Definition
Combines attributes of corps & pship.
Two attributes: (1) limited liability of shareholders, & (2) tax treatment of pship.
Capable of suing, being sued, owning prop.
Owners of LLC = members.
Not personally liable for any of LLCs debts
Members
Members = equity owners
No restriction on who can be mbrs
Diff classes of mbrs (voting power can vary)
Mbr-mgd LLC = a written op agreement or AOO can enlarge or restrict rights & duties
NO RISK to any mbr who participates in mgmt & control of the LLC
Managers
Managers = Those designated to manage the business
Can be mbrs (but don’t have to be)
NO managers? = ALL mbrs manage the business (mbr-mgd LLC)
LLCs can have a board of mgrs & those people can be nonmbrs
AOO must state that the LLC will be mgd by a group of mgrs (who may or may not be mbrs)
LLC will be mgr-mgd, even if the board has only mbrs at some point
There can be one or more mgr. AOO will specify the number. Any qualifications for mgrs may be stated in the AOO/OA
Formation
One or more persons capable of contracting may form LLC = nat persons, corps, LLCs, pships
Filing:
- Articles of Organization, and
- Initial Report w/ SOS
- (retr. to date of filing/ win 5 days of notarized)
Articles of Org
Arts of Org:
- Written in English,
- Signed by at least 1 person (anyone)
- Acklwg’d by person or one of persons who signed AOO; or by AA.
- AOO shall set forth: name/purpose/whether low-prof.
Limitations on the authority of members
Whether the LLC is managed by mgrs/ restrictions on the authority of mgrs
The latest date which the LLC is to dissolve
Anything else not inconsistent w/ the law
Initial Report
Signed by each person who signed AOO & sets forth:
Location & address of the LLC’s reg office
Full name & address of its reg agents
Names & address, not PO Box, of those vested w/ the power to manage (mgr or mbrs)
Notarized affidavit of ackcklwgt & acceptance signed by each reg agent
Annual Report
Required to file annually w/ SOS -
- SOS revokes AOO if not filed for 3 consec yrs (give 30 days optty to cure) / Reinst w/in 3 yrs after revok.
Be signed by the mgr (or member if mbr-mgd)
State the municipal address of the reg office
Name & address of each reg agent and
Name & address of each mgr (or mbr if it’s mbr-mgd)
Purpose
Any lawful purpose, profit, not for profit (no ins undwtg) /
Low-prof = non-prof estb w/ goal of furthering charitable/ed goal
Operating Agreement
Means any agreement, written or oral, of the mbrs as to the affairs of an LLC & conduct of its business
If there is more than 1 = it must be consistent w/ original
- If not, recent one wins
Name
Must include the words “limited liability company”, “L.L.C.”, or “L.C.”;
low-prof = “low-profit limited liability company”, “L3C”, or “l3c”
*Must be distinguishable upon SOC rec check re: corp, pships, LLCs
*No word/phrase indicating unlawful purp, contrary to arts, falsely suggest charitable/non-prof nature
Voting Requirements - Managers
Single vote (unless AOO/OA changes)
All decisions = majority vote
Can’t vote by proxy (unless AOO/OA changes))
Voting Requirements - Members
Single vote (unless AOO/OA changes) - regardless of the amt of capital originally contributed
Unless AOO/OA provides otherwise, a majority vote of members is required for the following (even if mgmt is vested in mgrs or fewer than all mbrs):
- Dissolution
- Sale, exchange, lease, mortgage, pledge, or transfer of all or substantial all of the assets
- Merger or consolidation
- Incurrence of debt other than in the ordinary course of its business
- Alienation, lease, or encumbrance of any immovables
- Amendment to arts of org or op agreement
Conflict of Interest Transactions
A transaction voted on by mgmt/member having a financial interest in the transaction = not void or voidable solely b/c she participated in the meeting or created quorum, provided:
- The interested mgmt/mbr’s interest was disclosed to the other voters and a disinterested majority approved the transaction, or
- The transaction was fair to the LLC at the time it was approved.
Contribution/Participation
Profits & losses are allocated equallyamong mbrs (unless AOO/OA changes)
The contribution of a mbr take the form of:
- Cash
- Property
- Services rendered, or
- A promissory note or
- Other binding obligation to contribute cash or property or to perform services
Promises to contribute are unenforceable if not in signed writing by the member.
No Dischare B/C Death
Except as provided in an OA, 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.
Personal reps must forfeit entire mbrship interest & remains liable for obs to any creditor who extended credit to LLC before forfeiture to extent that LLC refuses or is unable to pay
Compromise of Promise to Contribute
A valid promise to contribute cannot be compromised except with the unanimous consent of the other members unless the arts or a written op agreement provides otherwise.
A 3P creditor of the LLC may still enforce a comprised promise if it relied on it.
Distribution
No distribution shall be made, if, after giving effect to the distribution (wrongful distribution):
- LLC is unable to pay its debts as they become due in the usual course of biz
- LLCs total assets would be < than the sum of its total liabilities plus, or
- The authorization or payment would violate any restrictions contained in the AOO/OA
LLC may base a determination that a distribution is not prohibited either on financial statements prepared on the basis of accounting practices & principles that are reasonable under the circumstances or a fair valuation or other methods. Generally accepted acctg principles are deemed reasonable.
Liability for Wrongful Distribution
Voting: All mgr-mbrs who knowingly or w/out exercising reasonable care & inquiry vote for a wrongful distribution are jointly and severally liable to the LLC for the amount the distribution exceeded what was proper
Receiving: Each mbr 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 w/out knowledge of the violation
* 2-year SOL to enforce this provision.
Distributions (of cash or other assets) must be made equally to all members unless a written OA provides otherwise
Immovables
If immov prop acquired in the name of the LLC w/ no SOS cert = LLC’s existence will be retro to the date of the acquisition of immov prop.
3Ps who acquired rights in that immov prop b/tw the date of acquisition of the issuance of the cert are not affected
Limitation of Liability - Managers
No automatic reimbursement for costs/atty fees for mgrs who successfully defend a lawsuit.
AOO/WOA - can indemnify from judg, setttlem, penalties, fines, exp incurred, AND eliminate or limit monetary liability for breach of duties
Limitation of Liability - Members
Mbrs will not lose limited liability b/c of participation in the mgmt of the LLC.
Cts will not “pierce the LLC veil” b/c formalities are not followed.
Fiduciary Status
Each mgr owes a fiduciary relationship to the LLC.
- GF = no liability
Shall act in good faith = Diligence, care, judgment, and skill which an ordinarily prudent person would exercise, & and in the manner he reasonably believes to be in the best interest of the LLC
- Can rely in good faith on advisors & experts
Representation & Mandate
Managers are mandataries for the LLC for all matters in the ordinary course of business, except alienation, lease, or encumbrance of immovable property.
Can be taken away in:
- AOO/ OA
- Majority vote of members w/ or w/out cause.
Mbr who is not mgr has no mandatary authority nor fid duty - (like corp shareholder)
Assignment
Unless AOO/OA provides otherwise:
- Interest is assignable in whole or in part
- Assignee only entitled to receive the distributions assignor would have received
