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Limited Liability Companies and Limited Liability Partnerships

Thomas A. Humphreys

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“A very good and comprehensive book.... Corporate lawyers should seriously consider reviewing Humphrey's text and adding it to their libraries or offices.”
New Jersey Lawyer Magazine

The limited liability company and limited liability partnership may be the most significant organizational developments in American business since the advent of the corporate tax. Find out why countless businesses have adopted these “super pass-through vehicles” to avoid taxation at the corporate level while retaining limited liability and whether you should too.

Limited Liability Companies and Limited Liability Partnerships explains why the LLC and LLP are taking the place of Subchapter S and Subchapter C for all but very large, publicly held companies. Beginning with “What a Nontax Lawyer Needs to Know” about partnership tax rules, it provides step-by-step explanations of how to create an LLC or LLP. You'll also find in-depth analysis of related ERISA provisions, the IRS's “check-the-box” regulations, tax, nontax, estate planning and accounting considerations, as well as federal and state statutory citations and tables.

The LLP and LLC have far-reaching implications for investors, professionals and most corporations, joint ventures and partnerships. This comprehensive treatment will help you position yourself and your clients to make the most of these organizational structures.

Book #00640; looseleaf, one volume, 1,000 pages; published in 1998, updated as needed; no additional charge for updates during your subscription. Looseleaf print subscribers receive supplements. The online edition is updated automatically. ISBN: 978-1-58852-077-7.

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  • Availability: Available
  • Brand: Law Journal Press
  • Product Type: Books
  • Edition: 0
  • Page Count: 1000
  • ISBN: 978-1-58852-077-7
  • Pub#/SKU#: 640
  • Volume(s): 1

Author Image
  • Thomas A. Humphreys
Thomas A. Humphreys is a tax partner in the New York City Office of Morrison & Foerster LLP and is head of the firms Federal Tax Practice Group. He received an A.B. from the University of California, Los Angeles in1974, a J.D. from the University of California, Hastings College of the Law in 1977, and an LL.M. in Taxation from New York University School of Law in 1979. Mr. Humphreys is a member of the California and New York Bars.

CHAPTER 1
Introduction to Limited Liability Companies and Limited Liability Partnerships

§ 1.01 Introduction to LLCs and LLPs
§ 1.02 Types of Limited Liability Entities
[1] Limited Liability Companies
[2] LLPs
[3] Other Limited Liability Entities
§ 1.03 Types of LLC Statutes
§ 1.04 Series LLCs
§ 1.05 Family LLCs
§ 1.06 Low-Profit LLCs (L3Cs)
§ 1.07 Overview of This Book

CHAPTER 2
Choosing a Structure

§ 2.01 Introduction
§ 2.02 Nontax Considerations
[1] Protection of Members
[2] Legal Entity Status
[3] Authority of Partners to Bind Partnership vs. Authority of Members to Bind LLC
[4] Right to Manage the Business—General Partnerships vs. Limited Partnerships vs. Corporations vs. LLCs
[5] Differences in Documentation
[6] Potential Recall of Distributions from the Entity
[7] Recognition of a Foreign LLC vs. a Foreign Partnership vs. a Foreign Corporation
§ 2.03 Tax-Based Considerations
[1] Formation
[2] Conversions and Mergers of Existing Entities
[3] Operation
[4] Termination—Redemption or Liquidation of Interests
[5] Other Relevant Concerns
[6] State Taxation

CHAPTER 3
FORMING AN LLC

§ 3.01 Basic Definitions
[1] Member
[2] Manager
[3] Membership Interest
[4] Articles of Organization
[5] Certificate of Authorization
[6] Operating Agreement
§ 3.02 New Entities
[1] Articles of Organization
[2] Certificate of Authorization
[3] Operating Agreement
[4] Miscellaneous Requirements
[5] Filing Fees
§ 3.03 Conversions of Existing Entities
[1] Conversion of Sole Proprietorship to Limited Liability Company
[2] Conversion of General Partnership to Limited Liability Company
[3] Conversion of a Limited Partnership to a Limited Liability Company
[4] Conversion of a Corporation to a Limited Liability Company

