1. NUTS AND BOLTS OF LLC FORMATION, OPERATION & DISSOLUTION Brent R. Armstrong Armstrong Law Offices, P.C. © 2002 Brent R. Armstrong Utah State Bar Mid-Year Convention March 23, 2002

2. Brent R. Armstrong Armstrong Law Offices, P.C. Suite 150 Bank One Tower 50 West 300 South Salt Lake City, Utah 84101-2006 Telephone No.: (801) 359-5511 Fax No.: (801) 359-5570 E-mail: ba@armstronglaw.com

3. Nuts and Bolts of LLCs  Overview of Utah Revised LLC Act  Formation of a Utah LLC  Admitting an LLC Member  Assignment of LLC Interests  Conversion of LP to LLC  Dissolution of LLC

4. Utah Revised LLC Act--Overview  Signed into law – March 19, 2001  Effective July 1, 2001

5. Utah Revised LLC Act--Overview  Added new Chapter 2c to Title 48, Utah Code  Repealed Chapter 2b of Title 48

6. Utah Revised LLC Act--Overview  Re-codified prior law  Updated prior law  Expanded prior law

7. Utah Revised LLC Act--Overview  In 2001, new Utah entities:  54.5% were LLCs  3.6% were LPs  41.9% were profit corporations

8. Utah Revised LLC Act--Overview  Goals of Revised Act :  Organized  Useful  Flexible  Comprehensive

9. Utah Revised LLC Act--Overview  Contract Model  Many default rules included  LLC documents may over-ride default rules

10. Utah Revised LLC Act--Overview  Legislative Intent – “…to give maximum effect to freedom of contract and enforceability of operating agreements...” UCA §48-2c-1901

11. Utah Revised LLC Act--Overview  Provisions of Old Act retained  13 new general definitions  Special definitions for:  Winding up  Professions  Indemnification

12. Utah Revised LLC Act--Overview New Definitions :  capital account  distribution  designated office  entity  filed with the division  interest in the company  manager  manager-managed company  member  member-managed company  operating agreement  proceeding  signed

13. Utah Revised LLC Act--Overview  No grandfathering  All LLCs became subject to Revised Act on July 1, 2001

14. Utah Revised LLC Act--Overview  19 Parts PartHeading 1General Provisions 2Filing Requirements 3Service of Process 4Formation 5Operating Agreements PartHeading 6Limited Liability 7Members 8Management 9Contributions; Profits & Losses 10Distributions

15. Utah Revised LLC Act--Overview  19 Parts -- Cont’d PartHeading 11Assignment of Interests 12Dissolution 13Winding Up 14Conversions and Mergers 15Professions PartHeading 16Foreign Limited Liability Companies 17Derivative Actions 18Indemnification 19Miscellaneous  19 Parts-- cont’d PartHeading 11Assignment of Interests 12Dissolution 13Winding Up 14Conversions and Mergers 15Professions PartHeading 16Foreign Limited Liability Companies 17Derivative Actions 18Indemnification 19Miscellaneous [p. 24]

16. Utah Revised LLC Act--Overview  What Act is NOT –  Not the Uniform LLC Act  Not the Prototype LLC Act

17. Utah Revised LLC Act--Overview  New Concepts  capital account  constructive notice  conversion  designated office  domestication  expulsion of a member  fiduciary duties

18. Utah Revised LLC Act--Overview  Capital Account  A partnership concept  Measuring standard for  Profit and losses  Distributions  Voting

19. Utah Revised LLC Act--Overview  New Concepts  capital account  constructive notice  conversion  designated office  domestication  expulsion of a member  fiduciary duties

20. Utah Revised LLC Act--Overview  Constructive Notice  Required provisions in Articles Permitted provisions in Articles for:  Limited business or purpose  Limits on authority of managers/members  Required items in LLC’s annual report filed with Division

21. Utah Revised LLC Act--Overview  New Concepts  capital account  constructive notice  conversion  designated office  domestication  expulsion of a member  fiduciary duties

22. Utah Revised LLC Act--Overview  Designated Office  A geographical address (not P. O. Box)  Where LLC records are kept  Determines court location for action:  To compel inspection of records (48-2c-115)  To compel Division to file a document (48-2c-211)  To interpret or enforce an LLC’s operating agreement (48-2c-505)  To remove a manager (48-2c-809(1))  To dissolve LLC by court order (48-2c-1211)

