Contents PART I ORGANIZATION

Transcription

1 Contents PART I ORGANIZATION CHAPTER 1: INTRODUCTION Nature and Use of This Practice Manual Comparison of the LLC with Other Entities Table 1. Comparison of Limited Liability Companies, Limited Partnerships, S Corporations, C Corporations, and Limited Liability Partnerships History of the LLC Classification of the LLC as a Partnership for Federal Income Tax Purpose Introduction Entity Classification Regulations Tax History of the LLC The Arizona Limited Liability Company Act An Overview Current Act The 2018 Amendments CHAPTER 2: FORMATION AND ORGANIZATION Introduction Preformation Matters Form 2-1. Memorandum Concerning the Execution and Filing of Articles of Organization Form 2-2. Letter Concerning the Execution and Filing of Articles of Organization Articles of Organization Basic Requirements Form 2-3. Articles of Organization Member-Managed; Same Known Place of Business Form 2-4. Articles of Organization Manager-Managed; Same Known Place of Business Known Place of Business Form 2-4A. Articles of Organization Member-Managed Separate Known Place of Business vii Copyright, November 2018

2 Form 2-4B. Articles of Organization Manager- Managed Separate Known Place of Business Optional Provisions Provision Limiting Powers of the LLC Form 2-5. Articles of Organization Member-Managed; Limitation on Form 2-6. Powers Articles of Organization Manager-Managed; Limitation on Powers Taxpayer Identification Numbers Form 2-7. IRS Form SS Publication Form 2-8. Reserved Articles of Amendment Publication Liability for Failure to Amend Procedure to Amend Form 2-9. Form Written Consent of Members to Amend Articles of Organization Written Consent of Managers to Amend Articles of Organization Form Articles of Amendment Reservation of Name Change of Statutory Agent, Change of Address of Statutory Agent, Change of Known Place of Business, Change of Address of Members or Managers Form Change of Statutory Agent Form Form Form Change of Address of Statutory Agent Executed by the LLC Change of Address of Statutory Agent Executed by the Statutory Agent Change of Address of Known Place of Business Form 2-16A. Change of Address of Member or Manager Resignation of Statutory Agent Form Resignation of Statutory Agent Copyright, November 2018 viii

3 PART II OPERATIONS CHAPTER 3: THE OPERATING AGREEMENT In General Operating Agreement Defined Flexibility of LLC Form Form of Operating Agreement Formality of Adoption Amendment In General Formality Required Form Operating Agreements Organizational Checklist CHAPTER 4: ORGANIZATION Drafting LLC Organization Provisions Introductory Paragraph Form 4-1. Introductory Paragraph Names Parties Form 4-2. Introductory Paragraph Does Not Name Parties Formation Manager-Managed Form 4-3. Formation Manager-Managed Member-Managed Form 4-4. Formation Member-Managed Name and Known Place of Business Form 4-5. Form 4-6. Name and Known Place of Business Manager-Managed Name and Known Place of Business Member-Managed Purpose Form 4-7. Purpose Limited Form 4-8. Purpose Limited to Real Estate Form 4-9. Any Lawful Purpose Treatment as a Partnership Form Treatment as a Partnership Definitions Interest Compared to Membership Rights Interest Holder Compared to Member Form General Definitions Miscellaneous Provisions Form Miscellaneous Provisions ix Copyright, November 2018

4 4.9. Joint Ownership Form Voting of Jointly Held Interests CHAPTER 5: LIMITED LIABILITY COMPANY CAPITAL Drafting Capital Provisions Initial Capital Contributions General Form 5-1. Initial Capital Contributions Contribution of Cash Form 5-2. Initial Capital: Contributions in Cash Contribution Agreement Form 5-2A. Contribution Agreement Form 5-2B. Contribution of Property and Cash Form 5-2C. Contribution Agreement Contribution of Services Form 5-3. Initial Capital Contributions Partly in Cash and Partly in Services Contribution of Property Form 5-4. Form 5-5. Initial Capital Contributions Partly in Cash and Partly in Property Representation in Connection with Contribution of Property Issuance of Units Form 5-5A. Units Additional Capital Contributions Form 5-6. Additional Capital Contributions at Discretion of Manager Limit on Amount Form 5-7. Manager s Capital Call Must Be Approved by the Members Limit on Amount Form 5-8. Additional Capital Contributions at Discretion of Members Limit on Amount Form 5-9. Additional Capital Contributions Scheduled Contributions Form 5-9A. Additional Interest Preemptive Rights Form 5-9B. Form 5-9C. Form Form Additional Interests Preemptive Rights; Identified Purchaser Additional Interests Preemptive Rights; Purchaser Not Identified No Liability beyond Initial Capital Contribution No Liability beyond Additional Capital Contributions Copyright, November 2018 x

