B. Law Ch. 18

When might liability be imposed on a member?

- "alter ego theory" - When a member personally guarantees a debt of the LLC

What are the unincorporated legal entities that are required to file formation documents with the state?

- Limited liability company - Limited liability partnership - Limited partnership

What are the management options a LLC can choose from?

- Member-managed - Manager- managed

What does an LLC file with a state's secretary of state?

Articles of Organization

What must a limited partnership have?

At least one general partner (GP) and at least one limited partner (LP)

How is a limited partnership governed?

By state law

How are operating agreements made?

Can be made orally but written agreements are strongly recommended

What must a limited partnership file with the secretary of state where it is organized?

Certificate of Limited Partnership

Who is often the GP of a general partnership?

Corporations- consequently shareholders of the corporate GP are not personally at risk for the limited partnership's liabilities

How is a limited partnership taxed in regards to federal income taxes?

Does not pay federal income taxes: the partners pay taxes on their share of partnership earnings

What is a LLC considered in the state in which it organizes?

Domestic LLC

What is a disadvantage of LLCs?

Expensive to form and maintain; annual filings/fees

What must a business do to become an incorporated entity?

File formation documents with the state in which it is incorporating

Who assumes all management duties and personally liable for partnership's obligations (debts/losses)?

General Partner

The limited partner in a LP is liable for what?

Liability limited to their capital contributions so long as they do not actively participate in management

In terms of federal income taxes, how is a LLC treated?

Like partnership unless the LLC elects otherwise (rarely does a LLC elect to taxed as a corporation). Files form 1065 (Ptshp. return) with K-1s for each member

How are LLPs treated for federal income tax purposes?

Like partnerships: their profits/losses are passed through to their partners, who report their share of partnership earning on their returns; no entity level tax

Relatively new and very popular hybrid form of business organization that provides owners with the limited liability of a corporation and the tax advantages of a partnership

Limited Liability Corporation

A relatively new type of partnership that provides some limitation on a partner's personal liability for business debts while permitting all partners to participate in management

Limited Liability Partnership

What can formed when an entity partner does not want to take an active role in management and wants to limit his personal liability to the amount of his investment in the partnership?

Limited Partnership

LLC members designate a group of mangers to manage the LLC. That managers may be members or nonmembers

Manager-Managed LLC

All of the LLC members participate in management; unless the operating agreement specifies otherwise, statues may provide that members have equal rights/votes on LLC matters

Member-Managed LLC

What are the owners of a LLC called?

Members

What should LLC members have even through it is not required by statue?

Operating Agreement

Who were LLPs designed primarily for?

Professionals who normally practice their business as partners in a partnership (e.g. doctors, lawyers, accountants), but want protection from potential judgments arising from malpractice by their partners

What does an operating agreement do?

Sets out the rights and obligations of the owners, and typically contains provisions relating to management, meetings, distributions, transfer of membership interests, and other significant issues.

LLC: single or double level of taxation?

Single --> each member's share of LLC reports income/loss on member's federal tax return

What is meant by the limited liability of LLC owners?

They are not personally liable for the LLC's debts

If an LLC does not adopt is own operating agreement, what do most LLC statues provide for governing the entity?

default statues

What is a LLC called when it registers to do business in other state?

foreign LLC

Who can be an owner of a LLC?

individuals, corporations, or partnerships

Owner in a LLC is call an " "

interest (not shares)

How is the formation and operation of LLP governed?

state statue

What is a member's personal liability in a LLC limited to?

the member's investment