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Limited Liability Corporation (LLC)
- A legally recognized business entity
- Pass-through tax advantage of a partnership
- Limited liability of a corporation.
- Articles of organization filed with the state
- Operating agreement filed with the state
Which governs - LLC Act or operating agreement?
- Generally the operating agreement.
- An LLC can agree to almost anything.
- LLC has no restriction on number of members.
- New members may join only by consent of all other members.
Members to run the company.
Non-member to run the company.
Members who manage LLC
Fiduciary duties as governed by common law.
BJR and managment
Unless the operating agreement holds management to the same standard as a board of directors, the manager is not entitled to BJR.
Liability of Members.
- Members are not personally responsible unless:
- (1) a guarantor or
- (2) by negligently appointing, supervising or cooperating with another employee or member.
Profits and Losses.
Default rule is that members are liable for profits/losses equivalent to their percentage of capital investment. Operating agreement can change this.
Transfer of Membership Rights.
Cannot transfer entire rights without the unanimous consent and approval of the other members (may be different in the OA).
Transfer of Economic Rights
A member can assign economic rights without consent of other members.
A member may lend money to the LLC and retain the same rights and obligations as any other creditor who is not a member. A pledge or grant of security interest, lien or any encumbrance against any or all of the members economic interest does not terminate his status as a member.
Termination of Membership.
A person ceases to be a member when he (1) withdraws, (2) declares bankruptcy, (3) dies or is declared incompetent, (4) is an entity and reaches the end of the entitys life, or (5) assigns all of his economic interest in the LLC.
Notice to withdraw
- Default - six months notice
- Operating agreement does not allow for withdrawal or provides an alternate condition for withdrawal.
Merger and Dissolution.
- An LLC may merge with another entity.
- An LLC may dissolve by agreement of the members or upon the occurrence of named events
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