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Business Entities > LLCs > Flashcards

LLCs Flashcards

1
Q

Definition

A

Combines attributes of corps & pship.

Two attributes: (1) limited liability of shareholders, & (2) tax treatment of pship.

Capable of suing, being sued, owning prop.

Owners of LLC = members.

Not personally liable for any of LLCs debts

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2
Q

Members

A

Members = equity owners

No restriction on who can be mbrs

Diff classes of mbrs (voting power can vary)

Mbr-mgd LLC = a written op agreement or AOO can enlarge or restrict rights & duties

NO RISK to any mbr who participates in mgmt & control of the LLC

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3
Q

Managers

A

Managers = Those designated to manage the business

Can be mbrs (but don’t have to be)

NO managers? = ALL mbrs manage the business (mbr-mgd LLC)

LLCs can have a board of mgrs & those people can be nonmbrs

AOO must state that the LLC will be mgd by a group of mgrs (who may or may not be mbrs)

LLC will be mgr-mgd, even if the board has only mbrs at some point

There can be one or more mgr. AOO will specify the number. Any qualifications for mgrs may be stated in the AOO/OA

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4
Q

Formation

A

One or more persons capable of contracting may form LLC = nat persons, corps, LLCs, pships

Filing:

  1. Articles of Organization, and
  2. Initial Report w/ SOS
    1. (retr. to date of filing/ win 5 days of notarized)
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5
Q

Articles of Org

A

Arts of Org:

  1. Written in English,
  2. Signed by at least 1 person (anyone)
  3. Acklwg’d by person or one of persons who signed AOO; or by AA.
  4. AOO shall set forth: name/purpose/whether low-prof.

Limitations on the authority of members

Whether the LLC is managed by mgrs/ restrictions on the authority of mgrs

The latest date which the LLC is to dissolve

Anything else not inconsistent w/ the law

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6
Q

Initial Report

A

Signed by each person who signed AOO & sets forth:

Location & address of the LLC’s reg office

Full name & address of its reg agents

Names & address, not PO Box, of those vested w/ the power to manage (mgr or mbrs)

Notarized affidavit of ackcklwgt & acceptance signed by each reg agent

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7
Q

Annual Report

A

Required to file annually w/ SOS -

  • SOS revokes AOO if not filed for 3 consec yrs (give 30 days optty to cure) / Reinst w/in 3 yrs after revok.

Be signed by the mgr (or member if mbr-mgd)

State the municipal address of the reg office

Name & address of each reg agent and

Name & address of each mgr (or mbr if it’s mbr-mgd)

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8
Q

Purpose

A

Any lawful purpose, profit, not for profit (no ins undwtg) /

Low-prof = non-prof estb w/ goal of furthering charitable/ed goal

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9
Q

Operating Agreement

A

Means any agreement, written or oral, of the mbrs as to the affairs of an LLC & conduct of its business

If there is more than 1 = it must be consistent w/ original

  • If not, recent one wins
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10
Q

Name

A

Must include the words “limited liability company”, “L.L.C.”, or “L.C.”;

low-prof = “low-profit limited liability company”, “L3C”, or “l3c”

*Must be distinguishable upon SOC rec check re: corp, pships, LLCs

*No word/phrase indicating unlawful purp, contrary to arts, falsely suggest charitable/non-prof nature

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11
Q

Voting Requirements - Managers

A

Single vote (unless AOO/OA changes)

All decisions = majority vote

Can’t vote by proxy (unless AOO/OA changes))

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12
Q

Voting Requirements - Members

A

Single vote (unless AOO/OA changes) - regardless of the amt of capital originally contributed

Unless AOO/OA provides otherwise, a majority vote of members is required for the following (even if mgmt is vested in mgrs or fewer than all mbrs):

  • Dissolution
  • Sale, exchange, lease, mortgage, pledge, or transfer of all or substantial all of the assets
  • Merger or consolidation
  • Incurrence of debt other than in the ordinary course of its business
  • Alienation, lease, or encumbrance of any immovables
  • Amendment to arts of org or op agreement
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13
Q

Conflict of Interest Transactions

A

A transaction voted on by mgmt/member having a financial interest in the transaction = not void or voidable solely b/c she participated in the meeting or created quorum, provided:

  • The interested mgmt/mbr’s interest was disclosed to the other voters and a disinterested majority approved the transaction, or
  • The transaction was fair to the LLC at the time it was approved.
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14
Q

Contribution/Participation

A

Profits & losses are allocated equallyamong mbrs (unless AOO/OA changes)

The contribution of a mbr take the form of:

  • Cash
  • Property
  • Services rendered, or
  • A promissory note or
  • Other binding obligation to contribute cash or property or to perform services

Promises to contribute are unenforceable if not in signed writing by the member.

