Limited Liability Company
Contributions
Contributions may be in the form of cash, property, services rendered, or a promissory note or other binding obligation to contribute cash or property or to perform services.
Support for Paying a Distribution
In deciding to pay a distribution, the LLC may rely on financial statements prepared using reasonable accounting methods.
Flawed Articles of Organization
The secretary of state may refuse to accept the articles if they fail to include a mandatory provision in proper form. If the secretary of state accepts flawed articles, there is no substantive effect on the existence or powers of the LLC. Still, the secretary of state may later ask for a correction.
Extent of Liabilities under Assignment
Unless the articles or a WRITTEN operating agreement provides otherwise, an assignee who becomes a member assumes all of the rights and obligations of the assignor, except that the assignee is not obligated for liabilities unknown to them at the time they became a member.
Permitted Purpose Low-Profit Limited Liability Companies
A low-profit limited liability company (L3C) is a nonprofit LLC established with the primary goal of furthering a charitable of educational purpose.
Nature of Membership Interest
A membership interest is an "incorporeal movable". A member has no interest in the LLC's property.
NAME of the LLC May be reserved in advance
A person may reserve a specified company name by filing an application with the secretary of state.
Conflict of Interest Transactions
A transaction voted on by a manager/member having a financial interest in the transaction is not void or voidable solely because they participated in the meeting or created a quorum, provided either: (1) the interested manager/member's interest was disclosed to the other voters and a disinterested majority approved the transaction, OR (2) the transaction was fair to the LLC at the time it was approved (no disclosure)
Operating Agreement
An operating agreement is any agreement, written or oral, of the members of an LLC as to the affairs of the LLC and the conduct of its business.
Liability for Receiving a Wrongful Distribution
Each member who received a wrongful distribution is liable to the LLC for the amount received in violation of the rule, even if the amount was received without knowledge of the violation.
Manager-Managed Classification
If the members want the option of having one or more of the board of persons who manage the LLC to be nonmembers, the articles must specifically state that the business of the LLC will be managed by a group of managers, one or more of whom may, but need not, be members. Once it is specified that the LLC will be managed by a board of managers, it is thereafter deemed to be a manager-managed LLC even if at any time the only managers elected happen to be members.
Articles of Organization - Mandatory Words
It is mandatory that the articles state: (1) the NAME of the LLC (2) the PURPOSES for which the LLC is formed or that its purpose is to engage in any lawful activity for which LLCs may be formed. (3) whether the company is a LOW-PROFIT LIMITED LIABILITY COMPANY.
Interstate Application
It is the intention of the Louisiana legislature that if a Louisiana LLC conducts business in another state in which it incurs liability, the other state will recognize the existence of the LLC under the full faith and credit clause and will assess personal liability consistent with the limitations in the Louisiana law.
Managers
Managers are those persons designated by the members to manage the business of the LLC. Members can be and often are Managers.
Profits and Losses
Profits and losses are allocated equally among the members, unless the articles or a WRITTEN operating agreement provide otherwise
Length of Proxy
Proxies will automatically expire 11 months after the date of execution, UNLESS some other period is expressly provided, but in no case will a proxy be valid for longer than 3 years.
Who can be members
There are no restrictions on who can be a member. Foreigners or non-human entities are permitted.
Compromise of a promise to contribute
A valid promise to contribute cannot be compromised except with the unanimous consent of the other members, unless the articles or a WRITTEN operating agreement provides otherwise. However, a third party creditor of the LLC may still enforce a compromised promise if it relied on it.
No personal liability for debts
By law neither the owners (members) nor the managers of an LLC are personally liable for any of its debts. This is the major advantage of the corporate form.
Permitted Purpose Professional Limited Liability Companies
Certain groups of professionals may join together to form a professional LLC. Ex. Dentists
Generally Equal Distributions
Distributions must be made equally to all of the members unless a written operating agreement provides otherwise.
Scope of Agency Authority
Each manager/member is a mandatary for the LLC for all matters in the ordinary course of its business except the alienation, lease, or encumbrance of the LLC's immovable property.
Obligation to contribute no discharged by death or disability
Except as provided in a Written operating agreement, a member's obligation to contribute to the LLC is NOT discharged if he is unable to perform because of death, disability, or other reason. If the member cannot perform, he, or his personal representative, must forfeit his entire membership interest. The member or his estate remains liable for the obligation to any creditor who extended credit to the LLC before the forfeiture, to the extent that the LLC refuses or is unable to repay the creditor
Articles of Organization - Formalities
The articles must be written in English and must be signed by at least one person, who need not be a member or manager.
