John, Lesa, and Tabir form a limited liability company. John contributes 60 percent of the capital, and Lesa and Tabir each contribute 20 percent. Nothing is decided about how profits will be divided. John assumes that he will be entitled to 60 percent of the profits, in accordance with his contribution. Lesa and Tabir, however, assume that the profits will be divided equally. A dispute over the profits arises, and ultimately a court has to decide the issue. What law will the court apply? In most states, what will result? How could this dispute have been avoided in the first place? Discuss fully.

Limited liability companies are creatures of

1.state constitutions.

2.statute.

3.case law.

4.secondary sources

In order to form a limited liability company, John, Lesa and Tabir would be required to file

1.articles of organization.

2.bylaws.

3.regulations

4. minutes with the appropriate office in their state (e. g., secretary of state).

Generally, limited liability companies are required to include words or initials such as "limited liability company," or "LLC" as part of the company name.
Yes

No

What is an important reason for John, Lesa and Tabir to form a limited liability company?
1. to be taxed at the entity level.

2.to be considered a corporation under state law.

3. to protect themselves from personal liability.

4.to file articles of organization with the secretary of state.

John, Lesa and Tabir are

1. members

2. Partners

3. shareholders of the limited liability company.

If this limited liability company is member-managed, who would participate in management:
1. John, because he contributed 60 percent of the capital

2. John, Lesa and Tabir, as members of the company

Generally, John, Lesa and Tabir's liability in the company would be limited to their respective
1. ownership interests in the company

2. investments in the company

3. personal assets

If John, Lesa and Tabir commingle personal funds with the company's funds or fail to follow LLC formalities (e. g., fail to adequately document company transactions), a creditor of the company may be able to

1.pierce the corporate veil

2. prove a per se violation

If a creditor were able to pierce the corporate veil, John, Lesa and Tabir

1. Would

2. would not be personally liable for the debts of the company.

Members of limited liability companies commonly protect their individual interests by entering into

1. a close corporation agreement

2. a partnership agreement

3. an operating agreement between or among the members.

Do most states require that an operating agreement be entered into for the limited liability company to be valid?
Yes

No

In this case, John, Lesa and Tabir failed to enter into an operating agreement, which led to an issue regarding

1. how the entity would be dissolved

2. how membership interests would be transferred

3.how profits would be divided

Because John, Lesa and Tabir did not enter into an operating agreement, what will generally control with respect to how profits will be divided?
1. articles of organization

2. state law

3.majority vote of the members

Generally, state statutes provide that, in the absence of an agreement among the parties as to how profits will be divided, profits will be divided

1. equally among the members

2. based on each member's membership interest