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
Jan 11, 2016
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
Utah Revised LLC Act--Overview
Added new Chapter 2c to Title 48, Utah Code
Repealed Chapter 2b of Title 48
Utah Revised LLC Act--Overview
Re-codified prior law
Updated prior law
Expanded prior law
Utah Revised LLC Act--Overview
In 2001, new Utah entities:
54.5% were LLCs
3.6% were LPs
41.9% were profit corporations
Utah Revised LLC Act--Overview
Goals of Revised Act: Organized Useful Flexible Comprehensive
Utah Revised LLC Act--Overview
Contract ModelMany default rules included
LLC documents may over-ride default rules
Utah Revised LLC Act--Overview
Legislative Intent –
“…to give maximum effectto freedom of contract and enforceability of operating agreements. . .”
UCA §48-2c-1901
Utah Revised LLC Act--Overview
Provisions of Old Act retained13 new general definitionsSpecial definitions for:
Winding upProfessionsIndemnification
Utah Revised LLC Act--Overview
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
Utah Revised LLC Act--Overview
No grandfathering
All LLCs became subject to Revised Act on July 1, 2001
Utah Revised LLC Act--Overview
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
Utah Revised LLC Act--Overview
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]
Utah Revised LLC Act--Overview
What Act is NOT –
Not the Uniform LLC Act
Not the Prototype LLC Act
Utah Revised LLC Act--Overview
New Concepts capital account constructive notice conversion designated office
domestication expulsion of a
member fiduciary duties
Utah Revised LLC Act--Overview
Capital AccountA partnership conceptMeasuring standard for
Profit and lossesDistributionsVoting
Utah Revised LLC Act--Overview
New Concepts capital account constructive notice conversion designated office
domestication expulsion of a
member fiduciary duties
Utah Revised LLC Act--Overview
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
Utah Revised LLC Act--Overview
New Concepts capital account constructive notice conversion designated office
domestication expulsion of a
member fiduciary duties
Utah Revised LLC Act--Overview
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)
Utah Revised LLC Act--Overview
New Concepts--Cont’dfiled with divisionnon-waivable
provisionsorganizer
redemption of interest
transfervaluation of an
LLC interest
Utah Revised LLC Act--Overview
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
Utah Revised LLC Act--Overview
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
Utah Revised LLC Act--Overview
New Concepts--Cont’dfiled with divisionnon-waivable
provisionsorganizer
redemption of interest
transfervaluation of an
LLC interest
Utah Revised LLC Act--Overview
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)
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
FORMATION OF A UTAH LLC
FORMATION OF A UTAH LLC
Articles of Organization (public document)Operating Agreement (private document)Tax ID NumberAsset Transfer DocumentsAncillary Documents
FORMATION OF A UTAH LLC
Administrative MattersSubstantive MattersConstructive Notice to Third PartiesAnything Else
Articles of Organization - Contents
FORMATION OF A UTAH LLC
Administrative Matters (name, registered agent, registered office,
designated office, organizer)
Articles of Organization - Contents
FORMATION OF A UTAH LLC
Administrative MattersSubstantive MattersConstructive Notice to Third PartiesAnything Else
Articles of Organization - Contents
FORMATION OF A UTAH LLC
Substantive Matters (business purpose, management)
Articles of Organization - Contents
FORMATION OF A UTAH LLC
Administrative MattersSubstantive MattersConstructive Notice to Third PartiesAnything Else
Articles of Organization - Contents
FORMATION OF A UTAH LLC
Constructive Notice to Third Parties -limit scope of business -limit powers LLC may exercise -limit authority of managers and members -duration of LLC
Articles of Organization - Contents
FORMATION OF A UTAH LLC
Anything Else
Articles of Organization - Contents
FORMATION OF A UTAH LLC
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
FORMATION OF A UTAH LLC
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
FORMATION OF A UTAH LLC
Articles of Organization Bare bones version Limitation of authority version
Organizer’s Statement
[See forms in handout materials]
FORMATION OF A UTAH LLC
Operating Agreement Written document
FORMATION OF A UTAH LLC
Operating Agreement Written document Signed by all initial members
FORMATION OF A UTAH LLC
Operating Agreement Written document Signed by all initial members Effective only after Articles filed
FORMATION OF A UTAH LLC
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
FORMATION OF A UTAH LLC
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
FORMATION OF A UTAH LLC
Questions on Forming a
Utah LLC
[See handout materials]
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
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:
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
ASSIGNMENT OF LLC INTERESTS
An LLC interest is transferred by an “assignment” document
[See form in handout materials]
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
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]
Conversion of lp to llc
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
Conversion of lp to llc
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
Conversion of lp to llc
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
Conversion of lp to llc
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
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
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;
A Utah LLC is dissolved upon the occurrence of any of the following events:
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.
A Utah LLC is dissolved upon the occurrence of any of the following events:
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 an LLC does NOT:
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.
Dissolution of an LLC does NOT:
QUESTION AND ANSWER TIME
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