Permitted Inclusions
The articles of organization MAY (are not required to) state the following: (1) whether and the extent to which there are any limitations on the authority of members to bind the LLC or that such limitations are contained in a separate operating agreement (2) whether and the extent to which the LLC will be managed by managers, and any restrictions on the managers, or that such restrictions are contained in a separate operating agreement (3) the latest date, if any, on which the LLC is to dissolve (4) any other provision not inconsistent with the law that the members choose to include
Limits on Liability
The articles or a WRITTEN operating agreement may: (1) eliminate or limit a manger/member's monetary liability to the LLC for breach of the duties described above, although liability for receipt of an improper benefit or intentional violation of criminal law cannot be eliminated (2) provide for indemnification and/or insurance for a manager/member for any judgments, settlements, penalties, fines, or expenses incurred as manager/member
Distribution of Assets upon Dissolution
The assets of a dissolved LLC will be distributed in the following priority order: (1) All creditors of the LLC must FIRST be paid - secured creditors being first as to secured assets (2) Unless the articles or a WRITTEN operating agreement provides otherwise, members already owed distributions will be paid next after all creditors. (3) Then members will receive return of their capital contributions. (4) Finally, members will divide the remaining assets in the proportion they share the distributions.
Challenges to Proxy
The burden of proving the invalidity of a proxy is on the challenger.
Effect of Death of Member on Proxy
The death of a member does not revoke a proxy until written notice of the member's death is received by the registered office of the LLC.
Tax Benefits
The income of an LLC will not be subject to federal or Louisiana income tax at the entity level. The major advantage of the partnership form.
Initial Report Required Signatures
The initial report must be signed by each person who singed the articles.
Initial Report Content
The initial report must state: (1) the name, location, and municipal address (NOT A PO BOX) of the LLC itself, (2) each of its registered agents, and (3) the persons vested with the power to manage the LLC. In addition, the initial report must contain a notarized affidavit of acknowledgement and acceptance signed by each of the registered agents.
Removal of Authority
The mandatary authority of a manager/member may be taken away (1) in the articles, (2) in an operating agreement, or (3) by majority vote of the members/managers, provided that the third party with whom the manager/member deals has knowledge of the fact that they lack such authority.
NAME of the LLC Mandatory Words
The name must contain the words "limited liability company. or the abbreviation "L.L.C." or "L.C." For low-profit limited liability companies, the name must contain the words "low-profit limited liability company," the abbreviation "L3C," or the abbreviation l3c."
NAME of the LLC Must NOT include
The name must not contain any word or phrase that indicates or implies that its purpose is something that is not lawful for an LLC, that is contrary to its articles, or that falsely suggests a charitable or nonprofit nature.
NAME of the LLC Distinguishable
The name of the LLC must be distinguishable from the name of every other foreign or domestic corporation and LLC registered or qualified to do business in the state.
Operating Agreement Analogue to Other Business Entity Forms
The LLC's operating agreement is the analogue to the bylaws of a corporation or the partnership agreement of a partnership.
Vote by Proxy
A MEMBER may cast their vote either in person or by use of a proxy. A proxy must be written and signed by the member or her agent and filed in the registered office of the LLC, either in person or electroncially. The holder of the proxy is then entitled to vote on the member's behalf.
Definition
A limited liability company (LLC) is a type of business form combining attributes of both corporations and partnerships. It has TWO PRIMARY ATTRIBUTES: (1) the limited liability that shareholders of a corporation enjoy, AND (2) the tax treatment of a partnership An LLC is a legal "entity," capable of suing and being sued, owning property, etc.
Nonmanager Members
A member who is not a manager does NOT have such agency authority, nor do they have the duties of care and loyalty. Such a member is purely an equity-owner with no authority or fiduciary duties.
Entitlements Upon Withdrawal
A member who withdraws is entitled to continue to receive their share of the profits (law unclear about losses) until the LLC pays them the fair market value of their membership interest as of the date of withdrawal. Required to pay "within a reasonable time".
Mergers and Consolidations
A merger or consolidation of an LLC with any other LLC or other business entity requires filing a merger or consolidation agreement with the secretary of state and the conveyance records office of each parish in which any party has immovable property for which title will be transferred.
Liability for Voting for a Wrongful Distribution
All managers/members who knowingly or without exercising reasonable care and inquiry vote for a wrongful distribution are JOINTLY AND SEVERALLY LIABLE to the LLC for the amount the distribution exceeded what was proper. Any liable manager/member who pays more than her proportionate share is entitled to contribution from the others who are also liable.
