Limited Liability Companies

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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


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