LLCs Flashcards
What are the filing requirements for formation of LLCs?
- name must include “LLC” or limited liability company
- organizer’s name and address
- management structure: a manager or by members
- name and address of registered agent
- street and mailing address of the principal place of business
- the latest date of dissolution or a statement that the entity’s life is perpetual
What happens if the managing member of an LLC resigns?
The LLC does not dissolve. It becomes member managed unless a new manager is appointed within 90 days.
How are managers of LLCs elected?
By majority vote of members
Who has agency authority to contract with third parties?
Only the manager. Third parties have constructive notice of this authority upon filing the articles of organization.
In a member-managed LLC, how are management rights allocated?
each member has management rights in proportion to his membership interest
If a member transfers his interest in an LLC, does the new member have a right to participate in management?
Only if unanimously approved by the existing members.
When are distributions allowed in an LLC?
if a manager determines that the LLC’s assets will remain greater than its liabilities including funds to satisfy preferential rights upon theoretical dissolution
What is different about the fiduciary duty of loyalty in LLC (versus corporations).
The LLC can allow members to compete with the LLC if:
(1) the waiver specifies exactly what is allowed and
(2) the activity is not “manifestly unreasonable.”
How is contract liability handled with LLCs?
Members are not personally liable for contracts of the LLC unless they were a co-maker, guarantor, or lacked authority to enter the transaction.
What rules apply to tort liability for LLCs?
- The LLC is vicariously liable for torts committed in the scope of employment.
- Members and managers are not liable unless they participated in the tortious act or failed to supervise the person who committed the tort.
- Members and managers may be liable to the LLC for their own gross negligence, intentional misconduct, breach of fiduciary duty, or knowing violations of law.
What is different about tort liability for PLLCs?
In PLLCs the members are liable for their own negligence and that of subordinates they supervise.
What factors will allow piercing the LLC’s veil?
- failure to observe LLC formalities
- not honoring the LLC agreement
- failure to make annual filings
What events cause disassociation of an LLC member?
- withdrawal
- insolvency of the member
- death or incapacity
- expulsion
What is the effect of dissociation from an LLC?
- The member loses the right to any regular or automatic distributions, unless approved by the other members.
- The member lose the right to participate in management.
- The member cannot force a buyout of his interest.
What is different about an LLC and a PC regarding death or incapacity of a member?
For an LLC, economic rights to distributions continue in the estate of the member but the management rights are extinguished.
