Tax Treatment of LLCs
Tax Treatment of LLCs
Partnerships.
Management Rights
LLC choose to be member-managed or manager-managed.
If fails, each member in a member-managed LLC, share equal rights in the management
of the business.
Each member is an agent of the LLC with implied authority.
A manager-managed LLC may be elected and removed at any time by a vote of majority of
LLC members.
LLC is liable for the torts and other wrongful acts of managing members and other managers
acting within their authority.
The LLC is not liable for the wrongful acts of members not designated as managers in a
manager-managed LLC.
Duty
Each member in a member-managed LLC and each manager in a manager-managed LLC is a
fiduciary of the LLC and its members.
Must account for LLC property and Funds and not compete with the LLC
Nonmanaging members of a manager-managed LLC owe no fiduciary duties to the LLC.
Nonmanaging members must have duty of good faith and fair dealing when exercising
their rights as member.
CH40: Limited Liability Companies, Limited Partnerships, and Limited Liability Limited
Partnerships.
Member’s Distributions
Members of LLC has right to receive distributions from the LLC. Regardless of differences
in their capital contributions.
Also receive salaries depend on LLC agreement
Member Dissociations
A partner has the power to dissociate by withdrawing for the LLC at any time.
Death,
Having a guardian appointed over her affairs
Being adjudged legally incompetent by a court
Being a debtor in bankruptcy
Transferring all her distributional interest in the LLC
Being expelled by the other members
Only if she unlawful to carry on business
She suffered a charging order
Harm business
Breached operating agreement
Judicial expulsion
Breached the duty of good faith
Competes against the LLC.
Wrongful Dissociation
(the dissociating member is liable to the LLC for damages caused by the dissociation, such as
loss of business due to the member’s withdrawal)
CH40: Limited Liability Companies, Limited Partnerships, and Limited Liability Limited
Partnerships.
Breach the LLC operating agreement.
Withdrawing before an LLC’s term expires
Debtor in bankruptcy
Expelled by court
LLC Dissolution
(When an LLC is dissolved, then it must be wound up.)
Judicial dissolution at the request of a member or transferee of a member’s distributional
interest and administrative dissolution by the secretary of state.
LLC cannot carry on it business
LLC is being managed illegally or oppressively
LLC failed to purchase a dissociated member’s distributional interest on the date
required.
Dissolve LLC by members’ vote
Any member who has not wrongly dissociated may wind up the business
Notice of dissociation with the secretary of state, which is effect against all parties 90 days
after filing.