14.4 - Limited Liability Company (LLC) Flashcards
What is a limited liability company?
- Non-corporate structure that combines limited liability and partnership qualities
Define the powers of an LLC (3)
- Separate legal entity like a corporation
- LLC may conduct legal business in own name
- May have owner management, limited duration, restricted transfer of interest
Identify the 7 actions that a LLC may participate in while conducting business in its own name
- Enter into contracts
- Sue & be sued
- Own property in its own name
- Engage in other transactions and property
- Make donations
- Be a general or a limited partner
- Appoint agents
How is an LLC formed?
- Formed under state statute for, generally, any lawful purpose
- Must file articles of organization
Does an LLC have to have “LLC” in the business name?
Yes
What must the articles of organization include (4) in forming an LLC?
- Must include:
- Name of business
- Name / address of organizers
- Initial agent for process servers
- Initial managers
What does the articles of organizations state regarding parties being liable for obligations?
- State whether one or more members will be liable for obligations
Is the operating agreement legally required to form an LLC?
No and may be oral
Identify the 8 procedures / actions the operating agreement mainly addresses
HINT: MVMPTCAD
- Management arrangements
- Voting rights
- Member meetings
- Profit sharing
- Transfer of interests
- Circumstances causing dissolution
- Admission of members
- Death of a member
How are LLC’s capitalized?
From member contributions
How might members capitalize an LLC?
- May consist of tangible & intangible property & services
- Including services to be performed
Identify 5 advantages of an LLC
- Limited liability and avoidance of double taxation
- May have entities / nonresidents as members including nonresident aliens
- No limit on number of members
- Can make disproportionate allocations and distributions
- Can distribute appreciated property without incurring a taxable gain
True or False >>>
- Member can contribute appreciated property to LLC without recognizing taxable gain
True
How are profits and losses allocated in an LLC?
- Shared equally under ULLCA
- Based on the value of members’ contributions according to some statutes if no agreement is formed
What type of property is an LLC interest?
Personal property
If a member transfers or assigns his or her interest or % of assets in an LLC does the transferee become a member?
No - the transferee’s interest is considered personal property
Define the taxation of LLC’s
- Members may elect to be taxed as partners or as a corporation
- Single member LLCs - taxed as sole proprietors
- Pass-through entity or taxable entity at members’ discretion
When is it advantageous to an LLC to be taxed as a corporation?
- if corporate rates are lower than personal rates
- if reinvestment in the LLC is desired
Identify the rights of members of an LLC
- member-managed unless articles provide otherwise
- members have right to participate in business matters
- business matters decided by the manager
Identify 5 issues of an LLC that would require unanimity?
- Amendment to operating agreement
- Dissolution requirements
- Waiver of right to have business wound up
- Merger
- Admission of new members
What liabilities are assumed by members of an LLC?
- Limited liability for members
- No claim on personal assets
- Still liable for personal misconduct
- Negligence, criminal behavior
- Courts may “pierce the corporate veil”
How is an LLC dissolved?
- Expiration of entity
- Consent of specified (agreement) percentage of members
- Judicial determination
Identify 5 acts or circumstances that would contribute to an LLC being dissolved under judicial determination
- Frustration of purpose
- Impracticability of continuing because of member’s conduct
- Impracticability of continuing under articles and operating agreement
- Inappropriate behavior
- Equitability of liquidation
Identify the types of unlimited liability business organizations and their filing requirements
- Sole proprietorships and general partnerships
- No registration with state is required
