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Drafting Limited Liability Company Operating Agreements, Fifth Edition by Amanda Nelson , Vernon R. Proctor , John M. Cunningham Law Offices of John M. Cunningham, PLLC Drafting Limited Liability Company Operating Agreements, Fifth Edition by Amanda Nelson , Vernon R. Proctor , John M. Cunningham Law Offices of John M. Cunningham, PLLC

Drafting Limited Liability Company Operating Agreements, Fifth Edition

By John M. Cunningham, Amanda Nelson
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Overview

Drafting Limited Liability Company Operating Agreements is the only limited liability company (“LLC”) formbook and practice manual that addresses in a comprehensive and sophisticated manner the entire process of planning, negotiating, and drafting LLC operating agreements and handling LLC formations. The book is written both for lawyers who are inexperienced in LLC formation practice and for those who are LLC experts.

The book contains 71 chapters on LLC formation issues and related issues, 29 general-purpose model operating agreements, four special-purpose model operating agreements (including, for example, model operating agreements for series LLCs), and dozens of “plug-in provisions” to tailor operating agreements to the unique legal and tax needs of specific LLC members and managers.

Changes in the Fifth Edition of Drafting Limited Liability Company include:

  • Thoroughly updated content rewritten to suit modern trends and needs
  • Complete reorganization to chapters making it easier to find the content you need
  • Streamlined content for online purposes
  • All forms previously available on the CD-ROM of this book have been updated and moved online for easy viewing and downloading
Pages 3228
Last Updated 06/12/2020
Update Frequency 3 times a year
Product Line Wolters Kluwer Legal & Regulatory U.S.
ISBN 9781543817652
SKU 10083245-7777
Update Frequency 3 times a year
Product Line Wolters Kluwer Legal & Regulatory U.S.
SKU 000000000010038257
Table of Contents

Preface to the Fifth Edition

VOLUME 1

 

PART I  OPERATING AGREEMENT BASICS

 

LLC Formation Master Checklist

Main Types of General-Purpose Forms

Chapter 1

Twelve Statutory Characteristics of LLCs

§ 1.01

LLC Statutory Law Structure

§ 1.02

Twelve Statutory Characteristics of LLCs

§ 1.03

Series LLCs

§ 1.04

LLC Uses

§ 1.05

Self-Test on Chapter 1

Exhibit 1-1

Characteristics of LLCs

Chapter 2

Choosing the Right Model Operating Agreement

§ 2.01

Importance of General-Purpose Forms

§ 2.02

Number of General-Purpose Forms Needed

§ 2.03

Three Structures Critical to Classifying LLCs

§ 2.04

Ownership Structures LLCs

§ 2.05

Management  for Single-Member LLCs With an Individual Member

§ 2.06

Management  for Single-Member LLCs  With an Entity Members

§ 2.07

Management  for a General Partnership Structure

§ 2.08

Management for a Limited Partnership Structure

§ 2.09

LLC Corporate Management Structures

§ 2.10

 Federal Tax Structures LLCs

§ 2.11

Best General-Purpose Form

§ 2.12

Self-Test on Chapter 2

Exhibit 2-1

Most Common Types of LLCs and the Model Operating Agreements Required

Exhibit 2-2

Main Types of General-Purpose Forms

Chapter 3

General Drafting Guidelines

§ 3.01

Drafting Operating Agreements

§ 3.02

Criteria for Evaluating Operating Agreements

§ 3.03

LLC Formation Master Checklist Tasks Relevant to Operating Agreements

§ 3.04

Operating Agreements Drafted by Other Lawyers

Exhibit 3-1

Criteria for Evaluating Operating Agreements

Exhibit 3-2

Guidelines for Good English Prose

Exhibit 3-3

Guidelines for Good Contract Format and Style

Exhibit 3-4

Specific Tasks  in Drafting Operating Agreements

Exhibit 3-5

Evaluating a Draft Agreement by Another Lawyer

Chapter 4

Using Case Law for Guidance

§ 4.01

Using Case Law for Drafting Guidance

§ 4.02

Purpose Provisions in Operating Agreements of Multi-Member LLCs

§ 4.03

Expulsion Provisions in Agreements with Two Unequal Members

§ 4.04

Hidden Risks in Drafting Disability Provisions

Chapter 5

Single-Member LLCs with Individual Members

§ 5.01

Individuals as Single-Members

§ 5.02

Single-Member LLCs vs. Two-Member LLCs

§ 5.03

Choosing the Best LLC Act

§ 5.04

The LLC Members

§ 5.05

One Entity or Two?

