1. 1Prentice Hall © 2007 PowerPoint Slides to accompany The Legal Environment of Business and Online Commerce 5E, by Henry R. Cheeseman Chapter 18 Limited Liability Companies and Special Forms of Business

2. Prentice Hall © 20072 Limited Liability Company (LLC) An unincorporated business that combines the most favorable attributes of general partnerships, limited partnerships, and corporations An LLC is a separate legal entity—an artificial person—that can own property, sue and be sued, enter into and enforce contracts, etc.

3. Prentice Hall © 20073 Characteristics of LLCs LLC is taxed as a partnership unless it elects to be taxed as a corporation. LLC has the same powers as an individual to conduct business. Members are liable for the LLC’s debts, obligations, and liabilities only to the extent of their capital contributions.

4. Prentice Hall © 20074 Limited Liability Company (LLC) Member Limited liability company (LLC) Third party Debt or obligation owed Capital investment Liability limited to capital contribution Members have no personal liability for LLC’s debts and obligations Member

5. Prentice Hall © 20075 Liability of an LLC LLC is liable to persons injured as a result of a wrongful act or omission by a member, manager, agent, or employee while acting within the ordinary course of business. The individual who commits a tort is also liable to persons injured. Managers are not personally liable for the debts of the LLC they manage.

6. Prentice Hall © 20076 Forming an LLC Articles of organization must be filed with the appropriate state office, usually secretary of state. The articles must state the name, duration, and other required information. Members of LLC may enter into an operating agreement.

7. Prentice Hall © 20077 Forms of LLC Management Member-managed Each members has equal rights to manage the LLC. Each member has agency authority to contract for the LLC. Members owe a fiduciary duty to the LLC.

8. Prentice Hall © 20078 Forms of LLC Management Manager-managed Members designate a manager and delegate management authority. Manager may be an LLC member or nonmember. Manager has authority to contract for the LLC. Manager owes a fiduciary duty to LLC.

9. Prentice Hall © 20079 Dissolution and Continuation of an LLC Dissolution Member has power to withdraw from at-will or term LLC. Withdrawal before the LLC term expires is wrongful disassociation. Continuation after end of term Members may unanimously vote to extend the term. May continue as at-will LLC if only a majority of the members vote to extend the term.

10. Prentice Hall © 200710 Limited Liability Partnership Does not require a general partner Most states restrict LLP use to professional groups, such as lawyers. Articles of partnership must be filed with secretary of state. Liability insurance is required.

11. Prentice Hall © 200711 Franchise A franchise is established when one party (franchisor) licenses another party (franchisee) to use the franchisor’s name, trademark, symbols, and other property in the distribution and selling of goods and services.

12. Prentice Hall © 200712 Types of Franchises Distributorship franchise – franchisee sells a product produced by franchisor. Processing franchise – franchisee produces and distributes franchisor’s product. Chain-style franchise – franchisor licenses the franchisee to make and sell its products from a retail outlet. Area franchise – franchisor authorizes franchisee to sell franchises on behalf of the franchisor.

13. Prentice Hall © 200713 Liability of Franchisor and Franchisee Franchisee operates as an independent contractor. Franchisee is usually not franchisor’s agent. Franchisee is liable for its own contracts and torts. Franchisor is liable for its own contracts and torts. Neither is liable for the other party’s contracts or torts.

14. Prentice Hall © 200714 Apparent Agency Created when the franchisor leads a third party to believe that the franchisee is its agent. If there is an apparent agency, the franchisor is liable for the franchisee’s contracts and torts committed within the scope of the agency. Use of franchisor’s name by itself does not create an apparent agency.

15. Prentice Hall © 200715 Special Forms of Business License – one party owns intellectual property such as a trademark and contracts to permit another party to use it. Joint venture – two or more business entities combine resources for a single project.

16. Prentice Hall © 200716 Special Forms of Business Strategic alliance Two or more companies in the same industry agree to work together to accomplish an objective. Strategic alliances do not have the same protections as mergers, joint ventures, or franchises.