LLCs Flashcards
When is an LLC formed?
Generally, an LLC is formed when the certificate of formation is filed with the secretary of state.
What is required in the certificate of certification?
The certificate of formation is analogous to a corporation’s articles of incorporation. Commonly, the certificate of formation must provide:
- The name and purpose for which the LLC is organized;
- The address of the principal place of business;
- The name and address of the registered agent in the state;
- The initial capital contributions agreed to be made by all members; AND
- The number of persons, or classes of members, who will manage the LLC, and the names and addresses of the persons or members who will serve as managers.
What is the LLC equivalent of corporate bylaws?
The LLC’s operating agreement
What does an LLC operating agreement govern?
- The relations between the members and the LLC;
- The rights and duties of managers;
- The activities and affairs of the LLC; AND
- The conditions, if any, for amending the operating agreement.
What is a member-managed LLC?
LLC is managed by its members.
Generally, an LLC is presumed to be member-managed unless the operating agreement provides otherwise.
If the operating agreement provides that the LLC will be manager- managed…
…an elected group of managers will run the business analogous to how a board of directors runs a corporation’s business.
When in doubt about LLC, apply…
agency rules.
When does LLC manager have actual authority?
“each member [in a member-managed LLC] has equal rights in the
management and conduct of the company’s activities,” and unless otherwise specified in the operating agreement, he/she has the actual authority to bind the LLC if acting to carry out the company’s ORDINARY BUSINESS.
When does LLC manager have apparent authority?
each member of a member-managed LLC can bind the company to contracts for apparently carrying
on the ordinary business of the company unless the member lacks authority to do so and the
other party to the contract has notice that the member lacks such authority.
eg, 3P who bought farmland from member of a bike shop LLC could not reasonably rely on one member’s offer to sell on behalf of the LLC because selling real estate is outside the ordinary coure of the activities of the company.
3p is not a bona fide purchaser either because he should have had doubts that one LLC member could bind the company in the sale of the land.
What happens when member decides to withdraw?
Dissociation
When member dissociates, does this result in a dissolution of the LLC?
No. dissociation DOES NOT EQUAL dissolution.
Dissolution requries consent of all members.
What is the result of a dissociation by a member?
dissociation results in (1) loss of his rights to participate in the LLC and (2) still gets rights to distributions (payments by the LLC) only if and when made by the continuing members.
So does dissociation occurs, does member get payment for his LLC interest?
NOPE. He has no right to payment for his LLC interest, unless the operating
agreement specifies that a withdrawing member has a right to payment upon dissociation, that the remaining members are to agree to have the LLC buy his interest, or that the other members
are to consent to dissolution (and winding up of the business).
What is a dissociation similar to?
the rights of a withdrawing LLC member are not like those of a partner in an at-will partnership, but rather more like those of a minority shareholder in a closely held corporation.
