Chapter Six Limited Liability Companies

Limited Liability Company Entity providing full protection for its members from all personal liability, whether arising in tort or contract; must comply with statutes

Ways LLCs Differ from LLPs  LLPs are a species of partnership and are governed primarily by partnership principles; LLCs are an entirely new form of business enterprise.  Only full shield states offer full protection from liability for LLP partners for wrongful acts of co-partners and contractual obligations, whereas a hallmark of LLC statutes is full protection from personal liability for all LLC members whether the liability arises in tort or contract.  All states but Wyoming permit a one-person LLC; LLPs, however, because they are a form of partnership, must always have at least two partners.  LLPs, as a variety of partnership, must be formed for a profit-making purpose. LLCs, however, may be formed for nonprofit purposes.  Generally, the traditional professions (such as law, accounting, and medicine) comprise the majority of LLPs, whereas businesses in the ‘‘emerging’’ professions (computer consulting, marketing, and management services) tend to adopt the LLC form.

Advantages of LLCs  Limited Liability and Full Management  Flexible management  One-Person LLCs  Pass-Through Tax Status

Disadvantages of LLCs  Limits on transfer of interest from one member of an LLC to another  Little case law interpreting LLCs exists  Formation can be slightly complex and expensive  Some states limit the LLC to a term (generally 30 years)  Variations among state statutes may make it somewhat complicated for a business to operate nationwide as an LLC.

Provisions of an LLC Operating Agreement  Name of LLC  Names and Addresses of Members  Recitals  Purpose  Address  Term  LLC Powers  Financial Provisions  Operations of the LLC  Meetings and Voting  LLC Members’ Rights and Duties  Admission of New Members and Dissociation of Members  Transferability of Interests  Dissolution  Miscellaneous Provisions

Key Features of Limited Liability Companies Continued on next slide  LLCs offer their members full protection from personal liability whether it arises in tort or contract.  LLCs can be managed by their members or by appointed managers.  LLCs can be formed only by compliance with state statutes, which mandate the filing of articles of organization with the state agency.

Key Features of Limited Liability Companies  LLCs are governed by their operating agreements.  In many instances, a member’s dissociation does not cause a dissolution of the LLC.  The LLC provides the pass-through taxation of a general partnership.