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LIST OF CHAPTERS
Chapter 1 HISTORY OF DEVELOPMENT OF UNINCORPORATED ENTITIES ...... 1
Chapter 2 CHOOSING THE RIGHT ENTITY FOR THE CLIENT ...... 13
Chapter 3 FORMATION AND MANAGEMENT AND MEMBER AND PARTNER STATUS ...... 17
Chapter 4 DUTIES AND RIGHTS OF MEMBERS AND PARTNERS . . . . . 115
Chapter 5 TRANSFER OF MEMBER AND PARTNER INTERESTS . . . . . 165
Chapter 6 CREDITOR RIGHTS ...... 179
Chapter 7 OWNER LIABILITY FOR DEBTS OF AN ENTITY, REVERSE VEIL PIERCING, AND LIABILITY TO RETURN UNLAWFUL DISTRIBUTIONS ...... 217
Chapter 8 DERIVATIVE ACTIONS ...... 277
Chapter 9 SPECIAL USES FOR LLCs AND PARTNERSHIPS ...... 285
Chapter 10 ENTITY CONVERSIONS, MERGERS, AND DIVISIONS . . . . . 303
Chapter 11 DISSOLUTION, DELINQUENCY, AND REINSTATEMENT ...... 323
Chapter 12 INCOME TAX ...... 351
Chapter 13 EMPLOYMENT TAXES ...... 435
Chapter 14 SECURITIES LAW CONSIDERATIONS ...... 451
Chapter 15 SERIES LLCs ...... 511
Chapter 16 USE OF LLCs AND LPs FOR ESTATE PLANNING ...... 561
Chapter 17 ETHICAL CONSIDERATIONS ...... 589
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Appendix A ILLUSTRATIVE FORM OF MULTI-MEMBER OPERATING AGREEMENT ...... 623
Appendix B ILLUSTRATIVE FORM OF SINGLE-MEMBER OPERATING AGREEMENT ...... 705
Appendix C LLC FORMATION CHECKLIST ...... 723
TABLE OF AUTHORITIES ...... 729
SUBJECT INDEX ...... 771
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Chapter 1 HISTORY OF DEVELOPMENT OF UNINCORPORATED ENTITIES ...... 1
§ 1.1 ENTITIES THROUGH THE CENTURIES ...... 1
§ 1.1.1—Partnerships ...... 1 § 1.1.2—Limited Partnerships ...... 2 § 1.1.3—Limited Liability Companies ...... 4 § 1.1.4—Single-Member LLCs; Limited Liability Partnerships And Limited Liability Limited Partnerships; Series LLCs ...... 5
§ 1.2 DEVELOPMENT OF UNINCORPORATED ENTITY LAW IN COLORADO ...... 6
Chapter 2 CHOOSING THE RIGHT ENTITY FOR THE CLIENT ...... 13
§ 2.1 AVAILABLE COLORADO ENTITIES ...... 13
§ 2.2 A QUICK LOOK AT CHOICE OF ENTITY ...... 13
Chapter 3 FORMATION AND MANAGEMENT AND MEMBER AND PARTNER STATUS ...... 17
§ 3.1 GENERAL REQUIREMENTS FOR FORMING LIMITED LIABILITY COMPANIES, PARTNERSHIPS, LIMITED PARTNERSHIPS, OR LIMITED LIABILITY PARTNERSHIPS ...... 19
§ 3.1.1—Statutory Filing Requirements — General ...... 19 § 3.1.2—Statutory Requirements For Forming A Limited Liability Company, Partnership, Limited Partnership, Or Limited Liability Partnership . . . . . 20 § 3.1.3—What Are The Requirements That An Entity’s Name Must Satisfy? ...... 21
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§ 3.1.4—What Are The Registered Agent Requirements For An Entity? ...... 23 § 3.1.5—Articles Of Organization, Statements Of Registration, And Certificates Of Limited Partnership — Constructive Notice ...... 23 § 3.1.6—Minors As Members And Partners ...... 25 § 3.1.7—Statement Of Correction ...... 25
§ 3.2 FORMATION AND MANAGEMENT OF LIMITED LIABILITY COMPANIES ...... 26
§ 3.2.1—Formation Of LLCs ...... 26 § 3.2.2—Management Of LLCs — Manager-Managed Or Member-Managed? ...... 30 § 3.2.3—Who Is An Agent Of The LLC? ...... 31 § 3.2.4—A Deeper Look At Agency Law ...... 39 § 3.2.5—Operating Agreements — Agreements Among The Members ...... 40 § 3.2.6—Important Areas That A Written Operating Agreement Should Address ...... 46 § 3.2.7—Voting ...... 49 § 3.2.8—Buy-Sell Arrangements ...... 54 § 3.2.9—Where Is The Buy-Sell Advantage? ...... 65
§ 3.3 LLC MEMBER STATUS ...... 67