§ 5.06

Sole Proprietorship vs. Single-Shareholder Corporation vs. Single-Member LLC

§ 5.07

Best Management Structure

§ 5.08

Best Federal Income Tax Regimen

§ 5.09

Best Tax Regimen for Social Security and Medicare

§ 5.10

Single-Member LLCs Need Written Operating Agreements

§ 5.11

Forms for LLCs With Individual Members

§ 5.12

Fiduciary Issues in Forms 1.1 Through 1.6

§ 5.13

Miscellaneous Legal Issues

Exhibit 5-1

Individuals as Both Members and Managers

Chapter 6

Single-Member LLCs with Entity Members

§ 6.01

Entities as Single-Members

§ 6.02

Choosing the Best LLC Act

§ 6.03

Business Entity Form of the Subsidiary

§ 6.04

Best Management Structure

§ 6.05

Best Federal Income Tax Regimen

§ 6.06

Single-Member LLCs Need Written Operating Agreements

§ 6.07

Forms for LLCs Whose Members Are Entities

§ 6.08

Miscellaneous Legal Issues

Exhibit 6-1

Considerations When Using a Subsidiary

Chapter 7

Business Organization Law Plug-In Provisions

§ 7.01

Replacement and Supplemental Provisions

§ 7.02

Other Sources for Plug-In Provisions

§ 7.03

Provisions Combining Sections 7 and 9

Exhibit 7-1

Replacement and Supplemental Provisions

Exhibit 7-2

Form 6.2—Cover Page and Tables of Contents

Chapter 8

Multi-Member LLCs

§ 8.01

Operating Agreements for Multi-Member LLCs

§ 8.02

Importance of Operating Agreements

§ 8.03

Expertly Drafting Operating Agreements

§ 8.04

Necessary Tasks in Drafting Operating Agreements

§ 8.05

Master the Drafting Process

Exhibit 8-1

Model Memorandum for Clients

Exhibit 8-2

Necessary Tasks in Drafting Operating Agreements

Chapter 9

Evaluating and Using Model Operating Agreements

§ 9.01

Introduction

§ 9.02

Evaluating Individual Model Operating Agreements (“Forms”)

§ 9.03

Evaluating Sets of Model Operating Agreements

§ 9.04

Forms in This Book vs. Forms from Other Sources

§ 9.05

Adapting the “Generic” Forms in this Book for Use Under Specific LLC Acts

§ 9.06

Guidelines for Using the Forms in this Book

Exhibit 9-1

Guidelines for Using the Forms in this Book

Chapter 10

Inter-Spousal LLCs

§ 10.01

Introduction

§ 10.02

Form 4.1 as the Basis for Form 1-S

§ 10.03

Management Structure

§ 10.04

Best Federal Income Tax Regimen

§ 10.05

Comments on  Forms 1-K and 1-S

Chapter 11

Short-Form Operating Agreements—Form 3-K

§ 11.01

Importance of Comprehensive Operating Agreements

§ 11.02

Situations Appropriate for Short-Form Operating Agreements

§ 11.03

Form 3.1 as the Basis for Form 3-K

§ 11.04

Necessary Provisions

§ 11.05

Deletions from Form 3.1 Reflected in Form 3-K

§ 11.06

Specific Provisions Retained in Form 3-K

Chapter 12

Freedom of Contract

§ 12.01

Freedom of Contract

§ 12.02

Contractarianism and § 18-1101(b)

§ 12.03

Freedom-of-Contract and Enforceability Rule

§ 12.04

Limits of Contractual Freedom

§ 12.05

Section 18-1101(b) Interprets Other Provisions

§ 12.06

The Elf Atochem Case

§ 12.07

Rulings in Elf Atochem

§ 12.08

Conclusion

§ 12.09

Self-Test on Chapter 12

Chapter 13

Statutory “Pick-Your-Partner” Provisions

§ 13.01

Pick-Your-Partner Provisions

§ 13.02

Relevant Definitions

§ 13.03

Pick-Your-Partner and Related Provisions

§ 13.04

DLLC Act Pick-Your-Partner Provisions

§ 13.05

Unavailability to Single-Member LLCs

§ 13.06

Member Bankruptcies

§ 13.07

Divorce

§ 13.08

Statutory Conversions to Obtain Pick-Your-Partner Provisions

§ 13.09

 

Chapter 14

Statutory Charging Order Provisions

§ 14.01

Charging Orders

§ 14.02

Relevant Definitions

§ 14.03

Charging Order and Related Provisions

§ 14.04

DLLC Act Charging Order Provisions

§ 14.05

Unavailability to Single-Member LLCs

§ 14.06

Federal Income Tax Consequences; Consequences for Creditors

§ 14.07

Member Bankruptcies

§ 14.08

Creditor Foreclosure on Interests of Member-Debtors

§ 14.09

Miscellaneous Planning and Drafting Issues

§ 14.10

Statutory Conversions of Corporations

§ 14.11

Legal Grounds for Charging Order Provisions

§ 14.12

Multi-Jurisdictional Issues

§ 14.13

Bibliography

§ 14.14

Summary and Conclusions

 

PART II ESSENTIAL TASKS

 

