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The Limited Liability Company Outline

Law Outlines > Business Association (Duke Cox) Outlines

This is an extract of our The Limited Liability Company document, which we sell as part of our Business Association (Duke Cox) Outlines collection written by the top tier of Duke University School Of Law students.

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The Limited Liability Company A. Introduction-A Tax Driven Entity a. LLC = corporate form situated between partnership and corporation

1. Tax like a partnership, no double taxation

2. Limited liability b. companies simply indicate whether or not they want to be treated as an LLC on their federal tax documents. c. Two types of LLC

1. Member managed: (more like a partnership), each member has authority

2. Manager managed: (more like a corp), manager has authority d. DL LLC act

1. 18-401(b): the intent of the act is to give maximum effect to private ordering 1) (e): you can privately order fiduciary duties a) you cannot get rid of implied covenant of good faith and fair dealing, i.e. a party cannot act in a way to destroy the benefits of a provision the other party has contracted for 2) So LLCs have shifted from a business entity created for tax reasons to a business entity focused on private ordering

2. 18-201: easy to file a certificate of formation

3. 18-101: operating agreement 1) Can be written OR ORAL (excluded from the statute of frauds)

4. 18-402: (this is where statutes differ) 1) DL default rule: members = managers

5. 18-302: you can have different classes of members

6. 18-701: members have no personal interest in LLC property

7. 18-702: if members assign their rights to a third party, they do so without transferring management rights

8. 18-704: new members need unanimous approval of existing members (like a partnership)

9. 18-305: operating agreement or outside agreements should have reasonable standards for access to information 1) Much less paternalistic for shareholders than corporate law (members have less protected interests to information)

B. Fiduciary Duties a. Owners of an LLC owe each other a fiduciary duty to make full disclosure of all material facts (Salm v. Feldstein) b. Duty of loyalty includes an implied duty to give notice of a merger. See, e.g., VGS, Inc. v. Castiel c. "Entire fairness" standard: Solar Cells, Inc. v. True North Partners (Del)

1. Fair dealing 1) Process by which decision was made 2) Looks at terms, structure and timing

2. Fair price 1) Includes all relevant factors "relating to the economic and financial considerations of the proposed merger" C. Dissolution a. Courts will only dissolve an LLC where the directors of the LLC are deadlocked, or where one owner acts in such a way as to prevent the LLC from achieving its business purpose b. Courts are biased against dissolution of LLCs, and particularly on board deadlock grounds XII. Fiduciary Obligations of Officers and Directors A. Duty to be Attentive a. MCBA

1. Breach of duty 1) Directors must discharge their duties in good faith and act as ordinarily prudent persons would under similar circumstances and in like positions. A director should acquire at least a rudimentary understanding of the business. Directors are under a continuing obligation to keep informed about the activities of the corporation. They are not required to do detailed inspections of daily activities but are required to generally monitor corporate affairs and policies. a) Attend board meetings regularly b) Maintain familiarity with financial status of corporation through regular review of financial statements c) Object if discover illegal course of action; resign/seek advice of counsel if corporation doesn't take action

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