nuts and bolts of llc formation, operation & dissolution brent r. armstrong armstrong law...

NUTS AND BOLTS OF LLC

FORMATION, OPERATION & DISSOLUTION

Brent R. Armstrong

Armstrong Law Offices, P.C.

© 2002 Brent R. Armstrong

Utah State Bar

Mid-Year Convention

March 23, 2002

Brent R. Armstrong

Armstrong Law Offices, P.C.

Suite 150 Bank One Tower

50 West 300 South

Salt Lake City, Utah 84101-2006

Telephone No.: (801) 359-5511

Fax No.: (801) 359-5570

E-mail: [email protected]

Nuts and Bolts of LLCsOverview of Utah Revised LLC ActFormation of a Utah LLCAdmitting an LLC MemberAssignment of LLC InterestsConversion of LP to LLCDissolution of LLC

Utah Revised LLC Act--Overview

Signed into law – March 19, 2001

Effective July 1, 2001


Added new Chapter 2c to Title 48, Utah Code

Repealed Chapter 2b of Title 48


Re-codified prior law

Updated prior law

Expanded prior law


In 2001, new Utah entities:

54.5% were LLCs

3.6% were LPs

41.9% were profit corporations


Goals of Revised Act: Organized Useful Flexible Comprehensive


Contract ModelMany default rules included

LLC documents may over-ride default rules


Legislative Intent –

“…to give maximum effectto freedom of contract and enforceability of operating agreements. . .”

UCA §48-2c-1901


Provisions of Old Act retained13 new general definitionsSpecial definitions for:

Winding upProfessionsIndemnification


New Definitions:

capital account distribution designated office entity filed with the division interest in the company manager

manager-managed company

member member-managed

company operating agreement proceeding signed


No grandfathering

All LLCs became subject to Revised Act on July 1, 2001


19 PartsPart Heading

1 General Provisions

2 Filing Requirements

3 Service of Process

4 Formation

5 Operating Agreements

Part Heading

6 Limited Liability

7 Members

8 Management

9 Contributions; Profits &

Losses

10 Distributions


19 Parts--Cont’d

Part Heading

11 Assignment of Interests

12 Dissolution

13 Winding Up

14 Conversions and

Mergers

15 Professions

Part Heading 16 Foreign Limited Liability Companies 17 Derivative Actions 18 Indemnification 19 Miscellaneous

19 Parts--cont’d

Part Heading 11 Assignment of Interests 12 Dissolution 13 Winding Up 14 Conversions and Mergers 15 ProfessionsPart Heading16Foreign Limited Liability Companies 17 Derivative Actions 18 Indemnification 19 Miscellaneous

[p. 24]


What Act is NOT –

Not the Uniform LLC Act

Not the Prototype LLC Act


New Concepts capital account constructive notice conversion designated office

domestication expulsion of a

member fiduciary duties


Capital AccountA partnership conceptMeasuring standard for

Profit and lossesDistributionsVoting


Constructive Notice Required provisions in Articles Permitted

provisions in Articles for: Limited business or purpose Limits on authority of managers/members Required items in LLC’s annual report filed

with Division


Designated Office A geographical address (not P. O. Box) Where LLC records are kept Determines court location for action:

To compel inspection of records (48-2c-115) To compel Division to file a document (48-2c-211) To interpret or enforce an LLC’s operating

agreement (48-2c-505) To remove a manager (48-2c-809(1)) To dissolve LLC by court order (48-2c-1211)


New Concepts--Cont’dfiled with divisionnon-waivable

provisionsorganizer

redemption of interest

transfervaluation of an

LLC interest


Non-Waivable Provisions An LLC’s Articles of Organization or Operating

Agreement may not: Restrict right to inspect and copy records Reduce fiduciary duties of members and

managers Eliminate obligation of good faith and fair dealing Vary any filing requirement


Non-Waivable Provisions--Cont’d Vary any requirement for written document Vary right to expel a member Vary remedy for judicial dissolution of LLC Restrict rights or impose duties on third parties Eliminate liability of manager for breach for gross

negligence or willful misconduct, or where manager receives financial gain


New Concepts--Cont’dfiled with divisionnon-waivable

provisionsorganizer

redemption of interest

transfervaluation of an

LLC interest


Organizer May form a Utah LLC Must sign Articles of Organization Need not be member or manager Must prepare record of name and

address of initial members (and managers)

FORMATION OF A UTAH LLC


Articles of Organization (public document)Operating Agreement (private document)Tax ID NumberAsset Transfer DocumentsAncillary Documents


Administrative MattersSubstantive MattersConstructive Notice to Third PartiesAnything Else

Articles of Organization - Contents


Administrative Matters (name, registered agent, registered office,

designated office, organizer)



