NATURE OF LIMITED LIABILITY COMPANY LLC

1
NATURE OF LIMITED LIABILITY COMPANY (LLC)

• ENTITY OWNED AND DIRECTLY MANAGED BY ITS MEMBERS
  WHO HAVE LIMITED LIABILITY FOR ITS DEBTS

2
CREATION OF LIMITED LIABILITY COMPANY

• FILING OF ARTICLES OF ORGANIZATION WITH THE STATE
  
• EXECUTION OF AN OPERATING AGREEMENT BY THE
  MEMBERS

3
CREATION OF LLC

• REGISTRATION AS FOREIGN LIMITED LIABILITY COMPANY
  in other states in which the LLC is doing
  business
• SECURITIES LAWS may or may not apply to sale of
  LLC interests

4
RIGHTS OF MEMBERS

• MANAGE THE BUSINESS
• Members have direct say in management unless
  operating agreement has a manager or board
• Voting rights are in proportion to capital
  contributions called per capital (not per
  capita)
• SHARE IN PROFITS
• Profits are shared per capital, unless
  operating agreement provides otherwise

5
LIABILITY OF MEMBERS

• ALL MEMBERS HAVE LIMITED LIABILITY
• Members who actively manage the business are not
  liable for its debts
• Liability limited to capital investment in LLC

6
Loss of Limited Liability

• Piercing the corporate or entity veil
• Corporation law concept has been applied to LLCs
• Members can lose liability shield if engaged in
  fraud or other wrongdoing through the LLC

7
Transfer of Members Rights

• Financial rights are freely transferable
• Management rights are not freely transferable
• May need only majority vote to admit a new
  partner under operating agreement

8
Tax Status of Limited Liability Company

• LLC is not a taxable entity under federal tax
  code can opt to be treated as a corporation for
  tax purposes
• Members pay taxes on their share of LLC profits