Chapter 15

Initial Contacts with Clients

§ 15.01

Mary Jones, An LLC Formation Client

§ 15.02

Handling Client Questions

Exhibit 15-1

Matters to Address in Your Initial Contact

Exhibit 15-2

Tasks to Provide in Basic LLC Formation Services

Exhibit 15-3

 Comprehensive, Intermediate, and Basic  Services

Exhibit 15-4

Model Engagement Letter

Chapter 16

Issues of Professional Ethics

§ 16.01

Professional Ethics Issues

§ 16.02

The Attorney-Client Relationship

§ 16.03

Model Rule 1.1—Competence in Forming LLCs

§ 16.04

Model Rule 1.2—Scope of Representation

§ 16.05

Model Rule 1.3—Diligence

§ 16.06

Model Rule 1.4—Communication with Clients

§ 16.07

Model Rule 1.5—Fees

§ 16.08

Model Rule 1.6—Confidentiality

§ 16.09

Model Rule 1.7—“Concurrent Conflicts”

§ 16.10

Joint Representations—Detailed Discussion

§ 16.11

Model Rule 1.8(a)—Accepting Equity Interests

§ 16.12

Model Rule 5.5—Unauthorized Practice of Law

§ 16.13

Self-Test on Chapter 16

Exhibit 16-1

ABA Model Rules of Ethics

Exhibit 16-2

Joint Representation Agreement

Exhibit 16-3

Key Issues on Which You Agree

Chapter 17

ABA Rules of Professional Conduct and Malpractice

§ 17.01

Ethical and Malpractice Risks

§ 17.02

ABA Rules and the Civil Rules

§ 17.03

Rule 1.7(a)(2) “Current Client” and Malpractice

§ 17.04

Impact of Breaching Rule 1.7(a)(2)

Chapter 18

Non-Tax Choice of Entity

§ 18.01

Non-Tax Choice of Entity

§ 18.02

Relevant Business Organizations

§ 18.03

Principal Factors in Choice of Entity

§ 18.04

Choice-of-Entity Hypotheticals

Exhibit 18-1

Steps in the Choice-of-Entity Process

Exhibit 18-2

Business Organization Law Advantages

Exhibit 18-3

Single-Owner Businesses Whose Owners Are Individuals

Exhibit 18-4

Single-Owner Businesses Whose Owners Are Entities

Exhibit 18-5

Multi-Owner Businesses

Chapter 19

Maximizing a Business Liability Shield

§ 19.01

Multi-LLC Structures

§ 19.02

Need for More than One LLC

§ 19.03

Relationships in a Multi-LLC Structure

§ 19.04

Number and Identities of Members

Chapter 20

Home-State LLC Act vs. Delaware Act

§ 20.01

Choosing the Controlling LLC Act

§ 20.02

Advantages and Disadvantages of the DLLC Act

§ 20.03

Advantages and Disadvantages of Non-Delaware LLC Acts

§ 20.04

Hypothetical: The DLLC Act vs. the New York LLC Act

Exhibit 20-1

Method for Determining the Controlling Act

Exhibit 20-2

Advantages of the DLLC Act Over Other LLC Acts

Exhibit 20-3

 Provisions of the DLLC Act Unavailable Under Other LLC Acts

Exhibit 20-4

 Disadvantages of the DLLC Act

Exhibit 20-5

Advantages of Other LLC Acts

Exhibit 20-6

Disadvantages of Other LLC Acts

Chapter 21

Drafting Articles of Organization

§ 21.01

Drafting Articles of Organization

§ 21.02

Purpose of Articles of Organization; Relationship with Operating Agreements

§ 21.03

Articles of Organization vs. Articles of Incorporation

§ 21.04

Drafting Issues in Articles of Organization

§ 21.05

Filing Articles of Organization

§ 21.06

Tax Implications in Articles of Organization

Chapter 22

LLC Flexibility; LLC Pitfalls

§ 22.01

Flexibility and Pitfalls—Basic Guidelines

§ 22.02

Flexibility Under the DLLC Act

§ 22.03

Avoiding DLLC Act Pitfalls

§ 22.04

Self-Test on Chapter 22

Exhibit 22-1

Provisions of the DLLC Act Providing Statutory Flexibility

Exhibit 22-2

Flexibility in Drafting Delaware Agreements

Exhibit 22-3

Pitfalls in Drafting Delaware Agreements

Chapter 23

Fiduciary Law

§ 23.01

Fiduciary Law

§ 23.02

Managers' Fiduciary Duties

§ 23.03

Delaware Gross Negligence Standard

§ 23.04

The Business Judgment Rule and the Duty of Care

§ 23.05

Fiduciary Duty of Loyalty

§ 23.06

Duty Not to Compete

§ 23.07

Duty of Loyalty and Business Opportunities

§ 23.08

Duty of Loyalty and Business Transactions

§ 23.09

Confidentiality

§ 23.10

Duty  to Disclose

§ 23.11

Avoiding Improper Personal Benefits

§ 23.12

Duty to Act in Good Faith

§ 23.13

Duty of Loyalty of Managers to Minority Members

§ 23.14

Duty of Loyalty of Majority Members Toward Minority Members

§ 23.15

Implied Contractual Covenant of Good Faith and Fair Dealing

§ 23.16

Right to Records and Information in Claims Against Managers

§ 23.17

Litigation vs. Alternative Dispute Resolution (“ADR”); Jurisdiction

§ 23.18

Derivative Actions vs. Direct Actions

§ 23.19

Defenses Available to Managers

§ 23.20

Manager Removal

§ 23.21

Remedies Other Than Removal

§ 23.22

Exculpation Under § 18-1101(e)