5 5.4. Default in Payment of Contributions Form Remedy of Reduction of Member s Interest in Event of Failure to Make Contribution to Manager-Managed LLC Form Remedy of Reduction of Member s Interest in Event of Failure to Make Contribution to Member-Managed LLC Form 5-13A. Additional Units Form 5-13B. Dilution Based on Value Form Remedy of Forfeiture in Event of Failure to Make Capital Contribution Member Loans Form Member Loans Form 5-15A. Member Loans Either Member May Call Form Member Loans Terms of Loans Form 5-16A. Member Loans Terms of Loans Interest on Capital Contributions Form No Salary or Interest on Capital Contributions Form Interest on Capital Contributions Return of Capital Contributions Form Return of Capital Contributions Release of Liability Form of Distribution Form Form of Distribution No Right to Receive Form Anything but Cash Form of Distribution Form of Distribution at Discretion of Manager in Manager-Managed LLC Capital Accounts Form Capital Accounts (Short Form) Form Capital Accounts (Long Form) Loans Form Form Loans General Authority of LLC to Borrow Money from Members on Terms to Be Agreed upon in Future Loans Authority to Make Specific Loan with General Authority to Borrow Money from Members on Terms to Be Agreed upon in Future Noncompensatory Call Options Introduction Noncompensatory Call Options: Defined and Example xi Copyright, November 2018

6 Tax Consequences of Issuance and Exercise of Call Option Tax Consequences to the LLC Option Holder Tax Consequences of Lapse of Call Option Tax Consequences to the LLC Tax Consequences to the Option Holder Tax Consequences of Exercise of Option Tax Consequences to the Option Holder Tax Consequences to the LLC Drafting Considerations in the Operating Agreement Capital Account Maintenance under Code Section 704(b) Book-Up No Book-Up Code Section 704(c) Tax Distributions Ancillary Tax Considerations Code Section 704(c) Code Section Code Section Holding Period Original Issue Discount Form Note and Warrant Purchase Agreement Form Warrant Agreement (Fixed Exercise Price) Form Warrant Agreement (Exercise Price Based on Subsequent Financing) Form of Non-Compensatory Option Form Short Form of Non-Compensatory Option Form Long Form of Non-Compensatory Option CHAPTER 6: ALLOCATION AND DISTRIBUTION PROVISIONS Taxation of the LLC General Allocation and Distribution Concepts Distribution Restrictions under the Act Copyright, November 2018 xii

7 6.4. Allocation Restrictions Code Section 704(b) Overview The Three Alternative Allocation Tests The First Test: Partners Interests The Second Test: Substantial Economic Effect and Capital Accounts The Third Test: Nonrecourse Debt Allocations to Interest Holders Definitions Distribution-Related Definitions Form 6-1. Distribution Definitions Distributions Not Dependent Form 6-2. on Source Distribution Definitions Distributions Dependent on Source Allocation-Related Definitions Adjusted Capital Account Deficit Book Value Form 6-3. Tax Definitions Basic Distribution Provisions In General Cash Flow from Operations Form 6-4. Distributions at Manager s Discretion Form 6-5. Quarterly Distributions Form 6-6. Distributions Required Each Year Form 6-7. Distributions Equal to Tax Liability Form 6-7A. Distributions Equal to Tax Liability Form 6-7B. Distribution Equal to Tax Liability Capital Gains Distribution Dependent on Source Form 6-8. Distribution Dependent on Source Liquidation Proceeds Form 6-9. Distribution on Liquidation Form 6-9A. Liquidating Distributions Based on Section IV Deficit Restoration Obligation Form Liquidation and Dissolution Deficit Restoration Obligation Basic Allocation Provisions Basic Allocations of Income and Loss Form Allocation Based on Percentage Interests xiii Copyright, November 2018

