LLCs

Question 1

LLC: Contents of Certificate of Organization

Answer 1

(1) The name of the LLC, which must include indication that it is an LLC and
(2) Address of registered office & name and address of registered agent

Question 2

LLC: Presumption of Managment if not indicated?

Answer 2

Member-managed (by ALL members)

Question 3

LLC: Rights of members (or managers if manager-managed)

Answer 3

Equal rights in managment

Question 4

LLC: Voting rights

Answer 4

Majority vote of the members (or managers) is required to approve most decisions

Question 5

Member-managed LLC Duty of Loyalty

Answer 5

(1) account to the LLC for any benefit he derives in connection to LLC business
(2) refrain from dealing adversely with the LLC (unless transaction is fair) and
(3) refrain from competing in the LLC’s business

(however, members may authorize or ratify a specific act that would violate after disclosure of material fact)

Question 6

Member-managed LLC Duty of Care

Answer 6

Act with the care that a person in a like position would exercise under similar circumstances, in a manner reasonably believed to be in the LLC’s best interest

Question 7

Manager-managed LLC: who owes fiduciary duties?

Answer 7

ONLY MANAGERS are subject to fiduciary duties

Members must comply with good faith and fair dealing, however

Only membes may authorize or ratify an act by a manager that would otherwise violate duty of loyalty

Question 8

Piercing the LLC Veil

Answer 8

Similar to piercing of corporate veil, except does not include the failure to observe corporate formalities

Question 9

LLC: Distributions and Sharing of Profits & Losses

Answer 9

Most states: profits and losses and distributions are allocated on the basis of contribution

RULLCA: silent on profits and losses, but if distributions are made must be done in equal shares to members

Question 10

Member-managed LLC: Rights to Information

Answer 10

Member has right to inspect and copy any record concerning LLC activity material to their rights and duties and other info at member’s demand unless demand is unreasonable or improper

Question 11

Manager-managed LLC: Rights to Information

Answer 11

Members have less rights to information it must be:

(1) material to member’s interest as a member
(2) member makes a demand on the LLC describing with reasonable particularity info sought and
(3) info sought is directly connected to member’s purpose

Question 12

LLC: Direct Action Against LLC

Answer 12

Member who is injured personally can recover through direct action

Question 13

LLC: Derivative Suit

Answer 13

Member may bring derivative action on behalf of the LLC

Must make demand on other members or managers, unless demand would be futile

May be maintained only by a person who is a member at the time the action is commenced and who remains a member while action continues

Question 14

LLC: Transfers of Interest

Answer 14

Assignment of interest only transfers right to receive distributions

Management rights cannot be transferred (unless consent of all members or provided in operating agreement)

Question 15

LLC: Dissociation of Member

Answer 15

Member can do so at any time

Wrongfully dissociating member may be liable for damages

Question 16

LLC: Events triggering Dissociation (7)

Answer 16

(1) oral or written notice of express will to withdraw
(2) happening of agreed event
(3) valid expulsion of a member
(4) member’s bankruptcy
(5) member’s death or incapacity to perform duties
(6) decision of a court that member is incapable of performing duties
(7) termination of a business entity that is a meber

Question 17

LLC: Events triggering Dissolution (3)

Answer 17

(1) an event or circumstance that the operating agreement states
(2) the consent of all members and
(3) passage of 90 consecutive days during which LLC has no members

Question 18

LLC: Judicial Dissolution (4)

Answer 18

Court may grant application if:

(1) conduct of all of substantially all of LLC activities is unlawful
(2) it is not reasonably practicable to carry on activities with certificate of organization or operating agreement
(3) controlling members have acted, are acting, or will act in a manner that is illegal or fraudulent
(4) controlling members have acted or are acting in a manner that is oppressive or directly harmful to the member applying for dissolution

Question 19

LLC: Administrative Dissolution

Answer 19

Sec. of State can dissolve it if LLC fails to submit required fee or annual report

may be reinstated after correcting problem

Question 20

What happens after LLC dissolved?

Answer 20

A dissolved LLC continues its existence but is not allowed to carry on any business except that which is appropraite for winding up its activities

Question 21

Claim asserted against dissolved LLC?

Answer 21

Claims can be asserted, even if doesn’t arise until after dissolution if undistributed assets

LLC can cut short creditor claims: notifying claimants in writing and giving them a deadline of not less than 120 days to file claim and limited to up to 5 years by publishing notice in newspaper where business is located