Quiz 38: Limited Liability Companies and Special Business Forms
Case Facts: Mr., L and T has formed a limited liability company with contributions of 60, 20 and 20 percent each. They dispute over the division of profits. Profits Division: In a limited liability corporation whose profit division has not been stated in the operation agreement under the Uniform Limited Liability Company Act (ULLCA) , then state law will determine the division of profits. Usually in the absence of an agreement, states have divided profits equally among the members. Operating Agreement: An operating agreement for an LLC spells out the details of how the business will be managed and operated. Additionally, the terms for settling profits and losses may be specified. Court opinion: The court may determine that the partners will receive an equal division of profits. Courts usually rely on the principles of partnership law. Therefore, in order to avoid the tension of discord between partners it is best to spell out how the company will be managed as well as profit and loss division in an operation agreement.
A joint venture resembles a partnership and is taxed like a partnership. For this reason, most courts apply the same principles to joint ventures as they apply to partnerships. Joint ventures owe each other the same fiduciary duties, including the duty of loyalty, that partners owe each other.
Special Business Form: A joint stock company is usually treated like a partnership. This type of company issues transferable share of stock and is managed by directors and officers. The shareholders have personal liability. Shareholders joint stock company's assets are available for damages caused by a breach. Additionally, the individual shareholders' estates are also subject to such liability. Bateson Corporation's contracts will be paid unless state law beneficiaries are treated as partners. That would make them liable to business trust creditors. In that case, Bateson would only be able to recover from business trust assets in the event of breach.