(only do slides 6-9) Add speaker notes.. i downloaded the slides and chp 15The instructor asked that we outline the assigned chapter. Her instructions are as follows:- All slides must contain speaker notes- She stated we could copy/paste from the book- Copy/paste from other sources- Be sure to cite our references- She does not want the slides to be “Wordy”- She wants us to use bullet points with a few words- We can insert videos in place of our bullet points as long as it’s relevant to the chapter content- We can use our experiences as they pertain to the contents in the chapter- Pictures are ok, but keep to a minimum- Pictures must be relevant to the contents of the chapterWe also need to come up with a learning game for the class regarding Chapter 15. (Only give an example of a game)
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Limited Liability Companies, Limited Liability Partnerships
and Special Forms of Business
Romulo Alejo, Snooky Calabro, Erica Calistro, and Sara Solorio
University of Phoenix
April 15, 2019
▪ Click to add text
Introduction to Limited
Liability Companies, Limited
Liability Partnerships and
Special Form of Business
▪ Define Limited Liability (LLC)
Define Limited Liability
▪ What are the Benefits of an LLC
Describe Limited Liability
▪ Case 15.1 Siva v 1138 LLC
Limited Liability of Members
of an LLC
▪ Business Environment
Management of an LLC
▪ Advantages of Operating a Business as an LLC
▪ Define Limited Liability Partnership (LLP)
Define Limited Liability
▪ Describe the benefits of an LLP
▪ Business Environment
Limited Liability Partnership
▪ Accounting Firms Operate as LLPs
▪ Define Franchise
▪ Describe the various forms of franchises
▪ Global Law
▪ International Franchising
▪ Case 15.2 Rainey v Domino’s Pizza, LLC
▪ Define Licensing
▪ How are intellectual property and software are licensed
▪ Define Joint Venture
Define Joint Venture
▪ Describe special forms of business
▪ Joint Ventures
▪ Strategic Alliances
▪ Global Law
▪ International Strategic Alliance
▪ “Laws too gentle are seldom obeyed; too severe,
▪ Benjamin Franklin – Poor Richard’s Almanac (1756)
▪ Click to add text
▪ Cheeseman, Henry 2016 Legal Environment of Business: Online
Commerce, Ethics, and Global Issues, 8th Edition. Pearson Learning
Solutions, 04/2016. VitalBook file.
CHAPTER 15 Limited Liability Companies, Limited Liability
Partnerships, and Special Forms of Business
Introduction to Limited Liability Companies, Limited Liability Partnerships, and
Special Forms of Business
Owners may choose to operate a business as a limited liability company (LLC). The
use of LLCs as a form of conducting business in the United States is of rather
recent origin. In 1977, Wyoming was the first state in the United States to enact
legislation creating an LLC as a legal form for conducting business. The evolution
of LLCs then grew at blinding speed, with all the states having enacted LLC
statutes by 1998. Most LLC laws are quite similar, although some differences do
exist among these state statutes.
Most states have enacted laws that permit certain types of professionals, such as
accountants, lawyers, and doctors, to operate as limited liability partnerships
(LLPs). The owners of an LLP have limited liability for debts and obligations of the
Franchising is an important method for distributing goods and services to the
public. Franchises—such as Coca-Cola, McDonald’s, and KFC—operate
domestically and around the world. Licensing permits one business to use another
business’s trademarks, service marks, trade names, and other intellectual property
in selling goods, services, and software.
Limited Liability Company
A limited liability company (LLC) is an unincorporated business entity that combines the most
favorable attributes of general partnerships, limited partnerships, and corporations. An LLC may
elect to be taxed as a partnership, the owners can manage the business, and the owners have
limited liability for debts and obligations of the partnership. Many entrepreneurs who begin new
businesses choose the LLC as their legal form for conducting business.
Limited liability companies (LLCs) are creatures of state law, not federal law. An LLC can
only be created pursuant to the laws of the state in which the LLC is being organized. These
statutes, commonly referred to as limited liability company codes, regulate the formation,
operation, and dissolution of LLCs. The owners of LLCs are usually called members (some
states refer to owners of LLCs as shareholders).
limited liability company (LLC)
An unincorporated business entity that combines the most favorable attributes of general
partnerships, limited partnerships, and corporations.
An owner of an LLC.
