Limited Liability Company

LLC

Hybrid of corporation and partnership where owners have limited liability and partnership tax treatment

Members: Owners of an LLC

Formation

Formed by filing a certificate of organization

Contents

1. Name of the LLC

   • Contain the words “limited liability company” or the abbreviation “LLC” or “L.L.C.”

2. Address of the LLC’s registered office AND

3. Name and address of its registered agent

Operating Agreement

Detail on the operation and governance of an LLC found here

Management

Presumed to be by all members

Ordinary business decisions → Majority Vote

Extraordinary business decisions → Unanimous Vote

Financial Rights

Liability

Profits and losses and distributions are allocated on the basis of contributions

Unless otherwise agreed

Liability

Members and managers generally are not personally liable

• BUT courts may pierce the LLC veil of limited liability to reach the members’ and managers’ personal assets to satisfy LLC obligations

Still liable for own torts

Fiduciary Duties

Owed by a Member (if member-managed) OR Manager (if manager-managed) to the LLC and to its other members

1. Duty of Care

   • Must 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 best interests of the LLC

     • Business judgment rule protection → not liable for negligence decisions

2. Duty of Loyalty

Transferability Of Ownership Interests

Financial rights → unilaterally transferable

Management rights → not unilaterally transferable

Dissociation

Events that cause dissociation of a partner in a partnership will also cause dissociation of a member of an LLC

Dissolution

Events causing dissolution

1. Event operating agreement says causes dissolution OR

2. Consent of all members OR

3. Passage of 90 consecutive days where there are no members

Judicial Dissolution

• Granted if:

  1. Conduct of all or substantially all of the LLC’s activities is unlawful.

  2. Not reasonably practicable to carry on the company’s activities in conformity with the certificate of organization and the 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 and was, is, or will be directly harmful to the member applying for dissolution.

Taxation

No entity-level tax

• Business income is passed through to the owners and reported on the owners’ individual tax returns

Rights to Information

Member-Managed LLC

• must automatically furnish such information that they know is material to the exercise of a member’s rights and duties

  • unless they reasonably believe the member already knows the information

Manager-Managed LLC

• just and reasonable if:

  1. the member seeks the information for a purpose material to the member’s interest as a member;

  2. the member makes a demand to the LLC describing with reasonable particularity the information sought and the purpose for seeking the information; and

  3. the information sought is directly connected to the member’s purpose

Members’ Actions Against The LLC

Member who has been injured personally by his LLC can bring a direct action against the LLC to recover or a derivative action on behalf of the LLC

Indemnification

Right to be indemnified for debts, obligations, and other liabilities incurred in the course of their activities on behalf of the company

• Provided that they complied with the duties of loyalty and care

Charge Of Transferable Interest (Attachment)

Judgment creditor of a member or transferee of a member may charge (attach) the transferable interest of the judgment debtor to satisfy the judgment