Limited Liability Companies in Virginia

Limited Liability Companies in Virginia
Publication Date: 2012
Electronic Forms: 19
Available Formats: Print (448 pages, looseleaf, 1 volume)
  Electronic (searchable PDF via flash drive, CD, or immediate download)
  Both Print and Electronic formats
Product #: 889

Information

Content Highlights:

  • Formation And Operation
  • Liability and Dispute Resolution
  • Income Tax Classification
  • Non-Classification Tax Issues
  • Securities Law Issues
  • Estate Planning Uses
  • Real Estate And Other Special Uses
  • Crossing State And International Boundaries

The LLC remains the “entity of choice” when deciding how to form a business in Virginia, because it offers limited liability and partnership tax treatment, and is ideally suited for estate planning purposes.

This handbook comprehensively covers the law governing limited liability companies, including formation, dispute resolution, taxation, use in estate planning and real estate, and termination. With it, counsel to Virginia business owners will be positioned to advise clients doing business as limited liability companies.


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Table of Contents

CHAPTER LIST

1. Introduction

2. Formation And Operation

3. Liability and Dispute Resolution

4. Income Tax Classification

5. Non-Classification Tax Issues

6. Securities Law Issues

7. Estate Planning Uses

8. Real Estate And Other Special Uses

9. Crossing State And International Boundaries

CHAPTER 1: INTRODUCTION   (back to top)

1.1 BACKGROUND

1.2 NATURE OF THE LLC

1.3 TERMINOLOGY

1.4 STRUCTURING ISSUES

1.5 NONTAX ISSUES

1.6 TAX ISSUES

1.7 FUTURE OF THE LLC



CHAPTER 2: FORMATION AND OPERATION   (back to top)

2.1 OVERVIEW
        2.101 In General
        2.102 Default Rules

2.2 FORMATION OF AN LLC
        2.201 Articles of Organization
        2.202 Ownership and Members
        2.203 Operating Agreement

2.3 MANAGEMENT STRUCTURE
        2.301 In General
        2.302 Managers
        2.303 Manner of Voting
        2.304 Forms of Customized Management
        2.305 Management Authority and Duties
        2.306 Approval of Business Combinations
        2.307 Books and Records

2.4 FINANCIAL ARRANGEMENTS
        2.401 Distributions in General
        2.402 Default Rule
        2.403 Customized Financial Structure
        2.404 Restrictions on Distributions
        2.405 Allocations

2.5 ASSIGNMENTS OF MEMBERSHIP INTERESTS
        2.501 Assignments in General
        2.502 Admission of Assignee as Member
        2.503 Buy-Sell Provisions
        2.504 Security Interests
        2.505 Dissociation

2.6 DISSOLUTION AND LIQUIDATION
        2.601 Dissolution Events
        2.602 Effect of Dissolution
        2.603 Methods of Liquidation
        2.604 Articles of Cancellation
        2.605 Involuntary and Automatic Cancellation
        2.606 Articles of Reinstatement

APPENDIX 2-1: ARTICLES OF ORGANIZATION

APPENDIX 2-2: ARTICLES OF ORGANIZATION

APPENDIX 2-3: APPLICATION FOR RESERVED NAME OR RENEWAL OF RESERVED NAME

APPENDIX 2-4: STATEMENT OF CHANGE OF REGISTERED OFFICE/REGISTERED AGENT

APPENDIX 2-5: STATEMENT OF RESIGNATION OF REGISTERED AGENT

APPENDIX 2-6: ARTICLES OF ORGANIZATION

APPENDIX 2-7: CONVERSION OF PARTNERSHIP TO LIMITED LIABILITY
COMPANY

APPENDIX 2-8: CONVERSION CERTIFICATE

APPENDIX 2-9: SCC ORDER AND CERTIFICATE OF ORGANIZATION

APPENDIX 2-10 GUIDE FOR ARTICLES OF AMENDMENT TO ARTICLES OF ORGANIZATION

APPENDIX 2-11: ARTICLES OF AMENDMENT TO ARTICLES OF ORGANIZATION

APPENDIX 2-12: OPERATING AGREEMENT WITH BUY-SELL PROVISION AND OPTIONAL MANAGER-MANAGEMENT PROVISIONS

APPENDIX 2-13: ARTICLES OF ORGANIZATION—SINGLE-MEMBER COMPANY

APPENDIX 2-14: SAMPLE OPERATING STATEMENT FOR SINGLE-MEMBER COMPANY

APPENDIX 2-15: UNANIMOUS WRITTEN CONSENT FOR SINGLE-MEMBER LIMITED LIABILITY COMPANY

APPENDIX 2-16: WRITTEN CONSENT IN LIEU OF MEETING OF THE MEMBERS OF LIMITED LIABILITY COMPANY

APPENDIX 2-17: WRITTEN CONSENT OF A MAJORITY OF THE MEMBERS OF LIMITED LIABILITY COMPANY

APPENDIX 2-18: UNANIMOUS WRITTEN CONSENT OF THE MEMBERS TO AMEND THE ARTICLES OF ORGANIZATION OF LIMITED LIABILITY COMPANY