§ 23.23

Indemnification Under § 18-108

§ 23.24

Advancement of Dispute Resolution Expenses

§ 23.25

Manager Liability Insurance

§ 23.26

Miscellaneous Matters

Chapter 24

Member Deadlocks

§ 24.01

Member Deadlocks

§ 24.02

Guidelines for Addressing Member Deadlocks

§ 24.03

Principal Types of Anti-Deadlock Provisions

§ 24.04

Deadlocks Not Resolved by Operating Agreements

§ 24.05

Judicial Dissolutions Under Delaware Act § 18-802

§ 24.06

Bibliography

Exhibit 24-1

Types of Deadlocks that May Result in Lawsuits

Exhibit 24-2

Guidelines for Addressing Possible Member Deadlocks

Exhibit 24-3

Key Threshold Issues for Founders

Exhibit 24-4

Anti-Deadlock Provisions

Exhibit 24-5

Guidelines for Post-Formation Member Deadlocks

Exhibit 24-6

Propositions that Must Be Proved Under § 18-802

Exhibit 24-7

Situations Where an LLC Cannot Continue its Business

Chapter 25

Miscellaneous Issues

§ 25.01

Identifying Miscellaneous Issues

§ 25.02

Examples of Miscellaneous Legal Issues

Exhibit 25-1

Miscellaneous Issues in Other Areas of Law

Chapter 26

Veil Piercing

§ 26.01

Importance of Veil-Piercing Risks; Basic Concepts

§ 26.02

Minimizing the Risk of Veil Piercing

§ 26.03

Special Guidelines for State-Law Corporations

§ 26.04

Special Guidelines for General and Limited Partnerships

§ 26.05

Guidelines for Protecting Holding Companies

Exhibit 26-1

Guidelines for Preventing Veil-Piercing

Exhibit 26-2

Facts Applied By the Courts in Veil-Piercing Cases

Chapter 27

Understanding and Applying LLC Statutes

§ 27.01

Understanding an LLC Act

§ 27.02

Definitional Provisions

§ 27.03

Mandatory Provisions

§ 27.04

Default Provisions

§ 27.05

Self-Enabling and Non-Self-Enabling Permissive Provisions

§ 27.06

Statutory Gap Issues in LLC Acts

§ 27.07

“Off-the-Shelf Operating Agreements”

Chapter 28

Planning Memos

§ 28.01

Planning Memos

§ 28.02

Benefits of Planning Memos

§ 28.03

Structure and Content of Planning Memos

§ 28.04

Objections to Planning Memos

§ 28.05

Planning Memos for Entities Forming Subsidiaries

§ 28.06

Self-Test on Chapter 28

Exhibit 28-1

Planning Memo for Cosmic Widgets, LLC

Chapter 29

Finalizing  an LLC Formation

§ 29.01

Finishing the Formation Process

§ 29.02

Negotiating the Operating Agreement

§ 29.03

Preparing an LLC Minute Book

Exhibit 29-1

Important Documents to Maintain

Chapter 30

The Lawyer’s Role as Teacher

§ 30.01

Advising, Advocating, Drafting, Teaching

§ 30.02

Client Education

§ 30.03

Guidelines for Effective Teaching

§ 30.04

Using Exhibit 30-1

Exhibit 30-1

Questions with Plain-English Responses

Chapter 31

Intellectual Property Issues

§ 31.01

Introduction

§ 31.02

Copyright

§ 31.03

Trade Names

§ 31.04

Trademarks

§ 31.05

Patents

§ 31.06

Trade Secrets

§ 31.07

Common Law Protections of Intellectual Property

§ 31.08

Licensing of Intellectual Property

§ 31.09

Bibliography

Exhibit 31-1

Intellectual Property Law: Basic Questions and Answers

Chapter 32

Securities Law Issues

§ 32.01

Securities Laws

§ 32.02

A Membership Interest as a Security

§ 32.03

Registration vs. Exemptions

§ 32.04

Exempt Transactions Under Federal Law

§ 32.05

Private Placement Exemption

§ 32.06

Regulation D and the “Accredited Investor”