Powers
An LLC has the same powers as a corporation or a partnership.
Annual Report Requirement
An LLC is also required to file an annual report every year with the secretary of state on or before the anniversary date of formation. The annual report shall be signed by a manager (or member if member-managed) and shall state: (1) the municipal address of the registered office, (2) the name and municipal address of each registered agent, and (3) the name and municipal address of each manager (or member if if member-managed).
Requirement Of Mangagers
An LLC is not required to have managers. IF it does not, it will be managed by its members.
Commencement
An LLC may be formed and operated by any one or more persons capable of contracting. This includes natural persons, corporations, partnerships, limited partnerships, domestic or foreign LLC's, joint ventures, trusts, etc. To form an LLC, articles of organization, along with an initial report, must be filed with the secretary of state. NO parish filing is required. The LLC's legal existence begins upon the issuance of a certificate of organization by the secretary of state, BUT it is effective retroactively to the date the articles were filed (or to the date of notarization of the articles if that was within 5 days of filing).
Permitted Purpose(s)
An LLC may conduct business for any lawful purpose, for profit or not for profit, except insurance underwriting.
Good Faith Standard
Any manager/member who fulfills these duties in good faith will not be liable for her actions taken on behalf of the LLC.
Duties - generally
Any member or manager entrusted with managing the business shall stand in a fiduciary relationship to the LLC and shall act "in good faith, with diligence, care, judgment, and skill which an ordinary prudent person in a like position would exercise" and "in the manner he reasonably believes to be in the best interest of" the LLC Reliance on good faith on advisors and experts meets this standard.
Multiple classes of members
Any number of different classes may be created, with different rights and voting power.
Conversions
Any type of already formed Louisiana business can convert to an LLC by submitting a conversion application to the secretary of state. A conversion is not a dissolution of the business and the rights of prior creditors are not affected.
Approval Required to Assign Powers
Beyond distributions, assignment does not entitle the assignee to exercise any rights or powers of a member in the LLC until such a time as the other members approve them for such unanimously in writing.
Effect of Dissolution of Member
If a member is a corporation, trust, or other entity and is dissolved or terminated, the member's membership ceases and the member's legal representative or successor is treated as an assignee of the member's interest.
Effect of Death or Incompetency of Member
If a member who is an individual dies or becomes legally incompetent, her membership ceases and her executor, guardian, or other legal representative is treated as an assignee. If the dead member's heir is not approved as a member by the other members, the LLC must "buy out" the dead member's interest within a reasonable time by paying the heir the fair market value of that interest at the time of the member's death.
Retroactive ownership of immovable property
If immovable property is acquired in the name of an LLC that has not at that time been issued a certificate of organization, the LLC's existence will be deemed retroactive to the date of the acquisition of the immovable property. However, such retroactive effect will not prejudice the rights of any third party that validly acquired rights in that property between the date of acquisition of the property and the issuance of the certificate of organization.
Shares held by multiple parties (proxy)
If shares are held in the name of more than one person, a proxy signed by any one of them will be deemed valid unless the LLC receives a written objection from one of the other holders before the proxy is voted.
Withdrawal LLC Constituted for a Term
If the LLC has been constituted for a certain term, a member may only withdraw if either: (1) they get the unanimous consent of the other members, OR (2) there is "just cause" for withdrawal "arising out of another member's failure to perform a material obligation"
Withdrawal LLC NOT Constituted for a Term
If the LLC is not constituted for a set term, a member may withdraw either: (1) immediately upon the occurrence of an event specified in a WRITTEN operating agreement, OR (2) for any reason if the withdrawing member gives the LLC and the other members 30 DAYS' WRITTEN NOTICE.
Amendment or Correction of Articles of Organization
If the LLC wishes to amend the articles of organization, it must file "articles of amendment". If any document filed with the secretary of state is inaccurate or deficient, the LLC should file a "certificate of correction"
Deceased or Incompetent Member was the last remaining member
If the member who died or became incompetent was the last remaining member, then her executor, administrator, or curator will have the authority to sell any real estate owned by the LLC.
Number of Managers
Management may be by "one or more managers" The number of managers will be specified or fixed in accordance with the articles or in written operating agreement if not done in the articles. Likewise, the qualifications of managers may be stated in the articles or an operating agreement (if desired).