APPENDIX 2-19: UNANIMOUS WRITTEN CONSENT OF THE MEMBERS TO ADMIT NEW MEMBER OF LIMITED LIABILITY COMPANY

APPENDIX 2-20: APPOINTMENT OF PROXY

APPENDIX 2-21: APPOINTMENT OF IRREVOCABLE PROXY

APPENDIX 2-22: ARTICLES OF ORGANIZATION FOR A BOARD OF MANAGER-MANAGED COMPANY

APPENDIX 2-23: OPERATING AGREEMENT FOR A BOARD OF MANAGER-MANAGED COMPANY

APPENDIX 2-24: ARTICLES OF CANCELLATION OF LIMITED LIABILITY COMPANY (FORM 1050)



CHAPTER 3: LIABILITY AND DISPUTE RESOLUTION   (back to top)

3.1 INTRODUCTION

3.2 LIABILITY
        3.201 In General
        3.202 LLCs Transacting Business in Other States
        3.203 Personal Liability of Members of Foreign LLCs That Fail to Register in Virginia
        3.204 Piercing the Entity Veil
        3.205 Parent/Subsidiary Relationships
        3.206 Indemnification
        3.207 Liability During Dissolution or After Termination
        3.208 Liability in Tort
        3.209 Liability in Contract
        3.210 Fiduciary Duties and Associated Liability
        3.211 Insurance
        3.212 Penalty for Failure to Timely Pay Annual Registration Fee
        3.213 Conversion of Partnership to Limited Liability Company—Liability of General Partner
        3.214 Domestication of Foreign Entity—Effect on Existing Liabilities

3.3 DISPUTE RESOLUTION
        3.301 Dissension and Deadlock Among Members
        3.302 LLC as Defendant or Plaintiff
        3.303 Derivative Actions



CHAPTER 4: INCOME TAX CLASSIFICATION   (back to top)

4.1 INTRODUCTION

4.2 HISTORICAL CONTEXT

4.3 CHECK-THE-BOX CLASSIFICATION SYSTEM
        4.301 In General
        4.302 Tier One: Corporations
        4.303 Tier Two: Classification by Choice
        4.304 Default Classification
        4.305 Foreign Entities
        4.306 Election of Tax Classification
        4.307 Late Election Filing

4.4 SINGLE-MEMBER LLCs
        4.401 In General
        4.402 Conversion of Single-Member LLC to Partnership
        4.403 Conversion of Partnership to Single-Member LLC

4.5 CLASSIFICATION CHANGE TO OR FROM CORPORATION
        4.501 In General
        4.502 Partnership to Corporation
        4.503 Corporation to Partnership
        4.504 Single-Member LLC to Corporation
        4.505 Corporation to Single-Member LLC
        4.506 Timing of Conversion

4.6 STATE LAW CONVERSION

4.7 VIRGINIA CLASSIFICATION

4.8 EMPLOYMENT AND EXCISE TAXES AND THE SINGLE-MEMBER LLC

APPENDIX 4-1: ENTITY CLASSIFICATION ELECTION (FORM 8832)



CHAPTER 5: NON-CLASSIFICATION TAX ISSUES   (back to top)

5.1 INTRODUCTION

5.2 INCOME TAXATION UNDER SUBCHAPTER K
        5.201 Background
        5.202 Formation of LLC
        5.203 Basis and Distributions
        5.204 Allocation of Liabilities
        5.205 Allocation of Profits and Losses
        5.206 Termination
        5.207 Sales and Exchanges of Interests in LLC
        5.208 Basis Adjustments Under I.R.C. § 743

5.3 CONVERSIONS TO AND FROM OTHER ENTITIES
        5.301 In General
        5.302 Conversion from Partnership to LLC
        5.303 Conversion from C Corporation to LLC
        5.304 Conversion from S Corporation to LLC
        5.305 Change Resulting from Change in Number of Members
        5.306 Conversion from Partnership Classification to Corporation
        Classification

