1. Limited Liability Companies and Limited Liability Partnerships
Chapter 39
Limited Liability Companies and Limited Liability Partnerships

2. Limited Liability Company (LLC)
Unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnerships, and corporations
It is a separate legal entity
Member: An owner of an LLC
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3. Uniform Limited Liability Company Act
A model act that provides comprehensive and uniform laws for the formation, operation, and dissolution of LLCs
Codifies LLC law
Revised Uniform Limited Liability Company Act: A revision of the ULLCA
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Taxation of LLCs
LLC taxed as partnership
Unless it elects to be taxed as a corporation
Income or losses “flow through” to the members’ individual income tax returns
Powers of an LLC
Same powers as an individual to do all things necessary or convenient to carry on its business or affairs
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Formation of an LLC
An LLC may be organized to operate businesses, real estate developments
Certain professional groups, such as accountants, lawyers, doctors, may not operate as LLCs
An LLC can be organized in only one state even though it can conduct business in all other states
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6. Articles of Organization
The formal documents that must be filed at the secretary of state’s office of the state of organization of an LLC to form the LLC
The LLC is a domestic LLC in the state in which it is organized
LLC law of the state governs the operation of the LLC
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7. Exhibit 39.2: Limited Liability Company (LLC)
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8. Case 39.1: Limited Liability Company
Siva v LLC
2007 Ohio 4667, Web 2007 Ohio App. Lexis (2007)
Court of Appeals of Ohio
Issue
Is Richard Hess, a member-owner of 1138 LLC, personally liable for the debt owed by the LLC to Siva?
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Liability of Managers
Not personally liable for the debts, obligations, and liabilities of the LLC they manage
Liability of tortfeasors
Tortfeasor: A person who intentionally or unintentionally (negligently) causes injury or death to another person
Personally liable to the injured party
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Management of an LLC
Type of LLC
Description
Member-managed LLC
The members do not designate managers to manage the LLC. The LLC is managed by its members.
Manager-managed LLC
The members designate certain members or nonmembers to manage the LLC. The LLC is managed by the designated managers; nonmanager members have no right to manage the LLC.
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11. Compensation and Reimbursement
Nonmanager member not entitled to remuneration
Except for winding-up the LLC
Managers of LLC are paid compensation and benefits
Specified in employment agreements
LLC is obligated to reimburse members and managers for payments made on behalf of the LLC
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12. Agency Authority to Bind an LLC to Contracts
Type of LLC
Agency Authority
Member-managed LLC
All members have agency authority to bind the LLC to contracts
Manager-managed LLC
The managers have authority to bind the LLC to contracts; the nonmanager members cannot bind the LLC to contracts
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13. Fiduciary Duties to the LLC
Fiduciary duty
Duty of loyalty
Duty of care
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Duty of Loyalty
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
Not act adversely to the interests of the LLC
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Duty of Care
A duty owed by a member of a member-managed LLC and a manager of a manager-managed LLC not to engage in
A known violation of law
Intentional conduct
Reckless conduct
Grossly negligent conduct that injures the LLC
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No Fiduciary Duty
A nonmanager member of a manager-managed LLC owes no fiduciary
Duty of loyalty
Duty of care to the LLC or its members
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Dissolution of an LLC
A member has the power to withdraw from the LLC
Unless otherwise stated in the operating agreement
Wrongful disassociation: When a member withdraws from
A term LLC prior to the expiration of the term or
An at-will LLC when the operating agreement eliminates a member’s power to withdraw
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18. Payment of Distributional Interest
No wrongful disassociation – LLC must purchase the disassociated member’s distributional interest
Wrongful disassociation – damages may be offset against price
Notice of Disassociation
Statement of disassociation: A document filed with the secretary of state that gives constructive notice that a member has disassociated from an LLC
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19. Continuation of a Term LLC
Can be continued in two ways
The members of the LLC may vote prior to the expiration date
As an at-will LLC by a simple majority vote of the members of the LLC
Winding up an LLC’s business involves
Preserving and selling the assets of the LLC
Distributing the money and property to creditors and members
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20. Articles of Termination
The documents that are filed with the secretary of state to
Terminate an LLC as of the date of filing or upon a later effective date specified in the articles
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21. Limited Liability Partnership (LLP)
A special form of partnership in which
All partners are limited partners
There are no general partners
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22. Articles of Partnership
LLP created formally by filing articles of partnership with the secretary of the state in state in which LLP is organized
Articles of limited liability partnership: The formal documents that must be filed at the secretary of state’s office of the state of organization of an LLP to form the LLP
An LLP must register as a foreign LLP in any other state in which it wants to conduct business.
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23. Exhibit 39.3: Limited Liability Partnership (LLP)
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Taxation of LLPs
“Flow-through” tax benefit – no tax paid at the partnership level
All profits and losses are reported on the individual partners’ income tax returns
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25. Limited Liability of Partners
The liability of LLP partners for the LLP’s debts, obligations, and liabilities is limited only to the extent of their capital contributions
Partners of LLPs are not personally liable
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