An LLC is a separate legal entity (or legal person), distinct from its members [ULLCA Section
201]. LLCs are treated as artificial persons who can sue or be sued, enter into and enforce
contracts, hold title to and transfer property, and be found civilly and criminally liable for
violations of law.
Uniform Limited Liability Company Act
In 1996, the National Conference of Commissioners on Uniform State Laws (a group of lawyers,
judges, and legal scholars) issued the Uniform Limited Liability Company Act (ULLCA) .
The ULLCA codifies LLC law. Its goal is to establish comprehensive LLC law that is uniform
throughout the United States. The ULLCA covers most problems that arise in the formation,
operation, and termination of LLCs. The ULLCA is not law unless a state adopts it as its LLC
statute. The ULLCA was revised in 2006, and this revision is called the Revised Uniform
Limited Liability Company Act (RULLCA) . Many states have adopted all or part of the
ULLCA or the RULLCA as their LLC law.
Uniform Limited Liability Company Act (ULLCA)
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.
Taxation of LLCs
Under the Internal Revenue Code and regulations adopted by the Internal Revenue Service (IRS)
for federal income tax purposes, an LLC is taxed as a partnership unless it elects to be taxed as a
corporation. Thus, an LLC is not taxed at the entity level, but its income or losses flow through
to the members’ individual income tax returns in a process called flow-through taxation. This
avoids double taxation. Most LLCs accept the default status of being taxed as a partnership
instead of electing to be taxed as a corporation.
Formation of an LLC
Under the ULLCA, an LLC may be organized by one or more persons. Some states require at
least two members to organize an LLC. In states where an LLC may be organized by only one
member, sole proprietors can obtain the benefit of the limited liability shield of an LLC.
The minute you read something that you can’t understand, you can almost be sure that it was
drawn up by a lawyer.
An LLC can be organized in only one state, even though it can conduct business in all other
states. When choosing a state for organization, the members should consider the LLC codes of
the states under consideration. For the sake of convenience, most LLCs, particularly small ones,
choose as the state of organization the state in which the LLC will be doing most of its business.
When starting a new LLC, the organizers must choose a name for the entity. The name must
contain the words limited liability company or limited company or the abbreviation L.L.C., LLC,
L.C., or LC. Limited may be abbreviated as Ltd., and company may be abbreviated as Co.
[ULLCA Section 105(a)].
Articles of Organization
Because LLCs are creatures of statute, certain formalities must be taken and statutory
requirements must be met to form an LLC.
An LLC is formed by delivering articles of organization to the office of the secretary of state of
the state of organization for filing. If the articles are in proper form, the secretary of state will file
the articles. The existence of an LLC begins when the articles of organization are filed. The
filing of the articles of organization by the secretary of state is conclusive proof that the
organizers have satisfied all the conditions necessary to create the LLC [ULLCA Section 202].
Under the ULLCA, the articles of organization of an LLC must set forth [ULLCA Section 203]:
articles of organization
The formal documents that must be filed at the secretary of state’s office of the state of
organization of an LLC to form the LLC.
Go to http://form.sunbiz.org/pdf/cr2e047.pdf and read the information and forms necessary to
form a Florida limited liability company.
• The name of the LLC
The address of the LLC’s initial office
• The name and address of the initial agent for service of process
• The name and address of each organizer
• Whether the LLC is a term LLC and, if so, the term specified
• Whether the LLC is to be a manager-managed LLC and, if so, the name and address of each
• Whether one or more of the members of the LLC are to be personally liable for the LLC’s
debts and obligations
The articles of organization may set forth provisions from the members’ operating agreement
and any other matter not inconsistent with law. An LLC can amend its articles of organization at
any time by filing articles of amendment with the secretary of state [ULLCA Section 204].
The LLC is a domestic LLC in the state in which it is organized. The LLC law of the state
governs the operation of the LLC. An LLC may do business in other states, however. To do so,
the LLC must register as a foreign LLC in any state in which it wants to conduct business.
Members of an LLC may enter into an operating agreement that regulates the affairs of the
company and the conduct of its business, and governs relations among the members, managers,
and company [ULLCA Section 103(a)]. The operating agreement may be amended by the
approval of all members unless otherwise provided in the agreement. The operating agreement
and amendments may be oral but are usually written.
An agreement entered into among members that governs the affairs and business of the
LLC and the relations among members, managers, and the LLC.