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15
Q

No Dischare B/C Death

A

Except as provided in an OA, a member’s obligation to contribute to the LLC is not discharged if he is unable to perform because of death, disability, or other reason.

Personal reps must forfeit entire mbrship interest & remains liable for obs to any creditor who extended credit to LLC before forfeiture to extent that LLC refuses or is unable to pay

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16
Q

Compromise of Promise to Contribute

A

A valid promise to contribute cannot be compromised except with the unanimous consent of the other members unless the arts or a written op agreement provides otherwise.

A 3P creditor of the LLC may still enforce a comprised promise if it relied on it.

17
Q

Distribution

A

No distribution shall be made, if, after giving effect to the distribution (wrongful distribution):

  • LLC is unable to pay its debts as they become due in the usual course of biz
  • LLCs total assets would be < than the sum of its total liabilities plus, or
  • The authorization or payment would violate any restrictions contained in the AOO/OA

LLC may base a determination that a distribution is not prohibited either on financial statements prepared on the basis of accounting practices & principles that are reasonable under the circumstances or a fair valuation or other methods. Generally accepted acctg principles are deemed reasonable.

18
Q

Liability for Wrongful Distribution

A

Voting: All mgr-mbrs who knowingly or w/out exercising reasonable care & inquiry vote for a wrongful distribution are jointly and severally liable to the LLC for the amount the distribution exceeded what was proper

Receiving: Each mbr who received a wrongful distribution is liable to the LLC for the amount received in violation of the rule, even if the amount was received w/out knowledge of the violation

* 2-year SOL to enforce this provision.

Distributions (of cash or other assets) must be made equally to all members unless a written OA provides otherwise

19
Q

Immovables

A

If immov prop acquired in the name of the LLC w/ no SOS cert = LLC’s existence will be retro to the date of the acquisition of immov prop.

3Ps who acquired rights in that immov prop b/tw the date of acquisition of the issuance of the cert are not affected

20
Q

Limitation of Liability - Managers

A

No automatic reimbursement for costs/atty fees for mgrs who successfully defend a lawsuit.

AOO/WOA - can indemnify from judg, setttlem, penalties, fines, exp incurred, AND eliminate or limit monetary liability for breach of duties

21
Q

Limitation of Liability - Members

A

Mbrs will not lose limited liability b/c of participation in the mgmt of the LLC.

Cts will not “pierce the LLC veil” b/c formalities are not followed.

22
Q

Fiduciary Status

A

Each mgr owes a fiduciary relationship to the LLC.

  • GF = no liability

Shall act in good faith = Diligence, care, judgment, and skill which an ordinarily prudent person would exercise, & and in the manner he reasonably believes to be in the best interest of the LLC

  • Can rely in good faith on advisors & experts
23
Q

Representation & Mandate

A

Managers are mandataries for the LLC for all matters in the ordinary course of business, except alienation, lease, or encumbrance of immovable property.

Can be taken away in:

  • AOO/ OA
  • Majority vote of members w/ or w/out cause.

Mbr who is not mgr has no mandatary authority nor fid duty - (like corp shareholder)

24
Q

Assignment

A

Unless AOO/OA provides otherwise:

  • Interest is assignable in whole or in part
  • Assignee only entitled to receive the distributions assignor would have received
25
Q

Assignee Powers

A

Assignee may not exercise any powers or rights of a mbr unless other mbrs unanimously approve in writing

Unless AOO/OA provides, an assignee who becomes a mbr assumes all rights and obs of the assignor except liabilities unknown when she became a mbr

26
Q

Effect of Death, Incompetency, or Dissolution of Member

A

Death or legal incompetence = membership ceases

Executor, guardian or other legal rep = treated as assignee

If an heir isn’t approved as a member, LLC must buy out deceased member’s interest

Must be w/in a reasonable time

FMV at death

27
Q

Withdrawal

A

For a term = a member may withdraw w/out consent of other members prior to exp of term:

  • w/ just cause
  • arising out of the failure of another member
  • to perform an obligation.
  • OR UNANIMOUS CONSENT

W/out term = may withdraw or resign from LLC at anytime upon the:

  • happening of an event specified in a written OA, and
  • in accordance w/ the written OA
  • must give 30 days notice @ office filed w/ SOS

*Must request distribution w/in reasonable time after withd/resig, the FMV of member’s interest as of date of member’s withd/resig

*No wrongful withdrawal = ineffective / still a member

28
Q

Expulsion

A

No procedure for expulsion

Business Entities (6 decks)

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