§ 32.07

The Rule 506(b) Exemption

§ 32.08

Accredited Investor Exemption

§ 32.09

Intrastate Offerings

§ 32.10

Transactional Exemptions Under State Law

§ 32.11

The Jobs Act and Crowdfunding Exemption

§ 32.12

Violations of Federal Securities Laws

§ 32.13

Violations of State Securities Laws

§ 32.14

Potential Attorney Liability

§ 32.15

Further Research

Chapter 33

Estate Planning Issues

§ 33.01

Estate Planning

§ 33.02

General Estate Tax Concepts

§ 33.03

Intestacy and the Probate Process

§ 33.04

Non-Probate Property

§ 33.05

Principal Estate Planning Documents

§ 33.06

 Trusts

§ 33.07

 Relevant Uniform Acts

§ 33.08

Estate Planning Issues in LLC Formations

Chapter 34

LLCs Under the Delaware Act

§ 34.01

Introduction

§ 34.02

Definitional Provisions

§ 34.03

Mandatory Provisions

§ 34.04

Default Provisions

§ 34.05

Determining Whether a Provision Is Mandatory or Default

§ 34.06

Permissive Provisions

§ 34.07

Statutory Gap Issues

§ 34.08

Using Form 11.1

Exhibit 34-1

Master Table of DLLC Act as Amended Through January 2016

Exhibit 34-2

Definitional Provisions of the DLLC Act

Exhibit 34-3

Mandatory Provisions of the DLLC Act

Exhibit 34-4

Default Provisions of the DLLC Act

Exhibit 34-5

Non-Self-Enabling Permissive Provisions of the DLLC Act

Exhibit 34-6

Self-Enabling Permissive Provisions of the DLLC Act

Exhibit 34-7

Statutory Gap Issues

Exhibit 34-8

Organization of the DLLC Act on the Basis of Form 11.1

Chapter 35

Revised Uniform Limited Liability Company Act

§ 35.01

Purpose of this Chapter

§ 35.02

Useful RULLCA Features

§ 35.03

Proposed RULLCA Amendments—Introduction

§ 35.04

Proposed Amendments of Comments

§ 35.05

Statutory Categories

§ 35.06

Amendment of Agency Provisions, Etc.

§ 35.07

Amendment of Duty of Care

§ 35.08

Amendment of Duty of Loyalty

§ 35.09

Replacement of “Manifestly Unreasonable” Standard

§ 35.10

Addition of Allocation Provision

§ 35.11

Miscellaneous Criticisms

§ 35.12

State Adoptions of RULLCA

§ 35.13

Practice Under RULLCA

§ 35.14

Conclusion

Exhibit 35-1

RULLCA States as of 2019

Exhibit 35-2

Terms—Overview

Exhibit 35-3

Terms—Detailed Table of Contents

Exhibit 35-4

Sections 301 Through 303 and Section 407

Exhibit 35-5

Section 409

Chapter 36

Series LLCs

§ 36.01

Introduction to Series and Series LLCs

§ 36.02

Key Provisions Defining Series LLCs

§ 36.03

LLC Series as Entities Under § 18-215

§ 36.04

LLC Series vs. Subsidiary Single-Member LLCs

§ 36.05

Negligence Suits Against LLC Series

§ 36.06

Using LLC Series to Conduct a Business or Investment Arrangement

§ 36.07

Series LLCs, LLC Series, and Their Members Under Reg-119921-09

§ 36.08

Model Agreement for Series LLCs

Exhibit 36-1

Series LLC and Their Statutory Characteristics

Exhibit 36-2

Entity Characteristics Under § 18-215

Exhibit 36-3

Diagram of a Hypothetical Delaware Series LLC

Exhibit 36-4

DLLC Act § 18-215

Exhibit 36-5

Certificate of Formation for a Delaware Series LLC

Exhibit 36-6

Model LLC Agreement for a Simple Delaware Series LLC

Chapter 37

Charitable LLCs

§ 37.01

Overview of the Nonprofit World

§ 37.02

Low-Profit LLCs

§ 37.03

LLCs as Tax-Exempt Entities Under IRC 501(c)(3)

§ 37.04

Benefit LLCs

§ 37.05

LLCs as Vehicles for Charitable Purposes

§ 37.06

Conclusion

 

PART III TAX TASKS

 

