Also known as: limited liability companies · LLC · LLCs
Written by attorneys — see sources below.
A business entity formed under state law that shields its members from personal liability for the entity's debts while permitting pass-through taxation and flexible management. Members' ownership interests are transferable subject to any charging orders or operating-agreement restrictions. For diversity jurisdiction an LLC takes the citizenship of each of its members rather than possessing a state of incorporation or principal place of business.
Lucia Lopez and Lorenzo Lugo formed Landmark Realty LLC with two members each domiciled in different states. When a supplier sued the LLC in federal court the defendant moved to dismiss for lack of diversity. The court looked only to the citizenship of Lopez and Lugo and dismissed the action because complete diversity was absent.
Legacy Motors LLC dissolved after paying all outside creditors. Its operating agreement was silent on distribution order. The liquidator first returned unreturned capital contributions to each member in proportion to those contributions and then divided the remaining surplus according to the members' pre-dissolution profit-sharing ratios.
Lattice Systems Inc. a Delaware corporation owned a California LLC that sold products in that state. Plaintiffs injured by a product sued the parent in California federal court. The court held that the LLC's California sales could not be attributed to the parent for general jurisdiction purposes.
In 2004, twenty-two residents of Argentina filed suit in the United States District Court for the Northern District of California against DaimlerChrysler Aktiengesellschaft, a German public stock company headquartered in Stuttgart that manufactures Mercedes-Benz vehicles in Germany. The complaint alleged that Daimler's Argentinian subsidiary, Mercedes-Benz Argentina, collaborated with state security forces during Argentina's 1976–1983 Dirty War to kidnap, detain, torture, and kill MB Argentina workers, including plaintiffs or persons closely related to them. The complaint asserted claims under the Alien Tort Statute, the Torture Victim Protection Act of 1991, and California and Argentina law. Jurisdiction over Daimler was predicated on the California contacts of Mercedes-Benz USA, LLC, another Daimler subsidiary incorporated in Delaware with its principal place of business in New Jersey. MBUSA serves as Daimler's exclusive importer and distributor in the United States, purchasing vehicles from Daimler in Germany and distributing them to independent dealerships throughout the nation, including California. MBUSA maintains a regional office in Costa Mesa, a Vehicle Preparation Center in Carson, and a Classic Center in Irvine. MBUSA's California sales accounted for 2.4 percent of Daimler's worldwide sales. A General Distributor Agreement between Daimler and MBUSA established MBUSA as an independent contractor that buys and sells vehicles for its own account and has no authority to make binding obligations for Daimler. Daimler moved to dismiss the action for lack of personal jurisdiction. After allowing jurisdictional discovery on the agency allegations, the District Court granted the motion in November 2005 and reaffirmed the dismissal in February 2007, concluding that Daimler's own contacts with California were too sporadic and that MBUSA's contacts could not be attributed to Daimler. The Ninth Circuit initially affirmed but, on rehearing, reversed in 2011, holding that MBUSA was Daimler's agent for jurisdictional purposes and that its California contacts supported the exercise of general jurisdiction over Daimler. Daimler petitioned for rehearing and rehearing en banc, which the Ninth Circuit denied over the dissent of eight judges. The Supreme Court granted certiorari in 2013 to decide whether Daimler is amenable to suit in California for claims arising from events occurring entirely outside the United States and unrelated to any activity in California.
View caseLoyal Insurance LLC entered a service contract with a public company knowing the company would later misstate revenue. Investors sued the LLC for aiding the fraud. The court dismissed the claim because the LLC had not made any public statement on which investors relied.
