Limited Liability Companies: every key term you need (+ practice quiz)
25 flashcard terms for Business Associations Topic 3, written to match the course framework. Study them here, then drill them as interactive flashcards, or test yourself with the 15-question quiz — free, no account needed.
A hybrid unincorporated entity combining a corporate-style liability shield for its members with the pass-through taxation and contractual flexibility of a partnership.
Articles of organization
The public formation document filed with the secretary of state, typically naming the company, its registered agent and office, and sometimes whether it will be manager-managed.
Operating agreement
The governing contract among members covering management, voting, distributions, transfers, and dissolution; it may be oral or implied in many states and overrides most statutory defaults.
Member-managed LLC
The statutory default in which every member is an agent with authority to bind the company in the ordinary course and each member has an equal voice in ordinary decisions.
Manager-managed LLC
A structure elected in the record in which designated managers run the business, non-manager members lose agency authority, and certain extraordinary matters still require member consent.
LLC liability shield
Members and managers are not personally liable for the company's debts merely because of their status, though each remains liable for their own torts and for personal guarantees.
Check-the-box taxation
Federal rules allowing an LLC to elect classification as a disregarded entity, a partnership, or a corporation, which is why most closely held LLCs achieve one level of tax.
Uniform Limited Liability Company Act
The uniform model, revised as ULLCA, that supplies the modern statutory defaults on management, fiduciary duties, dissociation, and judicial dissolution in adopting states.
LLC fiduciary duties
Members in a member-managed firm, and managers in a manager-managed firm, owe duties of loyalty and care to the company modeled on partnership law rather than corporate law.
Contractual modification of duties
An operating agreement may narrow or waive fiduciary duties to the extent permitted, but the implied contractual covenant of good faith and fair dealing cannot be eliminated.
Agency authority in an LLC
Many modern statutes abolish statutory apparent authority by status, so a third party must look to the operating agreement, a filed statement of authority, or common law agency.
Membership interest transfer
A member may assign the economic right to distributions freely, but admission of the transferee as a member with voting rights requires the consent of the other members.
Charging order in an LLC
The exclusive remedy of a member's personal creditor: a lien on distributions that leaves management and the company's assets untouched, and in some states permits foreclosure of the interest.
Member dissociation
A member's withdrawal or removal, which ends management rights and fiduciary duties going forward but under many statutes leaves the person a mere transferee of economic rights.
Judicial dissolution of an LLC
A court may wind up a company where it is not reasonably practicable to carry on the business in conformity with the operating agreement, or where managers act oppressively or illegally.
LLC distributions
Made as the operating agreement provides; the ULLCA default is equal shares per member while many state acts and agreements allocate in proportion to capital contributions.
Wrongful distribution liability
Members or managers who approve a distribution that leaves the company unable to pay its debts as they come due, or insolvent on a balance sheet test, may be personally liable to repay it.
Capital contribution obligation
A promise to contribute cash, property, or services is enforceable even if oral in some states, and the obligation survives death or disability unless the agreement says otherwise.
Piercing the LLC veil
Courts apply corporate veil-piercing principles to LLCs, weighing commingling, undercapitalization, and fraud, but give less weight to the absence of meetings and formalities.
LLC derivative action
A member may sue on the company's behalf after demand on the members or managers, or where demand would be futile, with any recovery flowing to the company.
Series LLC
A structure available in some states permitting designated series with separate assets, members, and liability walls inside one entity, used mainly for real estate and fund vehicles.
Professional limited liability company
An LLC restricted to licensed practitioners in which the shield covers ordinary business debts but never a member's own malpractice.
Default voting in an LLC
Ordinary matters pass by majority of members in a member-managed firm, while amendments to the operating agreement and mergers typically require unanimous consent under the defaults.
LLC books and records rights
Members are entitled to information material to their rights and to inspect records for a purpose reasonably related to membership, on reasonable notice.
Conversion and merger of an LLC
Statutes let an LLC convert into or merge with another entity form by member approval and a filing, carrying obligations forward without a transfer of individual assets.