5.4 SELF-EMPLOYMENT TAX
        5.401 Background
        5.402 Proposed Regulations
        5.403 Single-Member LLCs

5.5 METHODS OF ACCOUNTING
        5.501 Overview
        5.502 Tax Shelter
        5.503 Converted LLC
        5.504 Taxable Year

5.6 PASSIVE ACTIVITY LOSS RULES
        5.601 Background
        5.602 Material Participation
        5.603 Rental Real Estate Activities

5.7 BANKRUPTCY AND WORKOUT ISSUES
        5.701 Overview
        5.702 Cancellation of Indebtedness Income
        5.703 Exceptions to Cancellation of Indebtedness Income
        5.704 Foreclosure or Deed in Lieu of Foreclosure
        5.705 Bankruptcy

5.8 VIRGINIA INCOME TAXATION
        5.801 Taxation of LLC
        5.802 Taxation of Members

5.9 INCOME TAXATION IN OTHER STATES
        5.901 In General
        5.902 Taxation of LLC
        5.903 Taxation of Members



CHAPTER 6: SECURITIES LAW ISSUES   (back to top)

6.1 INTRODUCTION

6.2 ARE MEMBERSHIP INTERESTS IN VIRGINIA LLCs SECURITIES?
        6.201 In General
        6.202 Investment of Money
        6.203 Common Enterprise
        6.204 Expectation of Profits
        6.205 Profits Derived Solely from Efforts of Others

6.3 APPLICATION OF SECURITIES LAWS TO LLCs, PARTNERSHIPS, AND CORPORATIONS
        6.301 In General
        6.302 Application to Partnerships
        6.303 Comparison of LLCs to Partnerships and Corporations
        6.304 Professional LLCs

6.4 STRUCTURING AN LLC TO AVOID CHARACTERIZATION AS A
    SECURITY
        6.401 In General
        6.402 Member-Managed LLCs
        6.403 Manager-Managed LLCs
        6.404 Granting Members Access to Information
        6.405 Limiting the Number of Members
        6.406 Manager with Unique Expertise
        6.407 Choosing the Plan of Distribution

6.5 DEFINITION OF MEMBERSHIP INTERESTS AS SECURITIES BY OTHER STATES

6.6 FEDERAL SECURITIES LAWS
        6.601 In General
        6.602 Section 4(2)
        6.603 Regulation D
        6.604 Filing Requirement
        6.605 Intrastate Offering Exemption
   
6.7 STATE LAW EXEMPTIONS

6.8 VIRGINIA BLUE SKY LAWS

6.9 PUBLICLY TRADED LLCs



CHAPTER 7: ESTATE PLANNING USES   (back to top)

7.1 INTRODUCTION
        7.101 In General
        7.102 Historical Disadvantage: Dissolution More Likely in an LLC
        7.103 Discounts

7.2 PARTNERSHIP ANTI-ABUSE REGULATION
        7.201 Background
        7.202 Final Anti-Abuse Regulation

7.3 TAX FREE FORMATION
        7.301 In General
        7.302 Investment Company

7.4 FAMILY PARTNERSHIP RULES
        7.401 Overview
        7.402 Bona Fide Transaction
        7.403 Capital as a Material Income-Producing Factor and Capital Interest
        7.404 Basic Tests as to Ownership
        7.405 Application to Transfer Taxes

7.5 SPECIAL VALUATION RULES
        7.501 Transfers of LLC and Partnership Interests
        7.502 Transfers of Interests in Trusts
        7.503 Rights or Restrictions, Including Buy-Sell Agreements
        7.504 Lapsing Voting and Liquidation Rights
        7.505 Restrictions on Liquidation

7.6 OTHER TRANSFER TAX ISSUES
        7.601 Annual Exclusion
        7.602 Retained Interests or Powers
        7.603 Circular 230; Advising the Client
        7.604 Defined Value Clauses
        7.605 Disregarded Entities

7.7 EXAMPLES OF TAX SAVINGS
        7.701 In General
        7.702 Examples of Tax Savings Using Real Estate
        7.703 Example of Tax Savings Using Marketable Securities

7.8 NONTAX BENEFITS OF LIMITED PARTNERSHIPS AND LLCs
        7.801 In General
        7.802 Management of the Family Assets
        7.803 Reducing Costs and Other Expenses
        7.804 Protection from Creditors
        7.805 Investment Policies

