1. CHAPTER 6
LIMITED LIABILITY COMPANIES
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2. An Introduction to Limited Liability Companies
LIMITED LIABILITY COMPANY DEFINED
A limited liability company is a business organization that offers the benefits of partnerships and corporations.
It is owned by members who manage the company or delegate that responsibility to others.
Owners are not liable for company debts.
Income and losses are allocated to the owners who then pay tax on their allocated share.
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3. Limited Liability Company Characteristics
Limited personal liability for members
Flexible management
Continuity of life
Restricted transferability of interest
Unrestricted ownership
Certain formalities for formation
Partnership taxation status
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4. Limited Liability Companies
PROFESSIONAL LIMITED LIABILITY COMPANIES
Membership may be restricted to licensed professionals of a single profession.
Members are personally liable for any acts of malpractice.
The name of the professional LLC must include the words “Professional Limited Liability Company” or the initials “PLLC.”
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5. Law Governing Limited Liability Companies
State limited liability laws
Uniform Limited Liability Company Act
Revised Uniform Limited Liability Company Act
State and federal securities laws
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6. © 2013 Delmar Cengage Learning
Advantages & Disadvantages of Doing Business as a Limited Liability Company
ADVANTAGES
DISADVANTAGES
Limited liability for all owners
Unrestrictive ownership
Ability to raise capital for the business
Beneficial tax treatment
Flexibility of management
Limited transferability of ownership
Possibility of piercing the LLC veil
Lack of uniformity in state laws
Formalities and reporting requirements
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7. Limited Liability Company Powers
Under the Uniform Limited Liability Company Act, LLCs have the same powers as individuals to do all things necessary or convenient to carry on business.
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8. Member Rights and Responsibilities
LLC members are granted certain rights by state statute and by the company’s operating agreement.
The company’s operating agreement may amend certain rights granted by state statute—but not all rights may be amended.
All members of a member-managed LLC are considered agents of the company.
Only managers are considered agents of a manager- managed limited liability company.
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9. Member Rights and Responsibilities
MEMBERS AS AGENTS
If the LLC is member managed, each member is an agent of the company.
If the LLC is manager managed, the managers are agents of the company.
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10. Limited Liability Company Formation
In most states, a limited liability company may be formed by any one adult individual acting as the organizer.
A limited liability company is formed when the proper document is filed with the designated state authority.
Articles of organization typically include:
Name and office address of LLC
Name and address of initial agent (if required)
Name and address of each organizer
Duration of existence
Name and address of managers (if manager managed)
Information concerning member liability
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11. Limited Liability Company Operation and Management
Member-managed limited liability company: each member has the right to act on behalf of the LLC.
Manager-managed limited liability company: company organizers elect a board of managers who act as agents for the LLC.
Certain extraordinary events require the consent of all members.
The operating agreement sets forth the agreement of the members of the LLC.
LLCs in most states are subject to annual reporting requirements with the secretary of state’s office.
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12. Financial Structure of a Limited Liability Company
MEMBER CONTRIBUTIONS, REIMBURSEMENTS AND DISTRIBUTIONS
The initial assets of a limited liability company are typically contributions of the members.
Members who must make expenditures on behalf of the LLC are entitled to reimbursement.
Distributions are set forth in the operating agreement.
Most state statutes dictate that distributions must be made in equal shares to members.
Distributions from the LLC may be prohibited by state statute if the limited liability company is unable to pay its debts after the distribution.
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13. Limited Liability Company Lawsuits
Lawsuits may be brought by the LLC
Derivative suits
Actions by members
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14. Dissolution of the Limited Liability Company
MEMBER’S DISSOCIATION
One or more members may be dissociated from the LLC without causing its dissolution.
A limited liability company may be dissolved when an event specified in the operating agreement or articles of organization occurs, by member consent, or when dictated by statute or judicial decree.
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15. Dissolution of the Limited Liability Company
WINDING UP THE LIMITED LIABILITY COMPANY AND DISTRIBUTION OF ASSETS
Any member who has not wrongfully dissociated from the LLC may wind up its business.
Final distributions are made pursuant to the articles of organization or operating agreement.
Articles of termination or a similar document must be filed to terminate the LLC’s existence.
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16. Transacting Business as a Foreign LLC
TRANSACTING BUSINESS AS A FOREIGN LIMITED LIABILITY COMPANY
If an LLC conducts business in a state where it is considered a foreign LLC, it must first get a certificate of authority from the secretary of state of the foreign state.
An LLC may register its name in a foreign state to preserve its use for the future when it is not currently “transacting business” in that state.
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17. TASKS PERFORMED BY PARALEGALS WORKING WITH LLCS
The Paralegal’s Role
TASKS PERFORMED BY PARALEGALS
WORKING WITH LLCS
Limited liability company research
Drafting limited liability documentation
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