CH 38- Limited liability companies

What is an LLC, and how does it differ from other business entities?

An LLC, or Limited Liability Company, is a hybrid business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

What are the owners of an LLC called?

The owners of an LLC are called members.

What does limited liability mean for members of an LLC?

Limited liability means that members are generally not personally liable for the LLC's debts, obligations, or liabilities.

Under what circumstances might personal liability be imposed on LLC members?

Personal liability might be imposed if members provide personal guarantees, commingle personal and business assets, or fail to observe corporate formalities.

What are some similarities between an LLC and a corporation?

Similarities include limited liability for owners, the ability to have perpetual existence, and the flexibility in management structure.

What are the key documents required to form an LLC?

Articles of Organization must be filed with the state, which include basic information about the LLC.

What does the Articles of Organization typically include?

The Articles of Organization usually include the LLC's name, address, purpose, duration, names of members or managers, and sometimes the operating agreement.

What is novation in the context of LLCs performing contracts?

Novation is the substitution of a new contract or obligation for an old one, often used when an LLC takes over a contract from one of its members.

What are some jurisdictional requirements for forming an LLC?

Jurisdictional requirements might include having a corporate headquarters in the state of formation and possibly considering the location of members.

List some advantages of forming an LLC.

Advantages include limited liability, flexible taxation options, and the ability to attract foreign investors.

What is a disadvantage of forming an LLC?

A disadvantage is that LLC laws are not uniform across states, which can create complications when operating in multiple states.

What are the two primary management structures for an LLC?

An LLC can be member-managed, where all members participate in management, or manager-managed, where designated managers run the LLC.

What fiduciary duties do LLC members owe to the LLC?

Members owe duties of care and loyalty to the LLC and other members.

What is the purpose of an LLC operating agreement?

An LLC operating agreement outlines how the LLC will operate, including management, profit distribution, transfer of membership, handling of lost members, voting rights, and other governance issues.

What are the steps involved in winding up an LLC?

Steps include collecting and liquidating assets, optimizing their value, paying off debts to creditors, accounting for member capital contributions, and returning any remaining balance to members according to their ownership interest.