Chapter 15 LLCS, LLPS, and Global Forms of Business

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 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.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Global Forms of Business International Franchising Joint Ventures Two or more business entities combine their resources to pursue a single project Strategic alliance Two or more companies in the same industry agree to work together to accomplish an objective.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall