LLCs Flashcards
LLC: Contents of Certificate of Organization
(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
LLC: Presumption of Managment if not indicated?
Member-managed (by ALL members)
LLC: Rights of members (or managers if manager-managed)
Equal rights in managment
LLC: Voting rights
Majority vote of the members (or managers) is required to approve most decisions
Member-managed LLC Duty of Loyalty
(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)
Member-managed LLC Duty of Care
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
Manager-managed LLC: who owes fiduciary duties?
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
Piercing the LLC Veil
Similar to piercing of corporate veil, except does not include the failure to observe corporate formalities
LLC: Distributions and Sharing of Profits & Losses
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
Member-managed LLC: Rights to Information
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
Manager-managed LLC: Rights to Information
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
LLC: Direct Action Against LLC
Member who is injured personally can recover through direct action
LLC: Derivative Suit
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
LLC: Transfers of Interest
Assignment of interest only transfers right to receive distributions
Management rights cannot be transferred (unless consent of all members or provided in operating agreement)
LLC: Dissociation of Member
Member can do so at any time
Wrongfully dissociating member may be liable for damages
LLC: Events triggering Dissociation (7)
(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
LLC: Events triggering Dissolution (3)
(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
LLC: Judicial Dissolution (4)
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
LLC: Administrative Dissolution
Sec. of State can dissolve it if LLC fails to submit required fee or annual report
may be reinstated after correcting problem
What happens after LLC dissolved?
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
Claim asserted against dissolved LLC?
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
