Limited Liability Companies
What are the reasons why you DO NOT want an LLC?
1) Difference in filing fees & franchise tax (can be more expensive in some states) 2) Relative complexity of LLC. LLC requires detailed operating ag (& attendant transaction costs) 3) Familiarity of business owners & lawyers w/ Corporation & P'ship structure 4) Sparse case law 5) Lack of exit rights 6) Desire to go public
When woudl you prefer pro-rata voting?
1) Especially when contributions are vastly unequal. 2) Typically preferable b/c it doesn't make sense that a minority of the contributing capital should be able to hold up a company
What are the primary characteristics of LLCs?
1) Owners are called Members 2) Members provided w/ limited liability (full shield). Only thing members liable for is own personal misconduct. 3) Tremendous contractual freedom, can contract around almost every defautl rule 4)Pass-through taxation (avoids corporate double-tax)
joint-stock company
A company made up of a group of shareholders. Each shareholder contributes some money to the company and receives some share of the company's profits and debts. hybrid between partnership and corporation; shareholders have personal responsibility, exists inperpetuity
Business Trust
A form of business organization, created by a written trust agreement, that resembles a corporation. Legal ownership and management of the trust's property stay with the trustees, and the profits are distributed to the beneficiaries, who have limited liability.
member
A person who has an ownership interest in a limited liability company.
Do Members possess authority to bind the LLC in member-managed LLCs?
ALL Members possess P'ship-like agency authority to bind the LLC (if its in the ordinary course of business) [ULLCA § 301(a)] [DLLCA § 18-402]
When is an LLC formed?
An LLC is formed at the time of filing (so that's when you get lim liab)
operating agreement
An agreement in which the members of a limited liability company set forth the details of how the business will be managed and operated.
How are LLCs managed?
Choice between Member-Managed LLC and Manager-Managed LLC.
Regarding authority, what is a benefit of the LLC vs. the GP'ship?
G P'ship: all Ps have apparent authority, so you cannot cut off the apparent authority of partners. LLC: By statute you can cut off the apparent authority of members (by becoming manager-managed)
What is the default management scheme for LLCs?
In most j/ds, the default is member-managed (both DLLCA and ULLCA say member-managed). Texas's default rule is manager-managed, but that's in the vast minority.
Compare the LLC to the LP.
LLC has much better liability protection (at least compared to RULPA 1985). In limited partnerships: Control rule issues, general partners still unlimited in liability.
Generally, what are the exit rights & dissolution defaults for LLCs?
LLCs used to follow p'ship, but now it's not easy to dissolve an LLC if you're an individual member. Like a corporation, if you don't contract for some sort of buy-out, you're probably stuck (like CHC).
What is an LLC?
Limited Liability Company (NOT corporation). It's not a corporation; do not think corporation. Non-corporate business structure.
What vote is required for ordinary decisions?
Majority vote of either per capita or pro rata (depending on the LLC's structure). Majority vote usually the case in both member and manager-managed LLCs
In a Member-Managed LLC, how is the Company managed?
Members themselves have default mgmt power (like GP b/c owners are managing it). May be preferable because it's difficult to cash out
In those states that do have fiduciary duties in their LLC statutes, what fiduciary duties do members of LLCs owe?
Members typically owe fiduciary duties of care and loyalty to the LLC and, occasionally, to other members. Some statues impose what seems like ordinary negligence, others are gross neg.
Do LLC statutes typically include provisions that address governance formalities?
Nope. On one hand it's bad b/c if the Operating Agreement doesn't address it then no governing law. OTOH, it's good b/c such formalities are often onerous and unnecessary in CHCs AND may make it more difficult to pierce the veil when formalities aren't required by statute.
What are the management rules for Manager-Managed LLCs?
ONLY managers, who may or may not be members, have default mgmt power (centralized mgt). May be preferable when you have a huge amount of members; if you have managers with special skills; to limit agency authority; don't need as much control because limited liability
What are the default voting rules in member-managed LLCs?
Split between: 1) Per capita voting [ULLCA]. One member, one vote. Default rule in p'ships (makes sense there b/c unlimited liability). 2) Pro rata voting [DLLCA]. Voting is pro rata based on profit allocation. This is also the default rule in corporations, and makes sense in LLC setting b/c ltd liability.
Articles of Organization
The document filed with a designated state official by which a limited liability company is formed.
corporate liability
The legal concept that allows employers to be charged with a crime resulting from their employees' actions while carrying out corporate business
Do LLCs have to register with the Secretary of State?
Yes.
cooperative
a business organization owned and operated by a group of individuals for their mutual benefit
syndicate
a group of individuals or organizations combined to promote some common interest or project/ not an ongoing business
perpetuity
a time period lasting through the ages; eternity
When would you prefer per-capita voting?
a) All contributions to the business are relatively equal; or b) When its difficult to put a value on things contributed (ie: services)
joint venture
an agreement between two or more companies to share a business project
What is the scope of liability for Members of an LLC for the LLC's obligations?
no member or manager of an LLC is liable for the obligations of the LLC, in tort or contract, solely because of their status as a member or manager. Full vicarious liability shield.