CHAPTER 4
Operation of an LLC

§ 4.01 Limited Liability
[1] Improper Formation
[2] Piercing the Corporate Veil
[3] Actionable Conduct
[4] Promises to Contribute Capital
[5] The Liability Shield in Foreign Jurisdictions
[6] Unlawful Distributions
§ 4.02  Management
[1] The Power to Bind the LLC
[2] Right to Manage the Business
[3] Fiduciary Duty
§ 4.03 Financial Aspects
[1] Rights to Interim Distributions
[2] Allocation of Profits and Losses
[3] Transferability
§ 4.04 Mergers
[1] Entities with Which an LLC Can Merge
[2] Member Approval Requirements
[3] Filing Requirements
[4] Effective Date
[5] Appraisal Rights

CHAPTER 5
Treatment of an LLC

§ 5.01 The Tax Stakes—Treatment as a Corporation or a Partnership for Federal Income Tax Purposes
§ 5.02 Ensuring That an LLC or LLP Is Treated as a Partnership for Federal Income Tax Purposes
[1] A History of Entity Classification Under the Federal Income Tax Laws
[2] Prior Regulations
[3] “Check-the-Box” Regulations
[4] Partnership Anti-Abuse Rule
§ 5.03 Tax Considerations in Conversion to LLC
[1] Conversion from Existing Corporation
[2] Conversion from an Existing Partnership
[3] Alternatives to Immediate Conversion to an LLC or LLP
[4] Treatment of Different Types of Asset Transfers and Partnership Mergers
§ 5.04 Application of Partnership Tax Rules to LLCs and LLPs: What a Non-Tax Lawyer Needs to Know
[1] Tax Treatment of Member and Non-Member Contributions
[2] Tax Considerations in LLC or LLP Operations
[3] Addressing Tax Issues in the LLC Agreement
§ 5.05 Methods of Accounting: Issues for LLCs and LLPs
[1] Accounting Methods Generally
[2] Tax Year of LLCs
[3] Restrictions on the Use of the Cash Method
[4] Brief Summary of Tax Return Reporting
§ 5.06 Limitations on Deductibility of LLC and LLP Losses
[1] Basis Limitation
[2] Passive Activity Limitation
[3] At-Risk Limitation
§ 5.07 Employment and Self-Employment Taxes
[1] Employment Taxes Generally
[2] Self-Employment Tax
[3] Social Security Tax—Who Is an Employee?
[4] Code Section 409A Deferred Compensation Issues
§ 5.08 Health Insurance Costs
§ 5.09 The Single-Member LLC Consolidated Group
[1] Legal Acceptance of the One-Member LLC
[2] The Federal Consolidated Group - Introduction
[3] Formation of the LLC Group
[4] State and Local Tax Issues
§ 5.10 Limited Liability Companies and the Taxable Mortgage Pool Rules
[1] Introduction
[2] Reasons for the Taxable Mortgage Pool Rules
[3] Effect of Classification as a Taxable Mortgage Pool
[4] Definition of a Taxable Mortgage Pool
[5] Exceptions to the Taxable Mortgage Pool Rules
[6] Taxable Mortgage Pool Regulations
[7] Special Exceptions to the Taxable Mortgage Pool Rules
§ 5.11 State and Local Taxation
§ 5.12 S Corporations/S Corporation Shareholders as LLC Members
§ 5.13 Miscellaneous Tax Consequences of Non-Entity Status
§ 5.14 Transfers of Partnership Interests in Exchange for Services
§ 5.14A “Carried” Interest
[1] Background
[2] Original Proposed Legislation—H.R.2834
[3] Subsequent “Carried” Interest Bills and Proposals
§ 5.15 Section 761 Election
§ 5.16 International Implications
§ 5.17 LLCs as S Corporations
§ 5.18 LLCs as Master Limited Partnerships
§ 5.19 Federal Income Tax Treatment of Series LLCs

