LLCs

Question 1

Mini Outline – LLCs

Answer 1

(1) LLC purpose
(2) LLC control & management
(3) LLC owner liability and rights
(4) LLC dissolution

Question 2

LLC definition

Answer 2

An unincorporated association having one or more members, organized and operated under a state’s LLC statute (can be formed to conduct any type of business)

Treated like a corp. for limited liability purposes

Question 3

Professional LLC

Answer 3

Organized for the sole purpose of rendering professional services and has members licensed or otherwise duly authorized individuals to render the
services

Question 4

Organizing an LLC

Answer 4

Must file Articles of Organization with the secretary of state. Articles must generally include:

• Statement that the entity is an LLC;
• Name of the LLC;
• Address of LLC’s registered office and registered agent

Question 5

Name requirement for LLC

Answer 5

Name must include “limited company,” “limited liability company,” or abbreviations LC or LLC (with or without periods)

Name may NOT imply association with government entity

Question 6

Operating agreement for LLC

Answer 6

Operating Agreement – similar to a corp.’s bylaws and govern LLC’s internal affairs

Question 7

Number of owners in LLC

Answer 7

One or more individuals or entities are required to form the LLC

Question 8

Admitting members into LLC

Answer 8

May admit initial and subsequent members (other than assignees) only with the consent of all of the members (unless operating agreement says otherwise)

Question 9

Assignees as members of LLC

Answer 9

Assignees may become members by consent of a majority of the remaining members (unless operating agreement says otherwise)

Question 10

Member liability for loss

Answer 10

Generally, members are liable for losses up to the amount of contribution to the LLC

Question 11

Member personal liability

Answer 11

Members are not personally liable unless court pierces the company veil

Question 12

Flexibility of operating agreement

Answer 12

Members can enter into an operating agreement that sets forth how the LLC will be operated and how profits/losses will be shared

Question 13

Member managed LLC

Answer 13

• members appoint a manager(s) to operate biz
• Each member has equal rights in management
• Members owe LLC and other members duties of loyalty and care

Question 14

Duties of LLC managers

Answer 14

Managers may or may not be members. Managers owe duties of loyalty and care (similar to directors of a corp.)

Most states and ULLCA permit the operating agreement to alter fiduciary duties of managers or members

Question 15

Manager tort duties

Answer 15

Managers owe a duty not to engage in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law (some states reject gross negligence and use business judgment rule)

Question 16

LLC owner liability

Answer 16

No member, manager, or agent of an LLC will have any personal obligation for LLC debts and obligations, but is liable for own conduct

Exception: Pierce the Company Veil: a court may pierce similar to corp. (alter ego and
inadequate capitalization)

Question 17

LLC member suits

Answer 17

Members may bring direct and derivative actions

Question 18

LLC derivative suits

Answer 18

Members must make a demand unless that demand would be futile because other members or managers have a financial interest or are
otherwise biased

Question 19

Assignment of LLC interest

Answer 19

A member may assign all or part of economic interest in LLC (assignee
does not become a member or have management rights unless admitted)

Question 20

LLC dissolution requirements

Answer 20

Under the ULLCA, an LLC is dissolved and must be wound up upon:

• event stated in operating agreement;
• consent of all members;
• no members for 90 consecutive days (unless within the 90 days a new member is admitted);
• application of a member and entry of a court order; or
• statement of administrative dissolution by secretary of state

Question 21

Grounds for application of dissolution

Answer 21

o LLC’s activities/affairs are unlawful;
o Not reasonably practicable to carry on LLC activities in conformity with articles and operating agreement; or
o Managers or members in control have acted/will act in a manner that is illegal or fraudulent or have acted in a manner oppressive and directly harmful to applicant

Question 22

LLC member liability for dissolution

Answer 22

LLC member have limited liability UNLESS proper procedures are not followed during dissolution, winding up, or a court pierces the company veil

If proper winding up procedure is not followed, court can enforce creditor’s claim against each member (proportionate to member’s share of the claim, up to amount of assets distributed to member during dissolution)

Question 23

Notice of dissolution

Answer 23

Must provide notice of dissolution to creditors (includes explanation of how creditors can enforce claim)