Limited Liability Companies

Operating Agreement Controls If No Conflict With Statute (Elf Atochem v. Jaffari)

A LLC is bound by the terms of an operating agreement that is signed by some of its members and that defines the LLC's governance and operation, even if the LLC did not execute the agreement.

Dissolution of LLC (New Horizons v. Haack)

A LLC member may be responsible for the company's debts if the member fails to take the appropriate steps to dissolve the company when it winds up its operations.

Formation

An LLC is formed by filing articles of organization with the secretary of state.

Personal Liability Following Dissolution of LLC

An LLC will dissolve upon: (1) Expiration of any period or duration stated in the articles; (2) Consent of all members; (3) Death, retirement, resignation, bankruptcy, incompetency, etc. (4) Judicial decree or administrative order

Additional Capital: No Capital Call to Satisfy a Judgment (Racing Investment v. Clay Ward)

Assumption of personal liability by a member of an LLC is so antithetical to the purpose of a LLC that any such assumption must be stated in unequivocal terms leaving no doubt that the members intended to forego a principal advantage of this form of business entity.

Limiting LLC Fiduciary Obligations by Agreement (McConnell v. Hunt Sports)

LLC members are bound by the terms of their operating agreement, and if the agreement expressly allows them to engage in "any other business venture of any nature," they are not prohibited from participating in a competing venture.

Operating Agreement

LLC statutes generally provide that the members can adopt an operating agreement with provisions different from the LLC statute. Generally, the operating agreement will control.

LLC Purpose

The LLC was designed for key actors seeking: (1) the opportunity to participate in day-to-day management; (2) limited liability; and (3) partnership "flow-thru" tax treatment.

No Limited Liability for LLC Members Who Fail to Disclose Existence of Their Business to Third Parties (Duray Development v. Perrin)

The de facto corporation and corporation by estoppel doctrine apply to LLCs.

Piercing the LLC Veil

The judicial act of imposing personal liability on otherwise immune LLC members for the LLC's wrongful acts.

Failure to Allege Breaches of Duties Found in LLC (Fisk Ventures v. Segal)

The mere exercise of one's contractual rights, without more, does not constitute a breach of the implied covenant of good faith and fair dealing.

LLC Veil May Be Pierced (NetJets v. LHC Comm.)

The same general principles that support a decision to pierce the corporate veil apply in the context of LLCs.