Chapter 17- Limited Liability Business Forms

Limited Partnership

Consist of at least one general partner (manages the partnership and has full liability)and at least one limited partner (does not participate in management and has limited liability) Formed by filing formation documents with appropriate state agency - partners must sign a certificate of limited partnership which includes the name, address, and capital contribution of each general and limited partner Rights of limited partner: can inspect books and records, can sue third parties if the general partner(s) will not do so, can assign interest in partnership, and is entitled to return of capital contribution upon dissolution - but cannot participate in the management Dissociation and dissolution

LLC Dissociation and Dissolution

Dissociation: when a member ceases to be associated with the LLC (same as when a partner dissociates from a partnership) - Events triggering dissociation: voluntary withdrawal, expulsion by other members, bankruptcy, court order, incompetence, and death - Generally, other members of LLC may choose whether to carry on business or dissolve Dissolution: by vote of members, by court order, by occurrence of eventspecified in operating agreement

A limited liability company (LLC) must dissolve upon the dissociation of a member.

False

Limited Liability Company

Governed by state statute - separate legal entity that is formed by filing articles of organization with appropriate state agency (usually Secretary of State) Owners of the LLC called members- Members have limited liability - will usually not be personally liable beyond whatever they have invested in the LLC Taxation options: can be taxed as a "pass through" entity - like a sole proprietorship(single member) or partnership (multiple members) - or can be taxed as a corporation(where the corporation pays taxes on profits and then individual shareholders pay personal income taxes on any dividends/distributions from the corporation Fiduciary duties - members of the LLC owe duties of care and loyalty (as we discussed with partnerships) to the LLC and to the other members

Archie, Betty, and Veronica are friends that want to form a partnership. All three of them want limited personal liability. What would be the best type of entity for them to choose?

Limited Liability Partnership

Limited Liability Partnership

Most of the same rules as a general partnership in terms of management, dissociation, dissolution, etc. - BUT these do require filing formation documents with state agency and do offer limited liability States vary on how much limited liability is offered - some states say same liability limitations as LLC (pretty much totally limited to LLP assets and no personal liability) and some say only a limitation that you are not liable for acts of other partners Will always be liable for your own wrongful acts and the wrongful acts of those under your direct supervision You can convert a general partnership to an LLP by filing documents with state agency - name of the business must include LLP Dissociation and Dissolution rules are the same as for a general partnership, except as it pertains to the partners of an LLP being liable for any debts of the LLP that cannot be satisfied from partnership assets

Ben and Jerry are members in a limited liability company. The business incurs debts of $50,000 that cannot be satisfied through exhausting the business assets. Are Ben and Jerry personally liable for this debt?

No, because the business is organized as an LLC

Family Limited Liability Partnership

all partners are related to each other - all partners must be natural persons