Business Law Chapter 39

Front 1

Limited liability company

Back 1

An unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnerships, and corporations

Front 2

Taxation of LLC's

Back 2

A LLC is taxed as a partnership unless it elects to be taxed as a corporation. Thus, an LLC is not taxed at the entity level, but its income or losses flow through to the members individual tax returns.

Front 3

Why is it important to know that income and loss flow through?

Back 3

Because LLC's are not subject to the double taxation a corporation would face.

Front 4

2 types of duration for LLC's

Back 4

1. at will LLC
2. term llc

Front 5

At will LLC

Back 5

An llc is an at will LLC (i.e. no specified terms) unless it is designated as a term llc. An at will has no specified term of duration.

Front 6

Term LLC

Back 6

An LLC that has a specified term of duration. Can be specified in any manner that sets forth a specific and final date for dissolution of the LLC.

Front 7

Capital contributions can be in the form of

Back 7

money, personal property, real property, any tangible property, intangible property, services, contracts for services to be performed, promissory notes, or other agreements

Front 8

Does death, diability, or other inability to perform excuse a member's obligation to contribute capital?

Back 8

NO

Front 9

If a member dies, becomes disabled, or is unable to contribute what they promised what must they do?

Back 9

Must contribute money equal to the value of the property or services promised.

Front 10

Who can enforce hte promised obligation?

Back 10

The LLC or any creditor who extended credit to the LLC in reliance on the promised contribution may enforce it.

Front 11

Dividing profits

Back 11

Unless otherwise specified, profits are shared equally. Default rule that members can and usually do override in their partnership agreement. They can specify that they want profits to be divided in proportion to capital contrbutions

Front 12

Dividing losses

Back 12

Losses shared equally unless specified. SOmetimes they don't want to divide losses equally or maybe not even in the same as their capital contributions. Losses can sometimes be offset against gains from other sources so embers may wayt to agree to divide losses os members who can use them get more share of the loss.

Front 13

Can profits and losses be divided in different proportion?

Back 13

YES

Front 14

Members

Back 14

An owner of an LLC

Front 15

limited liability

Back 15

The liability of LLC members for the debts and obligations and liabilities only to the extent of their capital contributions.

Front 16

The debts, obligations, and liabilities of an LLC, whether arising from contracts, torts, or otherwise belong solely to

Back 16

The LLC

Front 17

Is failure of LLC to observe usual company formalities grounds for imposing personal liability on LLC members?

Back 17

NO

Front 18

Member managed LLC's

Back 18

Members of LLC have equal rights in the management of the business of the LLC, regardless of the size of his or her capital contribution. Any matter relating to the business of the LLC is decided by a majority vote of the members.

Front 19

Manager managed LLC's

Back 19

THere are members and nonmembers hwo are designated managers. The members who are not managers have no rights to manage the LLC unless otherwise specified. Each manager has equal rights in management and conduct of the business.

Front 20

How are managers appointed and removed?

Back 20

A manager must be approved by a vote of a majority of the members. A manager may also be removed by a vote of the majority of the members.

Front 21

Certain actions cannot be delegated to managers but must be voted on by all members

Back 21

1. Amending articles
2. Amending operating agreement
3. Admitting new members
4. Consenting to dissolve
5. Consenting to merge
6. Selling, leasing, disposing.

Front 22

Member managed authority to bind

Back 22

In a member managed LLC, all members have agency authority to bind the LLC to contracts.

Front 23

Manager managed LLC authority to bind

Back 23

In a manager managed LLC, the managers have authority to bind the LLC to contracts, but nonmanager members cannot bind the LLC to contracts.

Front 24

Duty f loyalty

Back 24

A duty owed by a member of a member-managed LLC and a manager of a manager-managed LLC to be honest in his or her dealings with the LLC and not to act adversly in the interest of the LLC.

Front 25

What does this duty of loyalty encompass?

Back 25

CAnnot usurp LLC opportunities, make secret profits, secretly deal with the LLC, secretly compete with the LLC, or represent any interests adverse to those of the LLC.

Front 26

Limited liability partnership

Back 26

A special form of partnership in which all partners are limited partners, and there are no general partners.

Front 27

Who does the law restrict limited liabilty partnerships to?

Back 27

Restricted to certain types of professionals such as accountants, lawyers, and doctors. Nonprofessionals cannot use the LLP form of partnership.