Members
Members are the equity owners of the LLC
Restrictions on Distributions
No distribution to a member is allowed if: (1) the LLC would be rendered UNABLE TO PAY ITS DEBTS as they come due (2) the LLC's TOTAL ASSETS WOULD BECOME LESS THAN ITS TOTAL LIABILITIES (3) the distribution would VIOLATE A PROVISION in the articles or a WRITTEN operating agreement
Contributions must be in writing to be enforceable
Promises to contribute are unenforceable if not in a writing signed by the member.
Removal of a Member
The LLC statute provides no procedure for the expulsion of a member and implies the expulsion is not allowed.
Effect of Failure to File Annual Report
The secretary of state will revoke the articles of organization if an LLC fails to file an annual report for three consecutive years. The secretary of state must give the offending LLC 30 days' notice and an opportunity to cure the failure. The LLC may be reinstated within three years following revocation if it files an application and cures the failure.
Effect of a Wrongful Withdrawal
The statute is silent as to the effect of a wrongful withdrawal, implying there is no such thing, and an attempt to withdraw improperly is simply not effective. The LLC could consent to the withdrawal and pay them the fair market value of the membership interest.
Operational Requirements
There are virtually no operational "formalities" required. Ex. member meeting requirements The LLC need only continuously maintain a registered office and at least one registered agent in the state.
Multiple Operating Agreements
There can be more than one operating agreement if they are NOT inconsistent. To the extent they are inconsistent, the more recent agreement prevails, except a written agreement prevails over an oral agreement.
Liability for Wrongful Distributions Prescriptive Period
There is a 2-year statute of limitations to enforce liability for wrongful distributions.
Voting Trusts
To ensure that a group of shares will be voted a particular way in the future, one or more members of an LLC may choose to deposit their voting shares into a voting trust. The share certificates of those members will be cancelled and new certificates will be issued in the name of the trustees. The trustees will then have the right to vote those shares, either in person or by proxy during the period of the trust.
Revocation of Proxy
Unless otherwise agreed, a proxy is revocable at will. To revoke a proxy, the member must give written notice to the office of the LLC.
Method of Selection and Removal
Unless otherwise provided IN THE ARTICLES, each manager position shall be filled by PLURALITY vote of the members. A manager may be removed, with or without cause, by a majority vote of the members.
Voting by Members Rules
Unless the articles or a WRITTEN operating agreement provide otherwise, each member shall have a single vote on all matters properly brought before the members, regardless of the amount of capital originally contributed or currently in the capital account.
Situations where member vote required
Unless the articles or a WRITTEN operating agreement provides otherwise, a MAJORITY VOTE OF THE MEMBERS is required to approve the following matters, even if management is vested in the managers or less than all of the members: (1) DISSOLUTION and winding up of the LLC (2) DISPOSAL OR ENCUMBRANCE OF ALL OR SUBSTANTIALLY ALL OF THE LLC'S ASSETS (3) a MERGER OR CONSOLIDATION (4) Incurrence of DEBT OTHER THAN IN THE ORDINARY COURSE OF BUSINESS (5) alienation, lease, or encumbrance of any IMMOVABLES, and (6) an AMENDMENT to the articles or operating agreement
Dissolution - Generally
Unless the articles or a WRITTEN operating agreement provides otherwise, an LLC is dissolved and its affairs wound up upon any of the following: (1) An EVENT SPECIFIED in the articles or an operating agreement; (2) The CONSENT OF A MAJORITY of the membership; or (3) Entry of a JUDICIAL DECREE of dissolution upon application of a member when it is no longer reasonably practicable to carry on the business of the LLC.
Interests Generally Assignable
Unless the articles or an operating agreement provides otherwise, a membership interest is assignable in whole or in part, but that only entitles that assignee to receive the distributions of the assignor.
Voting Requirements for Management Decisions
Unless the articles or operating agreement provide otherwise, each manager/member is entitled to A SINGLE VOTE, and all decisions shall be made by majority vote. Managers do not have the right to vote by proxy, unless that right is listed in a provision in the articles of organization or the operating agreement.
Member-Managed Classification
Unless the management of the LLC is delegated to managers, ALL the members will manage the business, subject to any provision in the articles or a WRITTEN operating agreement restricting or enlarging the rights and duties of any member or class of members. Such an LLC will be deemed to be member-managed.
Winding Up
Upon giving notice of the authorization of dissolution and filing the articles of dissolution with the secretary of state, the LLC will then wind up its business affairs unless the articles or a WRITTEN operating agreement provides otherwise.
Operating Agreement Usually written, not oral
While an operating agreement can be oral, only small, closely-held LLC's with equal capital contributions, profit sharing, and voting power for every member can realistically not have a written operating agreement. (Unless everything is put in the articles)