23. Utah Revised LLC Act--Overview  New Concepts--Cont’d  filed with division  non-waivable provisions  organizer  redemption of interest  transfer  valuation of an LLC interest

24. Utah Revised LLC Act--Overview  Non-Waivable Provisions An LLC’s Articles of Organization or Operating Agreement may not:  Restrict right to inspect and copy records  Reduce fiduciary duties of members and managers  Eliminate obligation of good faith and fair dealing  Vary any filing requirement

25. Utah Revised LLC Act--Overview  Non-Waivable Provisions-- Cont’d  Vary any requirement for written document  Vary right to expel a member  Vary remedy for judicial dissolution of LLC  Restrict rights or impose duties on third parties  Eliminate liability of manager for breach for gross negligence or willful misconduct, or where manager receives financial gain

26. Utah Revised LLC Act--Overview  New Concepts--Cont’d  filed with division  non-waivable provisions  organizer  redemption of interest  transfer  valuation of an LLC interest

27. Utah Revised LLC Act--Overview  Organizer  May form a Utah LLC  Must sign Articles of Organization  Need not be member or manager  Must prepare record of name and address of initial members (and managers)

28. Nuts and Bolts of LLCs  Overview of Utah Revised LLC Act  Formation of a Utah LLC  Admitting an LLC Member  Assignment of LLC Interests  Conversion of LP to LLC  Dissolution of LLC

29. FORMATION OF A UTAH LLC

30.  Articles of Organization (public document)  Operating Agreement (private document)  Tax ID Number  Asset Transfer Documents  Ancillary Documents

31. FORMATION OF A UTAH LLC  Administrative Matters  Substantive Matters  Constructive Notice to Third Parties  Anything Else Articles of Organization - Contents

32. FORMATION OF A UTAH LLC  Administrative Matters  (name, registered agent, registered office, designated office, organizer) Articles of Organization - Contents

33. FORMATION OF A UTAH LLC  Administrative Matters  Substantive Matters  Constructive Notice to Third Parties  Anything Else Articles of Organization - Contents

34. FORMATION OF A UTAH LLC  Substantive Matters  (business purpose, management) Articles of Organization - Contents

35. FORMATION OF A UTAH LLC  Administrative Matters  Substantive Matters  Constructive Notice to Third Parties  Anything Else Articles of Organization - Contents

36. FORMATION OF A UTAH LLC  Constructive Notice to Third Parties  -limit scope of business  -limit powers LLC may exercise  -limit authority of managers and members  -duration of LLC Articles of Organization - Contents

37. FORMATION OF A UTAH LLC  Anything Else Articles of Organization - Contents

38. FORMATION OF A UTAH LLC  Must be individual 18 years of age or older  One organizer is required, more are okay  May be manager, member or other individual Organizer - Qualifications

39. FORMATION OF A UTAH LLC  Signs Articles of Organization  Affirmation that:  LLC has one or more members  Managers, if any, have consented to serve  Files Articles of Organization with Division  Prepares written list of initial members, managers and street addresses Organizer - Duties

40. FORMATION OF A UTAH LLC  Articles of Organization  Bare bones version  Limitation of authority version  Organizer’s Statement [See forms in handout materials]

43. FORMATION OF A UTAH LLC  Operating Agreement  Written document

44. FORMATION OF A UTAH LLC  Operating Agreement  Written document  Signed by all initial members

45. FORMATION OF A UTAH LLC  Operating Agreement  Written document  Signed by all initial members  Effective only after Articles filed

46. FORMATION OF A UTAH LLC  Operating Agreement  Written document  Signed by all initial members  Effective only after Articles filed  Specifies:  Rights and duties of members/managers  How members admitted/expelled  How managers appointed/removed  How LLC interests transferred  Any other desired provisions

47. FORMATION OF A UTAH LLC  Operating Agreement  Written document  Signed by all initial members  Effective only after Articles filed  Specifies:  Rights and duties of members/managers  How members admitted/expelled  How managers appointed/removed  How LLC interests transferred  Any other desired provisions  No set form

48. FORMATION OF A UTAH LLC Questions on Forming a Utah LLC [See handout materials]

49. Nuts and Bolts of LLCs  Overview of Utah Revised LLC Act  Formation of a Utah LLC  Admitting an LLC Member  Assignment of LLC Interests  Conversion of LP to LLC  Dissolution of LLC

