1. Chapter 15

2.  An unincorporated business  Combines the most favorable attributes of general partnerships, limited partnerships, and corporations  An LLC is a separate legal entity (or legal person) distinct from its members  Member: An owner of an LLC  Some states refer to members as shareholders 15-2 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

3.  A model act that provides comprehensive and uniform laws for the formation, operation, and dissolution of LLCs  Revised Uniform Limited Liability Company Act (RULLCA): A revision of the ULLCA  Provides comprehensive and uniform laws for the formation, operation, and dissolution of LLCs 15-3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

4.  An LLC’s income or losses flow through to the members’ individual income tax returns  This avoids double taxation  Formation of an LLC  An LLC may be organized by one or more persons  It can be organized in only one state  The name of the LLC must contain the words limited liability company or limited company or the abbreviation L.L.C., LLC, L.C., or LC. 15-4 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

5.  The formal documents that must be filed at the secretary of state’s office of the state of organization of an LLC in order to form the LLC  The LLC is a domestic LLC in the state in which it is organized  The LLC foreign LLC in any state in which it wants to conduct business 15-5 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

6.  An agreement entered into among members that governs the affairs and business of the LLC and the relationships among members, managers, and the LLC  Certificate of interest: A document that evidences a member’s ownership interest in an LLC  The ULLCA mandates that a member has the right to an equal share in the LLC’s profits ▪ Unless otherwise agreed 15-6 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

7.  A member’s ownership interest in an LLC  Entitles the member to receive distributions of money and property from the LLC  Liability LLC members  The liability of LLC members for the LLC’s debts, obligations, and liabilities, which is limited to the extent of their capital contributions  Members of LLCs are not personally liable for the LLC’s debts, obligations, and liabilities 15-7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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9.  Managers of LLCs are not personally liable for the debts, obligations, and liabilities of the LLC they manage [ULLCA Section 303(a)]  Liability of a member tortfeasor  Tortfeasor: A person who intentionally or unintentionally (negligently) causes injury or death to another person  A tortfeasor is liable to persons he or she injures and to the heirs of persons who die because of his or her conduct 15-9 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

10. Type of LLCDescription Member-managed LLCThe members do not designate managers to manage the LLC. The LLC is managed by its members. Manager-managed LLCThe 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. 15-10 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

11. Type of LLCAgency Authority Member-managed LLCAll members have agency authority to bind the LLC to contracts. Manager-managed LLCThe managers have authority to bind the LLC to contracts; the nonmanager members cannot bind the LLC to contracts. 15-11 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

12.  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  To not act adversely to the interests of the LLC  No fiduciary duty  A member of a manager-managed LLC who is not a manager: ▪ Owes no fiduciary duty of loyalty or care to the LLC or its other members 15-12 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

13.  A special form of partnership in which:  All partners are limited partners  There are no general partners  LLPs enjoy the flow-through tax benefit of other types of partnerships  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 in order to form the LLP 15-13 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

14.  The liability of LLP partners for the LLP’s debts, obligations, and liabilities, is limited to the extent of their capital contributions  Partners of LLPs are not personally liable for the LLP’s debts, obligations, and liabilities 15-14 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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17. Type of FranchiseDescription Distributorship franchiseA franchise in which the franchisor manufactures a product and licenses a franchisee to distribute the product to the public. Processing plant franchise A franchise in which the franchisor provides a secret formula or process to the franchisee, and the franchisee manufactures the product and distributes it to retail dealers. Chain-style franchiseA franchise in which the franchisor licenses a franchisee to make and sell its products or distribute its services to the public from a retail outlet serving an exclusive territory. Area franchiseA franchise in which the franchisor authorizes a franchisee to negotiate and sell franchises on its behalf in designated areas. The area franchisee is called a subfranchisor. 15-17 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

18.  An agreement that a franchisor and franchisee enter into that sets forth the terms and conditions of a franchise  Liability of franchisors and franchisees  The franchisor deals with the franchisee as an independent contractor ▪ Franchisees are liable on their own contracts and are liable for their own torts ▪ Franchisors are liable for their own contracts and torts 15-18 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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