Stoneridge Investment Partners, LLC, a Delaware limited liability company, served as lead plaintiff in a class action filed in the United States District Court for the Eastern District of Missouri on behalf of purchasers of Charter Communications, Inc., common stock. The suit named as defendants Charter itself, some of its executives, its independent auditor Arthur Andersen LLP, and two other companies that had acted as both suppliers and customers of Charter. Charter, a cable operator, engaged in a variety of fraudulent accounting practices throughout 2000 so that its quarterly reports would meet Wall Street expectations for subscriber growth and operating cash flow. By late 2000 Charter executives realized that these practices would still leave the company short of projected operating cash flow by fifteen to twenty million dollars. To close the gap, Charter entered into arrangements with Scientific-Atlanta, Inc., and Motorola, Inc., under which Charter overpaid the respondents twenty dollars for each digital cable converter box it purchased through the end of the year. In return, the respondents agreed to purchase advertising time from Charter at prices higher than fair value, with the transactions documented through backdated contracts and false statements about increased production costs. The arrangements had no economic substance, yet Charter recorded the advertising purchases as revenue and capitalized its purchases of the set-top boxes, thereby inflating reported revenues and operating cash flow by approximately seventeen million dollars on financial statements filed with the Securities and Exchange Commission and disseminated to the public. Respondents had no role in preparing or disseminating Charter's financial statements, and they recorded the transactions as a wash on their own books under generally accepted accounting principles. It is alleged that respondents knew or were in reckless disregard of Charter's intention to use the transactions to mislead research analysts and investors. The District Court granted respondents' motion to dismiss for failure to state a claim. The Court of Appeals for the Eighth Circuit affirmed, holding that the allegations showed at most aiding and abetting by respondents. The Supreme Court granted certiorari to review the judgment.
View caseMembers of Liam Larson LLC voted to merge after receiving full disclosure of the terms and an independent fairness opinion. A dissenting member later challenged the merger as unfair. The court applied the business judgment rule because the informed vote cleansed the transaction.
KKR Financial Holdings LLC was structured from its inception with a management agreement under which KKR Financial Advisors, an affiliate of KKR & Co. L.P., managed its day-to-day operations. The agreement could be terminated only upon payment of a termination fee by Financial Holdings. KKR owned less than 1 percent of Financial Holdings stock and had no right to appoint directors or veto board decisions. These structural features were known to investors when they purchased shares in Financial Holdings. KKR acquired each share of Financial Holdings stock for 0.51 of a share of KKR stock, a 35% premium to the unaffected market price. The defendants moved to dismiss the complaint. The Court of Chancery dismissed the plaintiffs‘ complaint. The appeal was submitted on September 16, 2015, and the Supreme Court issued its decision on October 2, 2015.
View caseLena Lawson purchased interests in a private LLC after the manager made material misstatements in offering documents. When the fraud surfaced she sued. The court held that she could rely on the fraud-on-the-market presumption even though the interests were not traded on an exchange.
Between June 3, 1999, and December 7, 2001, Halliburton Company and one of its executives made a series of public statements about the company's potential liability in asbestos litigation, its expected revenue from construction contracts, and the anticipated benefits of a merger with another company. Respondent Erica P. John Fund, Inc., serving as lead plaintiff, alleged that these statements were materially false and misleading and were made to inflate the price of Halliburton's common stock. Halliburton later issued corrective disclosures that EPJ Fund contends caused the stock price to drop and produced losses for investors who had purchased shares during the class period. EPJ Fund moved in the United States District Court for the Northern District of Texas to certify a class of all investors who purchased Halliburton common stock during the class period. The district court determined that the proposed class satisfied the four threshold requirements of Federal Rule of Civil Procedure 23(a). It nevertheless denied certification under Rule 23(b)(3) because Fifth Circuit precedent at the time required securities fraud plaintiffs to prove loss causation at the class certification stage to rely on the presumption from Basic Inc. v. Levinson. The Fifth Circuit affirmed the denial of class certification on the same ground. The Supreme Court granted certiorari, vacated the judgment of the Fifth Circuit in Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011), and remanded the case. On remand, Halliburton presented evidence that none of its alleged misrepresentations had actually affected the company's stock price and argued that this evidence rebutted the Basic presumption, so that individual issues of reliance would predominate. The district court declined to consider the price impact evidence at the certification stage and certified the class under Rule 23(b)(3). The Fifth Circuit affirmed the certification order. It acknowledged that Halliburton's price impact evidence could be used at trial on the merits but held that such evidence could not be considered at the class certification stage to rebut the presumption of reliance. The Supreme Court granted certiorari a second time to address whether Basic's presumption should be overruled or modified and whether defendants may present evidence of no price impact before class certification.
View caseAn LLC is treated as an unincorporated association. Its citizenship is determined by the citizenship of each of its members rather than by a state of formation or principal place of business.
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After paying creditors any surplus is first returned to members for unreturned capital contributions and then distributed among members in proportion to their pre-dissolution rights to share in distributions.
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Yes. Members are not personally liable for the LLC's debts beyond the amount of their capital contributions unless they personally guarantee an obligation or commit a tort.
Yes. Under the check-the-box regulations an LLC may elect to be taxed as a corporation or as a disregarded entity or partnership without regard to the old Morrisey factors.