Business Law Chapter 38: Limited Liability Companies and Special Business Forms

diversity of citizenship jurisdiction

LLC jurisdiction includes the state where the LLC in incorporated and the states of each member.

Limited Liability Companies •Management:

LLC's are typically either member-managed or manager-managed. •Default in Florida is member-managed.

A business entity that combines the most favorable attributes of general partnerships, limited partnerships, and corporations. (A hybrid entity) •Owners are called "members"

Limited Liability Companies (LLC)

Who can be a member of an LLC?

Members can be corporations, partnerships, individuals, and foreign investors.

Limited Liability Companies Disadvantages

Non-uniform state LLC statutes create uncertainty (LLC laws vary throughout the United States)

Single member Limited Liability Companies •Taxation

Taxed as a sole proprietorship unless they choose to be taxed like a corporation.

In a member-managed LLC, _____________.

all members participate in the management. Any matter relating to the business of the LLC is decided by a majority vote of the members.

Limited Liability Companies •Formation:

an LLC is formed by delivering articles of organization to the Secretary of State for filing.

How are managers chosen in an LLC?

managers are appointed and removed by a majority votes of the members

In a manager-managed LLC, ______.

only the designated manager(s) have authority to bind the LLC to contracts.

LLC profit distribution

profits are allocated based on the agreed value of the contributions made by each member

Limited Liability Companies •Member's Ownership Interest

•A member has limited ability to sell or transfer his/her rights in the LLC. •The operating agreement may provide that a transferee becomes a member of the LLC. If this is the case, the transferee then has the powers, rights, and liabilities of the transferring member. •Difficult to resign from an LLC. •A personal creditor of a member may obtain a charging order

Limited Liability Companies •Member's Liabilities

•A member's liability is usually limited to her/his capital contribution to the LLC (cash, property, services, or promissory note). •Exception: personal guarantee. •Exception: piercing the corporate veil •Exception: wrongful acts or torts

Limited Liability Companies •Duties

•Each manager in a manager-managed LLC and each member in a member-managed LLC is a fiduciary of the LLC and its members.

Limited Liability Companies •Operating Agreement: agreement of the members covering topics such as:

•Management of the LLC; •Sharing of profits; •Withdrawal from the LLC; •Transferring membership interests; and •Other aspects of the LLC's operation

Limited Liability Companies Advantages

•Member's enjoy limited personal liability; •Flexibility in management and operations (no annual meetings) •Less restrictive in ownership

Limited Liability Companies •The Florida Statutes requires the articles of organization to set forth:

•The name of the LLC; •The mailing address and street address of the LLC's principal office; •The name and address of the registered agent along with a signed written statement; •Any other matters the members elect to include in the articles of organization; and •To be executed by at least one member or the authorized representative of a member.

Limited Liability Companies •Taxation

•Two or more member LLC's may elect to be taxed like a partnership or a corporation (including s-corporation status) for federal income tax purposes. •Taxed like a partnership by default.

certain actions that can not be delegated to the managers and must voted on by all members

•amending the articles of organization •amending the operating agreement •admitting new members •selling substantially of the LLC's assets