8 Allocations Dependent on Source Form Allocations Dependent on Source Limitations on Losses Adjusted Capital Account Deficit Form Adjusted Capital Account Deficit Cash Method Limitation Form Cash Method Limitation Qualified Income Offset Form Qualified Income Offset Minimum Gain Chargeback Form Minimum Gain Chargeback Member Minimum Gain Form Member Minimum Gain Chargeback Other Regulatory Allocations Contributed Property (Section 704(c) Allocations) Form Code Section 704(c) Allocations Book-Ups Tax Consequences of Adjusting Book Value Form Subsequent Adjustments Nonrecourse Deductions Form Nonrecourse Deductions Form Member Nonrecourse Deductions Section 751 Problems Form Unrealized Receivables Withholding Form Withholding Varying Interests Form Varying Interests Form 6-24A. Varying Interests Distributions Form 6-24B. Varying Interests Tax Allocations Amendment Form Amendment Copyright, November 2018 xiv

9 Regulatory Allocations Form Regulatory Allocations Disproportionate Distribution and Allocation Provisions Distribution Preferences Form Distribution Preference Disproportionate Allocation of Losses Form Disproportionate Allocation of Form Loss Disproportionate Allocation of Loss Plus Priority Return Membership Units and Preferences Membership Units Definitions Form Definition of Units Form Definition of Units Multiple Classes Form Definition of Units Voting Units Form Definition of Percentage Interest Distribution Preferences Form Distribution Preferences Form Distribution Preferences Tax Allocations Distributions Tied to Internal Rate of Return Form Internal Rate of Return Form Distribution Tied to Internal Rate of Return Targeted Capital Account Method of Allocations Form Liquidation Proceeds Tied to Article IV Form Tax Allocations Based on Targeted Capital Accounts CHAPTER 7: MANAGEMENT PROVISIONS Drafting LLC Management Provisions General Flexibility under the Act Typical Approaches Tax Aspects Tax Classification Self-Employment Tax Member-Managed LLC Provisions Form 7-1. Simple Member-Management Provision Form 7-2. Member Authority xv Copyright, November 2018

10 Form 7-3. Member-Management but with Appointment of Administrative Member Representative Management Management by One Class of Members Form 7-4. Definition of Class A and Class B Members Form 7-5. Management by Class A Members Management by Managers Number and Tenure Form 7-6. Number and Tenure Powers of the Manager Management by a General Partner -Like Manager Form 7-7. Form 7-8. Manager with General Partner -Like Authority Manager with General Partner -Like Authority Alternate Form Form 7-9. Specific Powers of Manager Restrictions on Manager Form Actions Requiring Approval of Members Management by Multiple Managers Form Multiple Managers Form Management Committee Operating Manager Form Operating Manager Officers Form 7-13A. Officers Form 7-13B. Officers Corporate-Type Board Form 7-13C. Corporate-Type Board and Officers Members Designate Representative Managers Form 7-13D. Members Appoint Representative Managers Resignation and Removal of Managers Form Resignation and Removal Without Cause Form Removal of Manager for Only Specified Reasons Filling Vacancies Form Vacancies Form 7-16A. Initial Manager Removal Copyright, November 2018 xvi

11 Form 7-16B. Initial Manager Named Successor Meetings of Members Form Procedure for Calling and Holding Meetings Voting Procedures Voting Rights Form Voting Rights Quorum and Manner of Acting Form Quorum and Voting Form Procedure for Calling and Holding Meetings Only Class A Members Vote Disproportionate Voting Rights Form 7-20A. Disproportionate Voting Informal Action of Members; Form of Member Consents Form Informal Actions Form Form of Consent of Members Unanimous or Supermajority Consent Form Definition of Supermajority in Interest Form Supermajority Consent Deadlock and Resolution Form Arbitration of Deadlock Form Shotgun Buy-Sell in the Event of Deadlock Compensation Form Compensation Form No Arrangement for Compensation (Member-Managed) Form Extraordinary Compensation Standard of Care and Degree of Loyalty Form Fiduciary Duties Form Limitation on Manager s Duty Form Standard of Care and Degree of Loyalty Form Standard of Care and Degree of Loyalty Same Obligations as Imposed on Corporate Directors Indemnification Form Form Form Indemnification of Manager and Interest Holders (Manager-Managed) Indemnification of Members and Interest Holders (Member-Managed) Indemnification of Managers and Interest Holders Follows Corporate Code Power of Attorney Form Power of Attorney Agreement of Spouses xvii Copyright, November 2018

