SHOULD THE OPERATING AGREEMENT OF A MULTI-MEMBER LLC CONTAIN COMPREHENSIVE FIDUCIARY DUTY PROVISIONS?

LLC fiduciary duties are, in essence, the duties of members and managers to act ethically toward the LLC.  Fiduciary duties also represent the “team spirit” of an LLC, which can be critical to its success.  The two main fiduciary duties are the duties of care and loyalty.  Operating agreements should normally spell out the fiduciary duties of the members and managers of a multi-member LLC comprehensively, so that they’ll know how to act as members and managers from Day 1.

WHEN WILL A COURT NOT PERMIT THE DISSOLUTION OF AN LLC?

Peter Mahler’s latest post, under the link below, discusses a recent NY trial court decision on the issue of what plaintiffs must show in order to obtain a court order dissolving their LLC.  The decision is under NY law, but its reasoning will undoubtedly be relevant under the LLC acts of many other states.

Here’s the link:  https://www.nybusinessdivorce.com/2019/12/articles/grounds-for-dissolution/llc-members-petition-to-dissolve-boxing-club-dealt-first-round-ko/

WHY DO BUSINESS FOUNDERS ALMOST ALWAYS FORM THEIR NEW BUSINESSES AS LLCS INSTEAD OF CORPORATIONS?

There are three main reasons:

  • LLCs have a much simpler legal structure than corporations, and this structure is more practical for most small businesses than the corporate legal structure.
  • Both corporations and LLCs provide statutory limited liability. However, multi-member LLCs provide certain additional and important statutory business asset protections—called charging order protections and pick-your-partner provisions—that corporations don’t provide.
  • The best federal tax regimen for individuals who own single-owner businesses is taxation as individuals, and for multi-owner businesses it is Subchapter K.  Under the relevant federal tax rules, LLCs that are owned by one individual can be taxed as individuals and multi-member LLCs can be taxed as partnerships.  This federal tax treatment is unavailable to owners of corporations.

AMBIGUITY IN OPERATING AGREEMENTS

The new post by Peter Mahler under the link below provides a powerful illustration of the importance of avoiding ambiguity in multi-member LLC operating agreements—and of how difficult it can be to avoid this ambiguity.

https://www.nybusinessdivorce.com/

ADDITIONAL GUIDANCE UNDER THE TCJA EXPECTED BY YEAR’S END

The post under the link below summarizes a statement by the IRS commissioner about IRS plans for extensive additional guidance about the Tax Cuts and Jobs Act of 2017 before the end of this year.  Importantly, the commissioner makes no reference to guidance under section 199A, a provision of tremendous important to every LLC owner and lawyer.  Maybe this means that, at least for a while, no more section 199A guidance will be forthcoming.

Here is the link:   https://www.twrblog.com/2019/11/significant-tcja-guidance-due-before-end-of-year-kautter-says/#page=1

As many of you know, my fields of expertise are (i) complex LLC law and tax; and (ii) section 199A, including, especially, section 199A restructuring.  If you have questions in either of these fields, please feel free to give me a call.

BUY-OUT OF MEMBER ELEVEN YEARS AFTER MEMBER’S DEATH

Peter Mahler’s latest post—as usual, an excellent one—addresses a very recent New York appellate decision concerning a potential buy-out of a deceased member of a real estate holding company LLC—11 years after the member’s death!   The facts are weird but the case nevertheless holds many lessons for LLC lawyers drafting buy-sell provisions for deceased LLC members.

Here’s the link:

https://www.nybusinessdivorce.com/2019/11/articles/operating-agreement/llc-survives-members-death-dissolution-petition-doesnt/