An LLC’s operating agreement may provide that a member’s ownership interest may be
evidenced by a certificate of interest issued by the LLC [ULLCA Section 501(c)]. The
certificate of interest acts the same as a stock certificate issued by a corporation.
certificate of interest
A document that demonstrates evidence of a member’s ownership interest in an LLC.
Unless otherwise agreed, the ULLCA mandates that a member has the right to an equal share in
the LLC’s profits [ULLCA Section 405(a)]. This is a default rule that the members can override
by agreement and is usually a provision in their operating agreement.
Lilly and Harrison form an LLC. Lilly contributes $75,000 capital, and Harrison contributes
$25,000 capital. They do not have an agreement as to how profits are to be shared. If the LLC
makes $100,000 in profits, under the ULLCA, Lilly and Harrison will share the profits equally—
$50,000 each. To avoid this outcome, Lilly and Harrison should agree in their operating
agreement how they want the profits to be divided.
Losses from an LLC are shared equally unless otherwise agreed. Profits and losses from an LLC
do not have to be distributed in the same proportion.
A member who has the right to a 10 percent share of profits may be given in the operating
agreement the right to receive 25 percent of the LLC’s losses.
A member’s ownership interest in an LLC is called a distributional interest . A member’s
distributional interest in an LLC is personal property and may be transferred in whole or in part
[ULLCA Section 501(b)]. Unless otherwise provided in the operating agreement, a transfer of an
interest in an LLC does not entitle the transferee to become a member of the LLC or to exercise
any right of a member. A transfer entitles the transferee to receive only distributions from the
LLC to which the transferor would have been entitled [ULLCA Section 502]. A transferee of a
distributional interest becomes a member of the LLC if it is so provided in the operating
agreement or if all the other members of the LLC consent [ULLCA Section 503(a)].
A member’s ownership interest in an LLC that entitles the member to receive
distributions of money and property from the LLC.
Limited Liability of Members of an
In the course of conducting business, the agents and employees of an LLC may enter into
contracts on behalf of the LLC. Sometimes, however, the LLC may not perform these contracts.
In addition, the agents or employees of an LLC may be engaged in accidents or otherwise cause
harm to third parties when acting on LLC business. These third parties—whether in contract
disputes or tort disputes—will look to be compensated for their loss or injuries. The following
paragraphs discuss the liability of the LLC, its members, and its managers.
The great can protect themselves, but the poor and humble require the arm and shield of the law.
Andrew Jackson (1767–1845)
Seventh President of the United States
Liability of an LLC
An LLC is liable for any loss or injury caused to anyone as a result of a wrongful act or omission
by a member, a manager, an agent, or an employee of the LLC who commits the wrongful act
while acting within the ordinary course of business of the LLC or with authority of the LLC
[ULLCA Section 302].
Sable, Silvia, and Samantha form SSS, LLC, to own and operate a business. Each member
contributes $10,000 capital. While on LLC business, Sable drives her automobile and
accidentally hits and injures Damon. Damon can recover damages for his injuries from Sable
personally because she committed the negligent act. Damon can also recover damages from SSS,
LLC, because Sable was acting within the scope of the ordinary business of the LLC when the
accident occurred. Silvia and Samantha have limited liability only up to their capital
contributions in SSS, LLC.
Members’ Limited Liability
The general rule is that members of an LLC are not personally liable to third parties for the
debts, obligations, and liabilities of an LLC beyond their capital contribution. Members have
limited liability (see Exhibit 15.1). The debts, obligations, and liabilities of an LLC, whether
arising from contracts, torts, or otherwise, are solely those of the LLC [ULLCA Section 303(a)].
limited liability of members of LLCs
The liability of LLC members for the LLC’s debts, obligations, and liabilities is limited
to the extent of their capital contributions. Members of LLCs are not personally liable for
the LLC’s debts, obligations, and liabilities.
Exhibit 15.1 Limited Liability Company (LLC)
Jasmin, Shou-Yi, and Vanessa form an LLC, and each contributes $25,000 in capital. The LLC
operates for a period of time, during which it borrows money from banks and purchases goods
on credit from suppliers. After some time, the LLC experiences financial difficulty and goes out
of business. If the LLC fails with $500,000 in debts, each of the members will lose her capital
contribution of $25,000 but will not be personally liable for the rest of the unpaid debts of the
Whatever the human law may be, neither an individual nor a nation can commit the least act of
injustice against the obscurest individual without having to pay the penalty for it.