50. ADMITTING AN LLC MEMBER  Signs Articles of Organization, or  Signs Operating Agreement, or  Makes contribution and membership is reflected in LLC’s records Upon LLC formation, a person becomes an LLC member when person:

51. ADMITTING AN LLC MEMBER  Meets the requirements of the LLC’s governing documents, and  Signs Operating Agreement, and  All members consent, and  On date reflected in LLC’s records After LLC formation, a person becomes an LLC member when the person:

52. Nuts and Bolts of LLCs  Overview of Utah Revised LLC Act  Formation of a Utah LLC  Admitting an LLC Member  Assignment of LLC Interests  Conversion of LP to LLC  Dissolution of LLC

53. ASSIGNMENT OF LLC INTERESTS An LLC interest is transferred by an “assignment” document [See form in handout materials]

55. Nuts and Bolts of LLCs  Overview of Utah Revised LLC Act  Formation of a Utah LLC  Admitting an LLC Member  Assignment of LLC Interests  Conversion of LP to LLC  Dissolution of LLC

56. CONVERSION OF LP TO LLC

57. Conversion of lp to llc  Obtain approval for the conversion  Prepare and file two documents:  Articles of Conversion  Articles of Organization [See forms in handout materials]

61. Conversion of lp to llc  Look at statute and Partnership Agreement for Limited Partnership for approval requirements.  For Utah LPs, statute says look for authorization as follows:  First: Partnership Agreement regarding conversion; or, if silent  Second: partnership Agreement regarding merger, or, if silent  Third: Unanimous consent of owners of LP. Approval Requirements

62. Conversion of lp to llc  LP becomes LLC and subject to Revised LLC Act  LLC takes on LP’s formation date  LP’s obligations and liabilities become obligations and liabilities of LLC Effects of Conversion

63. Conversion of lp to llc  LLC retains all rights, privileges and powers held by LP  LP interests may be exchanged into cash, property, or LLC interests  LP not required to wind up and dissolve Effects of Conversion—Cont’d

64. Conversion of lp to llc  Be careful!  Usually no tax consequences in LP to LLC conversion if LP has no debt and owners percentage interests in profits,losses and capital remain the same  Usually LLC may use LP’s tax ID number Tax Issues

65. Nuts and Bolts of LLCs  Overview of Utah Revised LLC Act  Formation of a Utah LLC  Admitting an LLC Member  Assignment of LLC Interests  Conversion of LP to LLC  Dissolution of LLC

66. DISSOLUTION OF LLC  When its period of duration expires;  When the LLC fails to have at least one member;  By written agreement of all members; A Utah LLC is dissolved upon the occurrence of any of the following events:

67. DISSOLUTION OF LLC  A dissolution event specified in the Articles of Organization or Operating Agreement;  When the LLC is not a successor in a merger of two or more LLCs; A Utah LLC is dissolved upon the occurrence of any of the following events:

68. DISSOLUTION OF LLC  Upon administrative dissolution under §48-2c-1207 (subject to right of reinstatement under §48-2c-1208); or  Upon entry of a decree of judicial dissolution under §48-2c-1213. A Utah LLC is dissolved upon the occurrence of any of the following events :

69. DISSOLUTION OF LLC Upon an event of dissolution, Articles of Dissolution are prepared and filed with Division [See form in handout materials]

73. DISSOLUTION OF LLC  Transfer title to the LLC’s property;  Prevent transfer of an interest in the LLC;  Subject its members or managers to standards of conduct different than those prescribed in the Act; A dissolved LLC continues its existence, but may not carry on any business or activities, except as appropriate to wind-up and liquidate its business and affairs. Dissolution of an LLC does NOT:

74. DISSOLUTION OF LLC  Change: -limited liability -voting requirements -provisions for selection, resignation or removal of its managers -provisions for amending its Articles of Organization or Operating Agreement; Dissolution of an LLC does NOT:

75. DISSOLUTION OF LLC  Prevent commencement of a proceeding by or against the Company;  Abate or suspend a proceeding pending by or against the Company;  Terminate the authority of the Registered Agent. Dissolution of an LLC does NOT:

76. QUESTION AND ANSWER TIME

77. THANK YOU