12 Form Consent of Spouses Form 7-38A. Consent of Spouses Arbitration Form Arbitration Noneconomic Members Proprietary Rights and Noncompetition Agreements Form Proprietary Rights and Noncompetition Agreement Annual Minutes Form Annual Resolutions CHAPTER 8: TRANSFER AND BUY-SELL PROVISIONS The Act s Default Rules for Transfers Tax Aspects of Transfer Restrictions Partnership Classification Termination of the LLC Basis Issues Preliminary Drafting Considerations Form 8-1. Definitional Provision Transfer Form 8-2. Definitional Provisions Interest and Membership Rights Drafting Transfer Provisions That Follow the Act s Default Rules Form 8-3. Transfer Provision Following Act s Default Rules Drafting Transfer Provisions That Permit Free Transferability of Interests Form 8-4. Free Transferability of Interests and Rights Drafting Transfer Provisions That Absolutely Prohibit Transfers of Any Kind Form 8-5. Absolute Prohibition of Transfers Drafting Transfer Provisions That Permit Transfers Only on Certain Conditions In General Form 8-6. Transfer Permitted on Satisfaction of Certain Conditions First Refusal Rights Form 8-7. Form 8-8. Form 8-9. Right of First Refusal; LLC Purchases; Installments Allowed Right of First Refusal of LLC and Members; Member s Purchase Payment Terms Matched Right of First Offer; LLC Purchases; Cash Purchase Copyright, November 2018 xviii

13 Admission of Transferee as a Member Form Transferee Not Admitted as Member without Consent of Members Form Transferee Automatically Admitted as Member Transfers to Permitted Transferees Form Definitional Provision Family Form Transfers to Permitted Transferees; Automatically Admitted as Members Form Successor of Withdrawn Member Continues as Substitute Member Expenses Form Expenses of Transfer Tag Along and Drag Along Rights Form 8-15A. Drag Along and Tag Along Rights Form 8-15B. Drag Along and Tag Along Rights Withdrawal under the Act Voluntary Withdrawal Form Voluntary Withdrawal Not Permitted Statutory Events of Withdrawal Form Option on Death or Bankruptcy Distributions on Withdrawal Form Distributions Following Events of Withdrawal Follows Statute Form Distribution Following Events of Withdrawal Distribution Dependent on Type of Withdrawal Event Creating Buy-Out Rights Form Form Optional Buy-Out, Company Buys; Cash Purchase Mandatory Buy-Out; Members Buy; Installments Permitted Valuation Provisions Form Agreed Value Form Appraised Value Form 8-23A. Valuation Values Interest Sold Form 8-23B. Valuation Values Underlying Assets Miscellaneous Transfer Provisions Form Installment Buy-Outs Form Insolvency Form Form Members Not Required to Assume Company s Obligation xix Copyright, November 2018

14 8.13. Shotgun Buy-Sell Form Shotgun Buy-Sell; Two Members Equal Percentage Interests Form Shotgun Buy-Sell; Two Members Differing Percentage Interests Form 8-28A. Shotgun Buy-Sell; Two Members Appraised Value Form Shotgun Buy-Sell; Multiple Members Differing Percentage Interests Put and Call Rights Form Put and Call Rights Form Put Right and Sale of Property CHAPTER 9: DISSOLUTION Tax Aspects of LLC Dissolution Overview of the Act s Dissolution Provisions Events of Dissolution Form 9-1. Dissolution Comprehensively Describes All Events of Dissolution Designating Certain Members Whose Withdrawal Will Cause a Dissolution Form 9-2. Events of Dissolution Only Withdrawal of Manager Requiring Vote to Continue Form 9-3. Automatic Continuation Reserved Additional Dissolution Events Form 9-4. Additional Events Causing Dissolution Form 9-5. Sample Resolutions Approving Continuation of Business after Withdrawal Reserved Articles of Termination Form 9-6. Requiring Filing of Articles of Termination Form 9-7. Articles of Termination Procedure for Winding Up and Distribution of Assets Form 9-8. Procedure for Winding Up in Member-Managed LLC Form 9-9. Procedure for Winding Up in Manager-Managed LLC Form Dissolution Resolution CHAPTER 10: BOOKS, RECORDS, AND ACCOUNTING Introduction Banking Form Bank Accounts Records Copyright, November 2018 xx