Chapter 38

Tax Tasks in LLC Formations

§ 38.01

Introduction to the Tax Chapters

§ 38.02

Tax Tasks—Introduction

§ 38.03

Best Federal Income Tax Regimen

§ 38.04

Best Tax Regimen for Social Security and Medicare

§ 38.05

Reconciling the Two Regimens

§ 38.06

Check-The-Box Regulations Analysis

§ 38.07

State and Multi-State Tax Planning

§ 38.08

Federal Income Tax Provisions

§ 38.09

Social Security and Medicare Tax Provisions

§ 38.10

State and Multi-State Tax Provisions

§ 38.11

Self-Test Questionnaire

Exhibit 38-1

Tax Tasks in the Formation Master Checklist

Chapter 39

 Federal Income Tax Regimens

§ 39.01

Federal Income Tax Regimens

§ 39.02

Sole Proprietorship, Subchapters K and C

§ 39.03

Tax Choice-of-Entity Process

§ 39.04

Sole Proprietorship vs. Subchapter S

§ 39.05

Subchapter K vs. Subchapter S

§ 39.06

Example: Tax Choice-of-Entity Process

§ 39.07

Best Tax Regimen for Social Security and Medicare

Exhibit 39-1

Relevant Federal Income Tax Issues

Exhibit 39-2

Decisive Federal Income Tax Issues

Exhibit 39-3

Sole Proprietorship vs. Subchapter S

Exhibit 39-4

Subchapter K vs. Subchapter S

Chapter 40

Check-The-Box Regulations

§ 40.01

Check-the-Box Regulations

§ 40.02

Importance of the Regulations

§ 40.03

LLCs vs. Non-LLC Entities

§ 40.04

Historical Background

§ 40.05

Key Definitions and Rules

§ 40.06

“Standard” Analyses

§ 40.07

“Reverse” Analyses

§ 40.08

“Terminological Schizophrenia”

§ 40.09

Form 8832 and Instructions

§ 40.10

Proposed Federal Tax Classification of LLC Series

§ 40.11

Conversions of Disregarded Entities to Partnerships

§ 40.12

Conversions of Partnerships to Disregarded Entities

§ 40.13

Frequent Check-the-Box Issues

§ 40.14

Bibliography

Exhibit 40-1

Regulations as of August 1, 2014

Exhibit 40-2

Key Provisions in the Regulations

Exhibit 40-3

Form 8832

Exhibit 40-4

Key Terms of Art

Exhibit 40-5

Standard Check-The-Box Analyses

Exhibit 40-6

Reverse Check-The-Box Analyses

Exhibit 40-7

Using Legal and Tax Terms Correctly

Chapter 41

Tax Provisions for Straight-Up Partnerships

§ 41.01

Straight-Up Partnerships

§ 41.02

Necessary Economic and Tax Provisions

§ 41.03

“Safe Harbor” Provisions in Form 6.2

Chapter 42

Special Allocation and Other Non-Straight-Up Provisions

§ 42.01

Non-Straight-Up Provisions

§ 42.02

Most Common Non-Straight-Up Tax Provisions

Exhibit 42-1

Main Types of Federal Non-Straight-Up Provisions

Chapter 43

 Regulatory and Contractual Special Allocation Provisions

§ 43.01

Regulatory and Contractual Provisions

§ 43.02

Contractual Special Allocations—Examples

§ 43.03

“Economic Effect” and Safe-Harbor Rules

§ 43.04

Profits Interests

Chapter 44

Minimizing Social Security Taxes

§ 44.01

Minimizing Social Security Taxes

§ 44.02

Background of Prop. Reg. § 1.1402(a)-2

§ 44.03

Limited Partner Requirement

§ 44.04

“Class of Interest” Rules

§ 44.05

Subchapter K vs. Subchapter S

§ 44.06

CPAs Advice About SET Issues

§ 44.07

Reliability of the Prop. Reg.

§ 44.08

Specific Provisions in Exhibit 44-1

Exhibit 44-1

Necessary Prop. Reg. Provisions

Exhibit 44-2

Illustration: “Two-Classes-of-Interest Rule”

Chapter 45

Tax Provisions Under Subchapter S

§ 45.01

Subchapter S

§ 45.02

Key Subchapter S Provisions

§ 45.03

IRS Guidance on Subchapter S Provisions

§ 45.04

Drafting Subchapter S Provisions

Exhibit 45-1

Subchapter S Provisions in Form 4.1

Chapter 46

Bipartisan Budget Act Partnership Audit Rules

§ 46.01

The BBA Rules

§ 46.02

Terms “Partnership” and “Partner”

§ 46.03

Origins; Nine Key Rules

§ 46.04

Proposed, Temporary, and Final Regulations

§ 46.05

Impact of BBA Rules on IRS Audits

§ 46.06

TEFRA Rules vs. BBA Rules

§ 46.07

Restructuring to Qualify as an Electing Partnership

§ 46.08

Advice for Existing Partnerships

§ 46.09

Advice for Clients Considering Becoming Partners

§ 46.10

Advice for Partnerships Admitting Additional Partners

§ 46.11

Advice for Clients Forming New Partnerships

§ 46.12

Partnership Audit Provisions; Flexibility Provisions

§ 46.13

Provisions for Electing Partnerships

§ 46.14

Provisions for Ineligible Partnerships

§ 46.15

Tax Professionals as Partnership Representatives

§ 46.16

“Pull-Ins” and “Push-Outs”

