Chapter 15 Limited Liability Companies, Limited Liability Partnerships, and Special Forms of Business

licensing

A business arrangement that occurs when the owner of intellectual property (the licensor) contracts to permit another party (the licensee) to use the intellectual property.

Joint venture corporation

A corporation owned by two or more joint venturers that is created to operate a joint venture

Certificate of Interest

A document that demonstrates evidence of a member's ownership interest in an LLC

Duty of Loyalty

A duty owed by a member of a member-managed LLC and a manager of a manager-managed LLC to be honest in his or her dealings with the LLC and not to act adversely to the interests of the LLC.

area franchise

A franchisor authorizes a franchisee to negotiate and sell franchises on its behalf in designated areas. The area franchisee is called a subfranchisor.

Chain-style franchise

A franchisor licenses a franchisee to make and sell its products or distributes its services to the public from a retail outlet serving an exclusive territory.

distribution franchise

A franchisor manufactures a product and licenses a franchisee to distribute the product to the public.

processing plant franchise

A franchisor provides a secret formula or process to the franchisee and the franchisee manufactures the product and distributes it to retail dealers.

distributional interest

A member's ownership interest in an LLC that entitles the member to receive distributions of money and property from the LLC.

Uniform Limited Liability Company Act (ULLCA)n

A model act that provides comprehensive and uniform laws for the formation, operation, and dissolution of LLCs.

tortfeasor

A person who intentionally or unintentionally (negligently) causes injury or death to another person. A person is liable to the persons he or she injures and to the heirs of persons who die because of his or her conduct.

Revised Uniform Limited Liability Company Act (RULLCA)

A revision of the ULLCA

Limited Liability Partnership (LLP)

A special form of partnership in which all partners are limited partners, and there are no general partners

Manager Managed LLC

An LLC that has designated in its articles of organization that it is a manager-managed LLC. Nonmanager members give their management rights over to designated managers, who manage the LLC.

Member Managed LLC

An LLC that has not been designated as a manager-managed LLC in its articles of organization. The LLC is managed by its members.

operating agreement

An agreement entered into among members that governs the affairs and business of the LLC and the relations among members, managers, and the LLC.

franchise agreement

An agreement that a franchisor and franchisee enter into that sets forth the terms and conditions of a franchise.

strategic alliance

An arrangement between two or more companies whereby they agree to ally themselves and work together to accomplish a designated objective.

joint venture

An arrangement in which two or more business entities combine their resources to pursue a single project or transaction

Franchise

An arrangement whereby one party (the franchisor) licenses another party (the franchisee) to use the franchisor's intellectual property and business model in the distribution of goods and services.

Member

An owner of an LLC

Limited Liability Company (LLC)

An unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnerships, and corporations.

Valid Limited Liability Company or Limited Company abbreviations

L.L.C., LLC, L.C., or LC or Ltd. A company is Co.

Liability of Managers

Managers of LLCs are not personally liable for the debts, obligations, and liabilities of the LLC they manage.

Agency Authority to bind an LLC to contracts

Member-managed LLC: All members have agency authority to bind the LLC to contracts Manager-managed LLC: The managers have authority to bind the LLC to contracts; the nonmanager members cannot bind the LLC to contracts.

articles of organization

The formal document that must be filed at the secretary of state's office of the state of organization of an LLC to form the LLC

articles of limited liability partnership

The formal documents that must be filed at the secretary of state's office of the state of organization of an LLP to form the LLP

Limited Liability of members of LLCs

The liability of LLC members of the LLC's debt's, obligations, and liabilities is limited to the extent of their capital contributions. Members of LLCs are not personally liable for the LLC's debts, obligations, and liabilities.

limited liability of partners of LLPs

The liability of LLP partners for the LLP's debts, obligations, and liability is limited only to the extent of their capital contributions. Partners of LLPs are not personally liable for the LLP's debts, obligations, and liabilities.

licensee

The party to whom license is granted

licensor

The party who grants a license

franchisor (licensor)

The party who grants the franchise and license to a franchisee in a franchise arrangement.

franchisee (licensee)

The party who is granted the franchise and license by a franchisor in a franchise arrangement.

Taxation of LLCs

an LLC is taxed as a partnership unless it elects to be taxed as a corporation. It's income or losses flow through to the members' individual income tax returns in a process called flow-through taxation.