15 Maintenance of Records Form Maintenance of Records Member- Managed LLC (Short Form) Form Maintenance of Records Manager- Managed LLC (Short Form) Form Maintenance of Records Manager- Managed LLC (Long Form) Form Maintenance of Records Member- Managed LLC (Long Form) Right to Inspect and Copy Records Form Right to Inspect Records Accounting Period Form Calendar Year Accounting Period Specified Form Fiscal Year Accounting Period Specified Form Year to Be Determined by Members Form Annual Accounting Period Established by Managers Reports Form Preparation of Reports (Short Form) for Member-Managed or Manager- Form Managed LLC Preparation of Reports (Long Form) for Manager-Managed LLC Partnership Representative The Bipartisan Budget Act of Form Partnership Representative Tax Returns and Elections Form Tax Elections Form Tax Elections Applies to Code Section 754 Only For Use in Either Member-Managed or Manager-Managed LLC Title to Property Form Title to Property In Company Name Form Title to Company Property Use of Nominee Permitted PART III MISCELLANEOUS CHAPTER 11: REORGANIZATION OF THE LLC In General Admission of New Members Operating Agreement xxi Copyright, November 2018

16 Form Admission of Transferees Other than Permitted Transferee s Substituted Member Form Admission of Substituted Members Acquisition of Interest from Company Form 11-2A. Additional Members Form Simple Subscription Agreement for LLC Membership Interest Form Long Form Subscription Agreement for LLC Membership Interest Form First Amendment to Operating Agreement Admitting Assignee of Interest as a Member Acquisition of Interest from Another Member Form Assignment of LLC Membership Right Form 11-6A. Membership Purchase Agreement Form Joinder Agreement Redemption of a Member Form 11-7A. Redemption Agreement Form 11-7B. Redemption Agreement Conversion of an Existing Entity into an LLC or an LLC into Another Type of Entity Conversion under the Arizona Entity Restructuring Act Form Plan of Conversion of LLC to Corporation Form 11-8A. Plan of Conversion of Corporation to LLC Form Statement of Conversion of Arizona LLC into an Arizona Corporation Form 11-9A. Statement of Conversion of Arizona Corporation into an Arizona LLC Conversion by Contribution or Exchange Form Agreement to Convert General Partnership to Limited Liability Company Form Recitals Conversion of General Partnership into LLC Form Term Is Continuation of Term of Partnership Copyright, November 2018 xxii

17 Form Initial Capital Contributions In Property Consisting of Partnership Interests in LLC s Predecessor Form Assignment of General Partnership Interests to LLC Form Resolutions of Members Approving Liquidation of Partnership into LLC Conversion by Interest Exchange Form Exchange Agreement Conversion by Interest Exchange under the Entity Restructuring Act Form Plan of Interest Exchange Form Statement of Interest Exchange Mergers Involving an Arizona LLC Form Plan of Merger of an Arizona LLC into an Arizona LLC Form Statement of Merger of Arizona LLC into an Arizona LLC Form Agreement and Plan of Merger Form Plan of Merger of Arizona Corporation into an Arizona LLC Form Statement of Merger of Arizona Corporation into an LLC Domestications Involving Arizona LLCs Form Plan of Domestication Form Statement of Domestication Arizona to Delaware Form Plan of Domestication Delaware to Arizona Reserved Tax Consequences of Mergers and Other Reorganizations Merger or Other Conversion of an Existing Entity into an LLC Taxed as a Partnership In General Merger or Other Conversion of General Partnership to LLC Merger or Other Conversion of Limited Partnership into LLC Merger or Other Conversion of Corporation into LLC Division and Acquisitive Mergers Acquisitive Partnership Mergers xxiii Copyright, November 2018

