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Review Questions

7. Why is it important to designate in the articles of organization whether a limited liability company will be member-managed or manager-managed?

The member-managed or manager-managed designation will determine who has authority to act on behalf of the limited liability company. This is a public document, so anyone who is doing business with the LLC would be held to have notice as to whether that person who claimed she/he had power to manage actually did. This would limit the LLC’s liability in terms of dealings with 3rd parties

8. Why might an investor prefer to become a memberof an LLC rather than a limited partner of a limited partnership?

Unlike limited partners, all members of LLCs have the right to participate in the management of the business, either as a member (in a member-managed LLC) or by the appointment of managers (in a manager-managed LLC).

9. Suppose that Dan decides to form a limited liability company to operate a grocery delivery service with his two sons, Tom and Bob. Tom and Bob are each contributing $10,000, but Dan’s initial contribution is $20,000. Can the LLC’s operating agreement provide for Dan to receive distributions that are twice the amount of the distribution that Tom and Bob each receive?

Yes. LLC statutes provide for maximum flexibilitywhen designing the financial structure of an LLC. The operating agreement, which is signed by all members, can provide for distributions from the LLC in any equitable manner.

If the operating agreement is silent on the subject of distributions, how would a $6,000 distribution be divided among the three members?

This may vary, but state statutes generally provide for equal distributions to all members unless otherwise provided for in the articles of organization or operating agreement.

Practical Problems

2 a Articles of Organization

2 b Illinois Secretary of State’s office

2 c $500
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