Limited Liability Corps (LLCs) & other Special Corps Flashcards
What is a closely held corporation?
- Only a few SHs
- Stock not publicly traded
- more relaxed style of governance
What is a
foreign corporation?
- incorporated in another state
- must register and seek a certificate of authority from the foreign state
What is a
professional corporation?
the purpose is statutorily limited to the rendering of a professional service
What is a
S Corporation?
C avoids double taxation by passing income and expenses to its SHs, who are then taxed directly
What is a
Benefit Corporation?
For profit; corporate purpose is creating social/environmental benefit rather than maximizing shareholder profit
What is a
Limited Liability Corp (LLC)?
Enjoys the pass-through tax advantage of a partnership and the limited liability of a corp.
How is an LLC created?
- By filing AOI w/ the state, including the LLCs name, mailing address, and, if there are no members upon filing, a stmt to that effect
- Doesn’t come into existence until it has at least one member
- some states apply doctrines of de facto corp and corp by estoppel if there was a good-faith effort to create an LLC.
What is the operating agreement of an LLC?
- While the LLC’s AOI reflect its existence, it may also adopt an operating agreement (OA) to govern business
- can be oral, in a record, or implied by conduct
- statutory default provisions apply when the operating agreement is silent
- default management arrangement is member-manager
How many members are allowed in an LLC and how are more added?
Minimum one member, no maximum
New member requires consent of all existing LLC members (transfer of membership requires same)
What is the result of a transfer of a membership?
the transferee only acquires the transferor’s right to share in the LLC’s profits and losses, not a right to participate in the LLC’s management
What happens when a membership is terminated?
It does not automatically trigger a dissolution of the LLC
LLC may elect to liquidate the fair value of that person’s interests
How is an LLC managed?
Can be direct (by its members) or centralized (by one or more managers who need not be members
How can the veil be pierced in an LLC?
Members may be liable if the veil is pierced due to undercapitalization, commingling of assets, confusion of business affairs, or deception of creditors
What is the mere instrumentality test that can determine if a veil can be a pierced?
- Members dominated the entity such that the LLC had no will of its own,
- members used that domination to commit a fraud or wrong, and
- the control and wrongful action proximately caused an injury
What is the unity of interest & ownership test that can determine if a veil can be a pierced?
The LLC did not have an existence independent of the members because there was such a unity of interest and ownership b/t the entity and the members that the failure to pierce the veil would be unjust or inequitable.