18 Determining Which LLC Continues and Which LLC Terminates for Federal Tax Purposes Tax Filing Requirements Determining the Form of the Merger Partnership Division Basic Rules for a Division Determining Which, if Any, LLC Continues as the Prior Partnership and Which, if Any, Terminates Tax Filing Requirements Determining the Form of the Division Conversion of LLC into Corporation Electing to Change an LLC s Classification under the Check-the-Box Regulations Corporation to Partnership Partnership to Corporation Corporation to Disregarded Entity Disregarded Entity to Corporation Change in Entity Classification as a Result of Change in Number of Members Converting a Disregarded Entity to a Partnership Converting from a Partnership to a Disregarded Entity Taxpayer Identification Number after Change in Classification CHAPTER 12: DOING INTERSTATE BUSINESS Foreign LLCs Doing Business in Arizona Governing Law Doing Business Copyright, November 2018 xxiv

19 Procedure for Registration Form Application for Registration of a Foreign Limited Liability Company Filing Fee Issuance and Cancellation of Registration Doing Business without Registration CHAPTER 13: PROFESSIONAL LIMITED LIABILITY COMPANIES Overview Comparison of LLCs and Professional Corporations State Law Issues Tax Issues Double Taxation Pension and Profit Sharing Plans Fringe Benefits Tax Rates Accounting Method Fiscal Year End Summary Comparison of LLCs and Limited Liability Partnerships Prior Law Current Law Form Application for Registration as a Limited Liability Partnership Issues Pertaining to the Use of LLCs by Attorneys Articles of Organization for a Professional LLC Form Articles of Organization Member- Managed Professional Limited Liability Company Form Articles of Organization Manager- Managed Professional Limited Liability Company Operating Agreement for Professional LLC CHAPTER 14: FINANCING TRANSACTIONS Borrowing Authorization Form Borrowing Resolution Form Manager s Certificate Credit Enhancement and Guarantees Form Credit Enhancement Agreement Form 14-3A. Credit Enhancement Agreement Form Guaranty Agreement xxv Copyright, November 2018

20 Form 14-4A. Guaranty Agreement Form 14-4B. Partial Guaranty Form 14-4C. Subordination Agreement Responsibility for Losses Derived from Guarantees of LLC Obligations Form Indemnity and Contribution Agreement Obligation Guaranteed Only by Members Form 14-5A. Member Guaranty Language for Operating Agreement Pledges of LLC Interests Form Collateral Assignment of Membership Interest and Security Agreement Form Financing Statement CHAPTER 15: COMPENSATION STRATEGIES FOR THE LLC Proposed Regulations and Legislation Form Proposed Regulations Introduction IRC Section LLC Interest for Services Capital Interest vs. Profits Interest Operating Agreement Provisions for Profits Interests Form Definition of Cash Flow and Capital Proceeds Form Unreturned Capital Contribution Form Capital Accounts (Book-up on Form Interest for Services) Distributions Cash Flow Distinguished from Capital Proceeds Unvested Profits Interest LLC (Partnership) vs. Corporation Compensation Methods Corporation Context Stock Grants Stock Options Phantom Stock Plans The LLC Context Fiduciary Duties, Inspection Rights, and other Duties to Equity Holders Rights of (Soon-to-Be-Former) Shareholders: Stephenson v. Drever Fiduciary Duties Enforced Even Though Little Is at Stake: Hughes v. St. David s Support Corp Copyright, November 2018 xxvi

21 Fiduciary Duties of Minority Shareholders who Look to the Court Like Partners: Rexford Rand Corporation v. Gregory Ance Forms: Equity Based LLC Compensation Plans Form Authorization to Grant Equity Incentives Form Membership Interest Grant Agreement; Stand Alone Form with Repurchase Rights Form Equity Incentive Plan Form Grant Agreement Form Option Agreement Form 15-10A. Option Agreement with Rights of Repurchase and First Refusal Form of Operating Agreement Phantom Equity and Unit Appreciation Rights Plan Form Unit Appreciation Rights Plan Form Unit Appreciation Rights Award Agreement CHAPTER 16: TAXATION OF LIMITED LIABILITY COMPANIES General Background State Taxation Classification as a Partnership Classification Regulations Partnership Taxation Generally Partnership as a Pass-Through Entity Partnership Computations Formation of the LLC Gain or Loss from Formation of the LLC Basis and Holding Period Exceptions to Nonrecognition Property Subject to Debt Contribution of Property Subject to Nonrecourse Debt Contribution of Property Subject to Recourse Debt Comparison with Corporation Other Exceptions to Nonrecognition Disguised-Sale Rules Receipt of Interest for Services Receipt of Profits Interest Collateral Consequences to Service Partner Taxation of Distributions xxvii Copyright, November 2018