§ 46.17

Making S Elections to Avoid the BBA Rules

§ 46.18

Advice by Non-Tax Lawyers

§ 46.19

Unresolved Issues

§ 46.20

Proposed BBA Partnership Audit Regulations

Chapter 47

Audit Provisions for Electing Partnerships

§ 47.01

Electing Provisions

§ 47.02

Model Provisions

§ 47.03

Model Agreement Between Partnership and Its Representative

Chapter 48

Audit Provisions for Ineligible Partnerships

§ 48.01

Ineligible Partnerships

§ 48.02

Model Provisions

§ 48.03

Model Agreement Between Partnership and Its Representative

§ 48.04

Agreement by Members to Comply with Manager’s Orders

Chapter 49

IRC Section 199A and Amended Section 11(b)

§ 49.01

Introduction

§ 49.02

Tax Cuts and Jobs Act of 2017

§ 49.03

Section 199A—Introduction and Overview

§ 49.04

Deductions for Taxpayers—Introduction

§ 49.05

Categories of Section 199A Business Owners

§ 49.06

Background Provisions

§ 49.07

Deductions for Category 1 Taxpayers

§ 49.08

Deductions for Category 2 Taxpayers

§ 49.09

Deductions for Category 3 Taxpayers

§ 49.10

Deductions for Category 4 Taxpayers

§ 49.11

Deductions for Category 5 Taxpayers

§ 49.12

Deductions for Category 6 Taxpayers

§ 49.13

Deductions for Category 7 Taxpayers

§ 49.14

Conclusion

§ 49.15

Section 199A vs. Section 11(b)

§ 49.16

Impact on Tax Choice of Entity

§ 49.17

Need for Restructuring

§ 49.18

Representing Clients Under Section 199A and Amended Section 11(b)

§ 49.19

Impact on Members, Tax Accountants, and Lawyers

§ 49.20

Additional Tax Authorities

§ 49.21

Preliminary Evaluation of Section 199A

Chapter 50

Section 199A Deductions for Farmers, Etc.

§ 50.01

Deductions for Farmers, Etc.

§ 50.02

Section 199A(g)—Legislative History

§ 50.03

Comments About Section 199A(g)

§ 50.04

Economic Importance of Farming and Farmer Cooperatives

§ 50.05

The Business of Farming

§ 50.06

Deductions For Farmers

§ 50.07

Deductions For Farmer Cooperatives—Overview

§ 50.08

Key Provisions For Cooperatives

§ 50.09

Restructuring to Obtain or Increase Deductions

§ 50.10

Miscellaneous Services For Farmers

Exhibit 50-1

Agricultural and Horticultural Cooperatives

Chapter 51

Regulations Under Section 199A; Other Administrative Authorities

§ 51.01

General Introduction

§ 51.02

Overview and Purpose of the Regulations

§ 51.03

Six-Level Formatting of the Regulations

§ 51.04

Guidelines for the Regulations

§ 51.05

Definition of “Trade or Business”

§ 51.06

Definition of “Aggregation”

§ 51.07

Definition of “Specified Service Trade or Business”

§ 51.08

Comments on the “Additional Rules”

§ 51.09

The “Principal Asset Rule”

§ 51.10

The “De Minimis” Regulation; Miscellaneous Provisions

§ 51.11

Definition of “Employment Services”

§ 51.12

Rental Real Estate Enterprises

§ 51.13

Calculating W-2 Wages

§ 51.14

Plain-English Guidelines for Computing Deductions

§ 51.15

New Form 1040, Line 9 and its Instructions

§ 51.16

Proposed Amendments to the Final Regulations

§ 51.17

§§ 1.199A-1(a) Through (c): Text and Comments

Exhibit 51-1

Table of Contents of Final Regulations

Chapter 52

Section 199A Advice for Individuals Starting New LLCs

§ 52.01

Individuals Starting New LLCs

§ 52.02

Tax Choices of Entity

§ 52.03

Four Principal Federal Tax Regimens

§ 52.04

Traditional Tax Choices of Entity

§ 52.05

Tax Choices of Entity Under Section 199A

Exhibit 52-1

Basic Information for Individuals

Exhibit 52-2

Questions to Ask Clients

Exhibit 52-3

Categories of Eligible Taxpayers; Computation Rules

Chapter 53

State and Multi-State Tax Issues

§ 53.01

Introduction

§ 53.02

Basic Concepts and Planning Techniques

§ 53.03

Potentially Relevant Issues

§ 53.04

Bibliography

 

PART IV RESTRUCTURING, CONVERSIONS, AND SALES

 

