Limited Liability Companies
Formation
1 or more members (ULLCA 202) Certificate of formation/articles of organization filed with secretary of state to create LLC and control activity outside the company/3rd parties (ULLCA 203)
Why?
Created to replace limited partnerships with limited assets - now no limited partners who have to give up control
Sources
Delaware Act/state law, ULLCA, RULLCA
Authority binding on an organization
Either actual or apparent
Liability
LLC is an entity/legal person
Torts against 3rd parties: ULLCA 302
LLC is liable for acts in the ordinary course of business by members or managers
Management
Member managed = analogous to general partnership
ULLCA 301
Members are agents of the LLC in member-managed LLC -can bind by apparent authority unless third party knew the member didn't have authority -actual authority can be determined from the articles/operating agreement -member-managed LLC, managers are agents and members aren't
By managers in a manager-managed LLC
Members owe no fiduciary duty
RULLCA
Operating agreement defines management -Just actual authority under RULLCA
Owners/members have
Protection from business debt's (like a corporation) Pass-through income tax characteristics, no entity level tax (like a partnership)
Member Dissociation
Some states an LLC member has the same dissociation rights as partners, and in others, they have no dissociation rights like shareholders
Operating Agreement
ULLCA 103 -not public or required by state law/does not have to be in writing -LLC statute provides background law where operating agreement doesn't cover
How Members Make Money
ULLCA 405: distribution/dividends determined by whoever has management rights in equal shares ULLCA 502, 503: member sale of interests to a third party
Breach of Fiduciary Duties
ULLCA 409 - duty of loyalty and care
Operating agreement can expand or restrict fiduciary duties
Up to organization
ULLCA 404(C)
all members must consent for extraordinary matters -Unanimity requirement can be modified by operating agreement
Manager managed
analogous to a corporation
Members...
are like limited partners - no management power
ULLCA 203
articles of organization indicate the management - manager-manged must specifically be stated, if it says nothing it's presumed to be member managed
What to sell
can sell distributional interest/financial rights, but not management right
ULLCA 203(c)
controls internally within the company -Binds members, managers, and LLC itself
ULLCA 703
dissociated member can bind company for 2 years after dissociation if no notice and third party reasonably believed dissociated member was still a member
Term company
don't have to pay until company winds up
ULLCA 303
generally members are not liable to creditors of the LLC solely based on a member's affiliations with the company
702
if no price previously decided, consider factors
701(c)
if price previously agreed on, that trumps
ULLCA 701
interest is purchased at fair market value
ULLCA 601
involuntary member dissociation
ULLCA 201
legal entity distinct from members
ULLCA 404(B)
managers are elected/removed with a majority of the members and the managers decide by majority amongst themselves
ULLCA 801
member dissociation doesn't cause the company to dissolve
ULLCA 603(A)
member may be able to compel the company to purchase her ownership
ULLCA 404(A)
mirrors RUPA - each member has equal management rights and business matters can be decided by majority of members
At will company
must buy them out
303(b)
no personal liability under "piercing theory" if formalities aren't observed
ULLCA 806(B)
share distributions after we pay back members for contributions if we are dissolving the company
Contracting with Third parties
third parties must know who has decision making power