22 In General Interim Distributions Basis of Property Received Liquidating Distributions Basis of Property Received in Complete Liquidation Exceptions to Nonrecognition Marketable Securities Distribution of Previously Contributed Property Distribution of Other Property to Contributing Members Distribution by LLC Holding Section 751 Property Payments to Retired or Deceased Partners Allocations of Income and Loss Generally The Three Alternative Allocation Tests The First Test: Partners Interests The Second Test: Substantial Economic Effect and Capital Accounts The Third Test: Nonrecourse Debt Allocations to Interest Holders Special Allocations Contributed Property General Rule Depreciation and 704(c) The Ceiling Rule Reverse 704(c) Allocations Section 754 Election Passive-Activity-Loss Rules Material Participation Self-Employment Tax Accounting Methods Generally Syndicate Effect on LLCs Losses Allocable Use of Single-Member LLCs Overview of Single-Member LLCs Corporate Reorganizations Involving Single-Member LLCs Single-Member LLCs in Like-Kind Exchanges Copyright, November 2018 xxviii

23 Single-Member LLCs in Lieu of Consolidated Returns LLC Electing to be Taxed as a Subchapter S Corporation CHAPTER 17: USE OF LLCS BY EXEMPT ORGANIZATIONS Introduction Uses of LLCs by Exempt Organizations Use of an Arizona LLC as a Wholly-Owned Subsidiary of an Exempt Organization to Carry Out a Business Purpose Use of an Arizona LLC as the Wholly-Owned Subsidiary of an Exempt Organization to Carry Out an Exempt Purpose Form Articles of Organization of Single-Member LLC Organized to Carry Out an Exempt Purpose of a Tax-Exempt Parent Form Operating Agreement of Single-Member LLC Organized to Carry Out an Exempt Purpose of a Tax-Exempt Parent Form Articles of Organization for a Multiple Member Tax-Exempt LLC Form Operating Agreement for a Multiple Member Tax-Exempt LLC CHAPTER 18: BANKRUPTCY ISSUES CONCERNING LLCS Overview Eligibility of LLCs for Voluntary Relief under the Bankruptcy Code Property of the Estate Form Operating Agreement Provision Limitation on Obligation to Make Additional Capital Contributions May a Member Commence an Involuntary Case Against an LLC? What Approval Is Needed to Approve the Filing of a Voluntary Case by an LLC? Form Operating Agreement Provision Unanimous Consent of Members to Filing a Voluntary Case xxix Copyright, November 2018

24 Form Form Form Form Form Operating Agreement Provision Consent of Majority of Members to Filing a Voluntary Case Operating Agreement Provision Member Vote Required for Filing of Voluntary Case Operating Agreement Provision Member and Manager Vote Required for Filing of Voluntary Case Resolutions of Members in Member-Managed LLC Consenting to Filing a Voluntary Case under Chapter Resolutions of Board of Directors in Director- Managed LLC Consenting to Filing a Voluntary Case under Chapter Creating Limitations on the Ability of an LLC to Commence a Voluntary Case Single-Purpose Bankruptcy Remote LLCs Form Form Form Form Form Operating Agreement Provision Purpose Clause for an SPBR LLC Operating Agreement Provision Management of Business and Affairs of the Company Operating Agreement Provision Transfers Operating Agreement Provision Dissolution of the Company Operating Agreement Provision Special Amendment Provision Right of the LLC or Remaining Members to Terminate Management Rights of a Bankrupt Member Member s Bankruptcy as an Event of Dissolution Buyout of a Member s Interest in the Event of the Member s Bankruptcy PART IV APPENDICES APPENDIX A: APPENDIX B: OPERATING AGREEMENT FOR MEMBER-MANAGED LLC APP A-1 OPERATING AGREEMENT FOR MEMBER-MANAGED LLC APP B-1 Copyright, November 2018 xxx