Henry David Thoreau (1817–1862)
In the following case, the court addressed the issue of the limited liability of a member of an
CASE 15.1 STATE COURT CASE Limited Liability Company Siva v. 1138
2007 Ohio App. Lexis 4202 (2007) Court of Appeals of Ohio
“Finally, the evidence did not show that Siva was misguided as to the fact he was dealing
with a limited liability company.”
Five members—Richard Hess, Robert Haines, Lisa Hess, Nathan Hess, and Zack Shahin—
formed a limited liability company called 1138 LLC. Ruthiran Siva owned a commercial
building located at 1138 Bethel Road, Franklin County, Ohio. Siva entered into a written lease
agreement with 1138 LLC whereby 1138 LLC leased premises in Siva’s commercial building for
a term of five years at a monthly rental of $4,000; 1138 LLC began operating a bar on the
premises. Six months later, 1138 LLC was in default and breach of the lease agreement. Siva
sued 1138 LLC and Richard Hess to recover damages. Siva received a default judgment against
1138 LLC, but there was no money in 1138 LLC to pay the judgment. Hess, who had been sued
personally, defended, arguing that as a member-owner of the LLC, he was not personally liable
for the debts of the LLC. The trial court found in favor of Hess and dismissed Siva’s complaint
against Hess. Siva appealed.
Is Richard Hess, a member-owner of 1138 LLC, personally liable for the debt owed by the LLC
Language of the Court
Based upon the evidence presented, a reasonable trier of fact could have concluded that 1138 LLC became
insolvent due to unprofitable operations. Moreover, even if the record suggests poor business judgment by
Hess, it does not demonstrate that he formed 1138 LLC to defraud creditors. Finally, the evidence did not
show that Siva was misguided as to the fact he was dealing with a limited liability company. Siva’s counsel
drafted the lease agreement and Siva acknowledged at trial he did not ask any of the owners of 1138 LLC to
sign the lease in an individual capacity.
The court of appeals held that Hess, as a member-owner of 1138 LLC, was not personally liable
for the debt that the LLC owed to Siva. The court of appeals affirmed the decision of the trial
court that dismissed Siva’s complaint against Hess.
1. Did Hess owe an ethical duty to pay the debt owed by 1138 LLC to Siva? Did Siva act
ethically by suing Hess personally to recover the debt owed by the 1138 LLC?
Liability of Managers
Managers of LLCs are not personally liable for the debts, obligations, and liabilities of the LLC
they manage [ULLCA Section 303(a)].
An LLC that is engaged in real estate development hires Sarah Goldstein, a nonmember, to be its
president. Sarah, while acting within the scope of her LLC authority, signs a loan agreement
whereby the LLC borrows $1 million from a bank for the construction of an office building. If
the LLC subsequently suffers financial difficulty and defaults on the bank loan, Sarah is not
personally responsible for the loan. The LLC is liable for the loan, but Sarah is not because she
was acting as the manager of the LLC.
Liability of Tortfeasors
A person who intentionally or unintentionally (negligently) causes injury or death to another
person is called a tortfeasor . A tortfeasor is personally liable to persons he or she injures and to
the heirs of persons who die because of his or her conduct. This rule applies to members and
managers of LLCs. Thus, if a member or a manager of an LLC negligently causes injury or death
to another person, he or she is personally liable to the injured person or the heirs of the deceased
A person who intentionally or unintentionally (negligently) causes injury or death to
another person. A person liable to persons he or she injures and to the heirs of persons
who die because of his or her conduct.
Management of an LLC
An LLC can be either a member-managed LLC or a manager-managed LLC. An LLC is a
member-managed LLC unless it is designated as a manager-managed LLC in its articles of
organization [ULLCA Section 203(a) (b)]. The distinctions between these two are as follows:
• Member-managed LLC. In this type of LLC, the members of the LLC have the right to
manage the LLC.
• Manager-managed LLC. In this type of LLC, the members designate a manager or
managers to manage the LLC and, by doing so, they delegate their management rights to the
manager or managers. Designated manager or managers have the authority to manage the
LLC, and the members no longer have the right to manage the LLC.
A manager of an LCC may be a member of an LLC or a nonmember. Whether an LLC is a
member-managed or manager-managed LLC has important consequences on the right to bind the
LLC to contracts and on determining the fiduciary duties owed by members to the LLC. These
important distinctions are discussed in the …
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