7.9 CONCLUSION

APPENDIX 7-1: OPERATING AGREEMENT FOR ESTATE PLANNING PURPOSES

APPENDIX 7-2: PROVISIONS IN THE VIRGINIA LIMITED LIABILITY COMPANY ACT RELEVANT TO ESTATE PLANNING



CHAPTER 8: REAL ESTATE AND OTHER SPECIAL USES   (back to top)

8.1 OVERVIEW

8.2 REAL ESTATE TRANSACTIONS
        8.201 Limitation of Liability
        8.202 Pass-Through Taxation
        8.203 Transferring Property to and from LLCs
        8.204 Ownership of Multiple Properties: LLC Holding Companies
        8.205 Conversion of Partnerships to LLCs
        8.206 Section 1031 Exchanges
        8.207 Lender Requirements
        8.208 Tenant in Common Syndications

8.3 TECHNOLOGY COMPANIES
        8.301 Introduction
        8.302 Limitation of Liability
        8.303 Income Tax Benefits
        8.304 Management and Control
        8.305 Virginia Business Trusts

8.4 JOINT VENTURES
        8.401 Introduction
        8.402 Traditional Joint Ventures
        8.403 Problems with Traditional Forms
        8.404 Income Tax Benefits
        8.405 Management and Control

8.5 PROFESSIONAL LIMITED LIABILITY COMPANIES
        8.501 The Virginia Professional Limited Liability Company Act
        8.502 PLCs in Other States
        8.503 Types of Liability
        8.504 Requirements Under the Professional LLC Act
        8.505 Professional Registration and Certification
        8.506 Management
        8.507 Admission of Members
        8.508 Departure of Members
        8.509 Consolidation, Merger, and Conversion
        8.510 Foreign PLCs
        8.511 Miscellaneous Tax Concerns

APPENDIX 8-1: INCUMBENCY CERTIFICATE OR RESOLUTION

APPENDIX 8-2: TITLE INSURANCE SCHEDULE B INSURANCE
REQUIREMENTS

APPENDIX 8-3: PERMITTED TRANSACTIONS ENDORSEMENT

APPENDIX 8-4: “FAIRWAY” ENDORSEMENT FOR LLCs

APPENDIX 8-5: INDEMNITY BOND FROM LLC TO TITLE COMPANY

APPENDIX 8-6: LLC HOLDING COMPANY STRUCTURE

APPENDIX 8-7: ARTICLES OF ORGANIZATION FOR CONVERSION OF A DOMESTIC FOREIGN PARTNERSHIP OR LIMITED PARTNERSHIP TO A LIMITED LIABILITY COMPANY (FORM 1010.1)

APPENDIX 8-8: ARTICLES OF ORGANIZATION FOR A DOMESTIC PROFESSIONAL LIMITED LIABILITY COMPANY (FORM 1103)

APPENDIX 8-9: STATEMENT OF ORGANIZATION FOR A SINGLE-MEMBER DOMESTIC PROFESSIONAL LIMITED LIABILITY COMPANY



CHAPTER 9: CROSSING STATE AND INTERNATIONAL BOUNDARIES   (back to top)

9.1 VIRGINIA LLCs DOING BUSINESS IN OTHER STATES
        9.101 National Recognition
        9.102 Qualification in Other States
        9.103 Sanctions

9.2 FOREIGN LLCs DOING BUSINESS IN VIRGINIA
        9.201 Eligibility and Governing Law
        9.202 Procedure
        9.203 Transactions Not Constituting Doing Business in Virginia
        9.204 Consequences of Transacting Business Without Registration or
        Renewal
        9.205 Mergers Involving Foreign LLCs
        9.206 Domesticating Foreign Entities
        9.207 Conversion of Foreign LLCs

9.3 INTERNATIONAL TRANSACTIONS
        9.301 Inbound Investment
        9.302 Outbound Investment

APPENDIX 9-1: SCC APPLICATION FOR REGISTRATION AS A FOREIGN LLC (FORM 1052)

APPENDIX 9-2: SCC CERTIFICATE OF CORRECTION FOR A FOREIGN LLC (FORM 1055)

APPENDIX 9-3: SCC CANCELLATION OF CERTIFICATE OF REGISTRATION (FORM 1056)

SAMPLE OPERATING AGREEMENT WITH COMMENTARY 

TABLE OF AUTHORITIES

INDEX

Authors

Editor

Allan G. Donn

Authors

Brian M. Blum

Robert S. Logan

S. Brian Farmer

H. Carl Moultrie, III

Bradley A. Haneberg

R. Neal Keesee, Jr.

Charles V. McPhillips

Roderick W. Simmons

Neil L. Rose

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