LLCs Flashcards
what is an LLC
An LLC is an entity that allows for taxation for its owners like a partnership, but has limited liability similar to that of a corp
- owners are called members and/or managers
how is an LLC formed
certificate of formation filed with the state
Need:
- name of LLC,
- address of LLC’s registered office, and
- name and address of its registered agent
what is the operating agreement for an LLC and what does it do
governing document, similar to a corp’s bylaws
Governs relations between members, rights and duties of members and managers, conditions for amending the operating agreement, etc.
how does management work in an LLC
presumption is that all members manage, but LLCs may also have one or several managers and members
how does voting work in an LLC
members or managers may have equal voting rights or may vote in proportion to ownership depending on operating agreement
how do distribution rights work in an LLC
According to RULLCA, if an LLC makes any distribution to its members, the distribution must be made to the members in equal shares unless the operating agreement
provides otherwise…
However, in most states, unless otherwise agreed, profits and losses and distributions are allocated on the basis of contribution.
(DISCUSS BOTH IF APPLICABLE)
what is a member-managed LLC
all members owe duties of care and loyalty to each other and the LLC
note: all members and managers have an obligation of good faith and fair dealing
what is a manager-managed LLC
only managers owe duties of loyalty and care
- All members can ratify a manager’s act that would violate duty of loyalty
note: all members and managers have an obligation of good faith and fair dealing
When can a person dissociate as a member of an LLC?
A person has the power to dissociate as a member of an LLC at any time, rightfully or wrongfully, by expressly withdrawing as a member.
Generally, the events that cause dissociation of a partner in a partnership will also cause dissociation of a member of an LLC.
A wrongfully dissociating member may be liable to the LLC for damages.
What is the requirement for LLCs to vote on business changes?
A majority vote of the members (or managers) is required to approve most (that is, ordinary business) decisions.
A unanimous vote of members (or managers if manager-managed) is required to approve extraordinary business decisions, including amending the operating agreement.
