Business Law Chapter 17 (Limited Liability Business Forms)

Limited Liability Company (LLC)

is a hybrid that combines the limited liability aspects of a corporation and the tax advantages of a partnership.

LLC's and LLP's are governed by:

state statutes, which vary from state to state.

An LLC is owned by:

MEMBERS.

What is the extent of the liability of members (owners) of an LLC?

their initial capital contribution (investment) in the LLC is the FULL EXTENT of their liability to the LLC.

They never have to lose any more money!!

An LLC is taxed like a partnership, UNLESS an LLC with 2 or more members specifically chooses to be:

taxed like a corporation (double taxation).

Main disadvantage of an LLC

state LLC statutes are not uniform, therefore businesses that operate in one state may not receive consistent treatment in these states.

An LLC is formed by filing ________ with the state government.

Articles of Organization

The Articles of Organization determine whether the LLC will be controlled by _____________ or __________ .

members or managers.

Besides abiding to state statutes, LLC's are INTERNALLY governed by an _________ , which is voted on and approved by the members.

Operating Agreement.

Operating Agreement of an LLC will cover the ________ of owners.

authority, rights, and duties

Is an Operating Agreement required?

No, but without one, the state may apply default partnership rules to governance.

LLC's are either __________ managed or ________ managed.

member-managed ; manager-managed.

In a Member-managed LLC, all members vote on decisions (majority vote controls), but in an Manager-managed LLC:

managers designate a person or group of persons to manage the LLC, which may include nonmembers.

Fiduciary Duties of an manager-managed LLC

managers owe fiduciary duties (duty of loyalty and duty of care) to the LLC and its members.

Like a partner in a partnership, a member of an LLC has the __________ to dissociate at any time but may not have the ________ to dissociate.

power ; right

Like partnerships, a court may order an LLC to dissolve (dissolution) in certain circumstances. (T/F).

TRUE.

Winding Up

when an LLC is dissolved, any members who did not wrongfully dissociate may participate in the winding up process. To wind up the business, members must collect, liquidate, and distribute the LLC's assets.

Limited Liability Partnership (LLP)

a hybrid form of business designed mostly for professionals who normally do business as partners in a partnership.

Major advantage of LLP

it allows the partnership to continue as a pass-through entity for tax purposes but limits the personal liability of the partners.

Legal liabilities of LLP's

none, except for your OWN malpractice. You are the only one liable for your own malpractice.

A Limited Partnership (LP) consists of:

at least one general partner and one or more limited partners.

Who holds full responsibility for a Limited Partnership and all of its debts?

the general partner(s) hold all the liability in the partnership.

A limited partner contributes cash or other property and owns an interest in the firm, but is not ____________ .

involved in the management of the business.

What is so special about dissolution in an LP?

if a general partner in an Limited Partnership and you decide to dissociate yourself, that means that the partnership is supposed to dissolve at that point. UNLESS all remaining general partners decide to keep it going.