define LLC
-unincorporated association
-no perpetual duration
-has one or more members
-organized and operated pursuant to a state’s LLC statute or operating agreement
What is an operating agreement?
Document that’s similar to corporate bylaws that govern LLC’s internal affairs
What does duty of loyalty require
LLC members owe each other a duty of loyalty and must not compete with the LLC as the members conduct their business
Can LLCs put limitations on duty of loyalty
Yes, so long as those limitations are included in the operating agreement and the limitations are not manifestly unreasonable
Do LLC members have limited liability?
Generally yes, unless the proper procedures have not been followed during dissolution and winding up, or when a court decides to pierce the corporate veil
Notice of dissolution
-notice of dissolution must be provided to all creditors so creditors can make claims against dissolving entity
-notice must include explanation of how creditors can enforce their claims
When can a court pierce LLC’s veil
-if LLC doesn’t follow proper procedure in winding up its business a court can enforce a creditor’s claim against each member to the extent of each member’s proportionate share of the claim, up to the amount of the assets distributed to the member during dissolution
-if P can prove that there is control so complete that the corporation has no separate will or existence of its own such that: the companyis the alter ego of the shareholders; a mere instrumentality of its parent corporation; the corporate form has been used fraudulently; there has been an improper commingling of funds AND injury or unjust loss resulted to the P from such control and wrong
What are member-managed LLCs
Each member has equal rights in management
What are fiduciary duties of members in member-managed LLC?
members owe LLC and each other duties of loyalty and care
What are manager-managed LLCs?
Members appoint a manager to operate the LLCs business
Do managers of LLCs need to be members?
No
What fiduciary duties to LLC managers owe the LLC
LLC managers owe duties of loyalty and care to the LLC, as well as duty not to engage in grossly negligent or reckless conduct, intentional misconduct or knowing violation of the law
What types of lawsuits may members bring against na LLC?
Members may bring either direct or derivative suits
What is required for a derivative lawsuit?
Members must make a demand unless that demand would be futile because other members or managers have a financial interest or are otherwise biased.
Can economic interests in LLCs be assigned?
A member may assign all or part of an economic interest in an LLC