Chapter 54

Restructuring Business Organizations

§ 54.01

Business Organization Restructuring

§ 54.02

Agreements Among Entity Owners

§ 54.03

Business Organization Conversion Practice

§ 54.04

Converting Business Corporations to LLCs

Exhibit 54-1

Legal Reasons for Conversion; Federal Tax Consequences

Chapter 55

Hypothetical:  Restructuring a State-Law Business Corporation

§ 55.01

Introduction; Hypothetical Facts

§ 55.02

Using a Single-Member LLC Subsidiary

§ 55.03

The Master Intercompany Agreement

§ 55.04

Miscellaneous Points

EXHIBIT 55-1

Operating Agreement Between XYZ Holdings, LLC and XYZ Operations, LLC

EXHIBIT 55-2

Master Agreement Between XYZ Holdings and XYZ Operations

Chapter 56

Restructuring the Legal and Tax Structures of Farming Businesses

§ 56.01

Restructuring Farming Businesses

§ 56.02

Introduction to LLC Law and Tax

§ 56.03

Restructuring Law and Tax

§ 56.04

Converting Sole Proprietorships to LLCs

§ 56.05

Converting General Partnerships to LLCs

§ 56.06

Converting Business Corporations to LLCs

§ 56.07

Protecting Farm Assets

§ 56.08

Inter-Owner Agreements

§ 56.09

Protecting Against Veil-Piercing

§ 56.10

Converting C Corporations to S Corporations

§ 56.11

Social Security Taxes

§ 56.12

New Hampshire Farms and the Interest and Dividends Tax

§ 56.13

Bibliography

Chapter 57

Converting Corporations to LLCs

§ 57.01

Statutory Conversions

§ 57.02

LLC vs. Corporate Statutory Law

§ 57.03

Statutory Conversion Law—Overview

§ 57.04

PLR 200528021—Summary and  Practical Implications

§ 57.05

PLR 200548021—Summary and Practical Implications

§ 57.06

Relying on PLR 200528021 and 200548021

§ 57.07

Conclusion

§ 57.08

Self-Test on Chapter 57

Exhibit 57-1

Useful Definitions in Statutory Conversions

Chapter 58

Sales of Membership Interests to Third Parties

Exhibit 58-1

Membership Interest Purchase Agreement

 

Part V ASSET PROTECTION

 

Chapter 59

Protecting Client Assets

§ 59.01

General Introduction

§ 59.02

Part VII; Other Relevant Chapters

Chapter 60

Overview of Asset Protection Planning; Litigation

§ 60.01

The Field of Asset Protection Planning Practice

§ 60.02

 Tasks in Asset Protection Practice

§ 60.03

Importance of Insurance

§ 60.04

Asset Protection Resources

§ 60.05

Asset Protection Planning Benefits

§ 60.06

Types of Creditors

§ 60.07

Main Types of Individual Assets Protected

§ 60.08

Main Types of Business Assets Protected

§ 60.09

Techniques Available to Protect  Assets

§ 60.10

Asset Protection Litigation

Chapter 61

Fraudulent Transfer Law

§ 61.01

Introduction to Fraudulent Transfer Law

§ 61.02

Key Provisions of the UVTA

§ 61.03

Key Provisions of the UFTA

§ 61.04

Further Study

Chapter 62

Personal Morality and Legal Ethics

§ 62.01

Personal Ethics vs. Professional Responsibility

§ 62.02

Moral Issues

§ 62.03

Issues of Legal Ethics

Chapter 63

LLCs as Asset Protection

§ 63.01

LLC Practice as Asset Protection

§ 63.02

Types of Persons Whose Assets Lawyers Protect

§ 63.03

Lawyers Protect Against These Types of Creditors

§ 63.04

Tasks That Lawyers Must Handle Competently

§ 63.05

LLCs vs. Trusts as Asset Protection Vehicles

§ 63.06

Generic vs. LLC Asset Protection Planning

Exhibit 63-1  

Asset Protection Tasks in the Formation Master Checklist

Chapter 64

Asset Protection Issues in LLC Statutes

§ 64.01

“Knowing” an LLC Act

§ 64.02

Categories of Statutory Provisions

§ 64.03

Statutory Gap Issues

Exhibit 64-1

Mandatory Provisions as Asset Protection Provisions

Exhibit 64-2

Principal Default Provisions as Asset Protection Provisions

Exhibit 64-3

Non-Self-Enabling Permissive Provisions as Asset Protection Provisions

Exhibit 64-4

Self-Enabling Permissive Provisions as Asset Protection Provisions

Chapter 65

Operating Agreement Provisions Maximizing Asset Protection

§ 65.01

Maximizing Asset Protection

§ 65.02

Drafting Asset Protection Provisions

§ 65.03

Asset Protection for Single-Member LLCs

§ 65.04

Asset Protection for Multi-Member LLCs

§ 65.05

Drafting Provisions to Protect Personal Assets

§ 65.06

Clients With Asset Protection Needs

§ 65.07

Protecting Assets of a Member-Manager

 

Part VI FORM 6.2

 

 

Commentary on Form 6.2

 

Part VII RESOURCES

 

Appendix 1

Glossary of Terms of Art

Appendix 2

Delaware LLC Case Law

Appendix 3

Non-Delaware LLC Case Law

Appendix 4

Secondary Sources—Bibliography and Guidelines

Index

 

 

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