Substantive Matters (business purpose, management)



Constructive Notice to Third Parties -limit scope of business -limit powers LLC may exercise -limit authority of managers and members -duration of LLC



Anything Else



Must be individual 18 years of age or older

One organizer is required, more are okay

May be manager, member or other individual

Organizer - Qualifications


Signs Articles of Organization Affirmation that:

LLC has one or more members Managers, if any, have consented to serve

Files Articles of Organization with Division

Prepares written list of initial members, managers and street addresses

Organizer - Duties


Articles of Organization Bare bones version Limitation of authority version

Organizer’s Statement

[See forms in handout materials]


Operating Agreement Written document


Operating Agreement Written document Signed by all initial members


Operating Agreement Written document Signed by all initial members Effective only after Articles filed


Operating Agreement Written document Signed by all initial members Effective only after Articles filed Specifies:

Rights and duties of members/managers How members admitted/expelled How managers appointed/removed How LLC interests transferred Any other desired provisions


Operating Agreement Written document Signed by all initial members Effective only after Articles filed Specifies:

Rights and duties of members/managers How members admitted/expelled How managers appointed/removed How LLC interests transferred Any other desired provisions

No set form


Questions on Forming a

Utah LLC

[See handout materials]

ADMITTING AN LLC MEMBER

Signs Articles of Organization, orSigns Operating Agreement, orMakes contribution and membership is

reflected in LLC’s records

Upon LLC formation, a person becomes an LLC member when person:

ADMITTING AN LLC MEMBER

Meets the requirements of the LLC’s governing documents, and

Signs Operating Agreement, andAll members consent, andOn date reflected in LLC’s records

After LLC formation, a person becomes an LLC member when the person:

ASSIGNMENT OF LLC INTERESTS

An LLC interest is transferred by an “assignment” document

[See form in handout materials]

CONVERSION OF LP TO LLC

Conversion of lp to llc

Obtain approval for the conversionPrepare and file two documents:

Articles of Conversion Articles of Organization

[See forms in handout materials]


Look at statute and Partnership Agreement for Limited Partnership for approval requirements.

For Utah LPs, statute says look for authorization as follows: First: Partnership Agreement regarding

conversion; or, if silent Second: partnership Agreement regarding

merger, or, if silent Third: Unanimous consent of owners of LP.

Approval Requirements


LP becomes LLC and subject to Revised LLC Act

LLC takes on LP’s formation dateLP’s obligations and liabilities become

obligations and liabilities of LLC

Effects of Conversion


LLC retains all rights, privileges and powers held by LP

LP interests may be exchanged into cash, property, or LLC interests

LP not required to wind up and dissolve

Effects of Conversion—Cont’d


Be careful! Usually no tax consequences in LP to LLC

conversion if LP has no debt and owners percentage interests in profits,losses and capital remain the same

Usually LLC may use LP’s tax ID number

Tax Issues

DISSOLUTION OF LLC

When its period of duration expires; When the LLC fails to have at least one

member; By written agreement of all members;

A Utah LLC is dissolved upon the occurrence of any of the following events:

DISSOLUTION OF LLC

A dissolution event specified in the Articles of Organization or Operating Agreement;

When the LLC is not a successor in a merger of two or more LLCs;


DISSOLUTION OF LLC

Upon administrative dissolution under §48-2c-1207 (subject to right of reinstatement under §48-2c-1208); or

Upon entry of a decree of judicial dissolution under §48-2c-1213.


DISSOLUTION OF LLC

Upon an event of dissolution, Articles of Dissolution are prepared and filed with

Division

[See form in handout materials]

DISSOLUTION OF LLC

Transfer title to the LLC’s property; Prevent transfer of an interest in the LLC; Subject its members or managers to

standards of conduct different than those prescribed in the Act;

A dissolved LLC continues its existence, but may not carry on any business or activities, except as appropriate to wind-up and liquidate its business and affairs.

Dissolution of an LLC does NOT:

DISSOLUTION OF LLC

Change:-limited liability-voting requirements-provisions for selection, resignation or removal of its

managers-provisions for amending its Articles of Organization

or Operating Agreement;


DISSOLUTION OF LLC

Prevent commencement of a proceeding by or against the Company;

Abate or suspend a proceeding pending by or against the Company;

Terminate the authority of the Registered Agent.


QUESTION AND ANSWER TIME

THANK YOU

nuts and bolts of llc formation, operation & dissolution brent r. armstrong armstrong law...

Documents

overviewgoals of revised

utah revised llc actformation

overviewwhat act

bolts of llc formation

uniform llc actnot

utah llcadmitting

new utah entities

utah coderepealed chapter