CHAPTER 6
Dissolution of an LLC

§ 6.01 Introduction
§ 6.02 What Is a Dissolution?
§ 6.03 Events of Dissolution
[1] The Happening of a Specified Event
[2] A Voluntary Dissolution by the Members
[3] The Passage of a Specified Period of Time
[4] Court Decree
[5] Member Dissociation Under the Traditional Default Rule
[6] Continuation Upon Member Dissociation Under the Traditional Default Rule
[7] Variations of the Traditional Dissociation Default Rule
[8] Alternative Approaches to Dissolution Upon Dissociation
§ 6.04 Continuation of the LLC Subsequent to Dissolution
§ 6.05 Dissolution vs. Winding Up

CHAPTER 7
Special Issues Relating to LLPs

§ 7.01 Introduction
§ 7.02 When an LLP Can Be Used
§ 7.03 Benefits of the LLP Vehicle
[1] Limited Liability
[2] Administrative Ease
[3] Flexibility in Planning
§ 7.04 Practical Considerations in Forming an LLP
[1] Choosing the Appropriate Jurisdiction
[2] New LLPs—Registration
[3] Conversion of a Partnership to an LLP
[4] Conversion of a Professional Corporation to an LLP
§ 7.05 Special Problems of Professional LLPs
[1] The Collegiality Issue
[2] Insurance
[3] Ethical Considerations
[4] Considerations for Determining Employee or Independent Contractor Status
§ 7.06 Dissolution of an LLP
[1] In General
[2] Consequences of Dissolution on LLP Liability Shield

CHAPTER 8
LLCs as Pooled Investment Entities

§ 8.01 Pooled Investment Entities
§ 8.02 Investment Company Act of 1940 Considerations
[1] Definition of Investment Company
[2] Existence of an Issuer/Separate Security Analysis
[3] Analysis of Underlying Assets
[4] Operating Companies
[5] Statutory Exceptions
[6] Statutory Exception for Closed-End Entities Primarily Engaged in Holding Receivables, Real Estate or Mortgages
[7] Structured Financings
[8] Exemptive Orders
§ 8.02A Application of the Advisers Act to LLCs Used as Pooled Investment Vehicles
[1] Exempt Reporting Advisers
[2] Compliance Obligations of Registered Investment Advisers
[3] Compliance Obligations of Exempt Reporting Advisers
[4] Compliance Obligations of Unregistered Investment Advisers
§ 8.03 Application of ERISA to LLCs Used as Pooled Investment Vehicles
[1] The Stakes
[2] History of the Plan Assets Issue
§ 8.04 Critical Analysis of the Plan Assets Regulations
[1] Definition of Equity Interest
[2] Exemptions
§ 8.05 Operation of an Entity in Compliance with ERISA If the Entity’s Assets Are Plan Assets
[1] General Fiduciary Duties Imposed by ERISA
[2] Prohibited Transaction Rules
[3] Prohibited Transactions Between Entity and Manager
§ 8.06 Conclusion

CHAPTER 9
Securities Law Issues

§ 9.01 Introduction
§ 9.02 Are LLC Membership Interests Securities?
[1] LLC Membership Interests as Stock
[2] LLC Membership Interests as Investment Contracts
[3] LLC Membership Interests and the Family Resemblance Test
[4] LLC Membership Interests and the Risk Capital Test
§ 9.03 Conclusion

CHAPTER 10
Estate and Gift Tax Issues

§ 10.01 Introduction to the Estate and Gift Tax
§ 10.02 Estate and Gift Tax Valuation Rules
§ 10.03 “Estate Freeze” Valuation Discount
§ 10.04 Estate and Gift Tax Valuation Discounts
[1] Illiquidity
[2] Minority Interest Discount
[3] “Key Person” Discount
[4] Combination of Discounts
§ 10.05 The Value of a Professional Appraisal
§ 10.06  Economic Substance

APPENDICES
INDEX