§ 3.3.1—Admission Of The Original Members To An LLC ...... 67 § 3.3.2—Admission Of Minors As Members ...... 67 § 3.3.3—Assignment And Admission Of New Members To An LLC ...... 68 § 3.3.4—Special Provision For Admission Of Members If LLC Has No Members ...... 70 § 3.3.5—Member Contributions ...... 71 § 3.3.6—Entitlement To Distributions — LLCs ...... 71 § 3.3.7—Economic Issues ...... 72 § 3.3.8—LLCs: Resignation Or Expulsion Of A Member ...... 73
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§ 3.4 FORMATION AND MANAGEMENT OF PARTNERSHIPS AND LIMITED PARTNERSHIPS . . . 74
§ 3.4.1—Formation Of Partnerships And Limited Partnerships ...... 74 § 3.4.2—What Colorado Limited Partnerships Are Discussed In This Book? ...... 75 § 3.4.3—Can A Limited Partnership Exist Before Filing Of The Certificate Of Limited Partnership? ...... 75 § 3.4.4—Limited Liability Partnerships And Limited Liability Limited Partnerships ...... 78 § 3.4.5—Partnership Agreements ...... 78 § 3.4.6—Management Structure Of Partnerships ...... 80 § 3.4.7—Voting ...... 83 § 3.4.8—Other Matters ...... 88
§ 3.5 PARTNER STATUS ...... 88
§ 3.5.1—Admission Of New Partners ...... 88 § 3.5.2—Minors As Partners ...... 89 § 3.5.3—Transferability Of A Partnership Interest ...... 89 § 3.5.4—Entitlement To Distributions — Partnerships . . . . . 89 § 3.5.5—Economic Issues ...... 90 § 3.5.6—Resignation Or Expulsion Of A Partner Of A General Partnership ...... 90 § 3.5.7—Resignation Or Expulsion Of A General Partner Of A Limited Partnership ...... 93
Chapter 4 DUTIES AND RIGHTS OF MEMBERS AND PARTNERS . . . . . 115
§ 4.1 THE SOURCE AND NATURE OF DUTIES IN LLCs AND PARTNERSHIPS ...... 116
§ 4.2 AGENCY LAW — A COMMON SOURCE OF DUTIES IN LLCs AND PARTNERSHIPS ...... 117
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§ 4.3 DUTIES, RIGHTS, WAIVER, AND THE CONTRACTUAL OBLIGATION OF GOOD FAITH AND FAIR DEALING — LLCs ...... 118
§ 4.3.1—Statutory Duties Owed By Members And Managers ...... 118 § 4.3.2—Rights Of Members And Managers ...... 119 § 4.3.3—Waivers And Explanation In The Operating Agreement ...... 121 § 4.3.4—The Need To Distinguish Between Drafting Waivers Or Eliminations Of Duties And Drafting Elimination Of Liability ...... 124 § 4.3.5—Potential Use Of A Delaware LLC ...... 127 § 4.3.6—Freedom Of Contract, With Limitations ...... 129 § 4.3.7—The Contractual Obligation Of Good Faith And Fair Dealing ...... 129 § 4.3.8—Incorporation Of Fiduciary Duties In The Operating Agreement ...... 137 § 4.3.9—Conclusion — Operating Agreements ...... 138
§ 4.4 DUTIES, RIGHTS, WAIVER, AND THE CONTRACTUAL OBLIGATION OF GOOD FAITH AND FAIR DEALING — CUPA PARTNERSHIPS ...... 139
§ 4.4.1—Duties Of Partners Under CUPA ...... 139 § 4.4.2—Rights Of Partners Under CUPA ...... 139 § 4.4.3—Waivers And Explanation In The Partnership Agreement Under CUPA ...... 140 § 4.4.4—Conclusion Regarding CUPA Partnerships ...... 143
§ 4.5 DUTIES, RIGHTS, WAIVER, AND THE CONTRACTUAL OBLIGATION OF GOOD FAITH AND FAIR DEALING — CUPL PARTNERSHIPS ...... 143
§ 4.5.1—Duties Of Partners Under CUPL ...... 143 § 4.5.2—Conclusion Regarding CUPL Partnerships ...... 149
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§ 4.6 DUTIES, RIGHTS, WAIVER, AND THE CONTRACTUAL OBLIGATION OF GOOD FAITH AND FAIR DEALING — LIMITED PARTNERSHIPS ...... 149
§ 4.6.1—Introduction ...... 149 § 4.6.2—Conclusion Regarding Limited Partnerships . . . . . 151
Chapter 5 TRANSFER OF MEMBER AND PARTNER INTERESTS . . . . . 165
§ 5.1 DIFFERENCE BETWEEN ECONOMIC INTEREST AND MEMBERSHIP OR PARTNERSHIP INTEREST ...... 165
§ 5.1.1—Limited Liability Companies ...... 165 § 5.1.2—General Partnerships ...... 167 § 5.1.3—Limited Partnerships ...... 168
§ 5.2 TRANSFER RESTRICTIONS ...... 169
§ 5.2.1—Transfer Restrictions — Generally ...... 169 § 5.2.2—The Importance Of Transfer Restrictions ...... 169 § 5.2.3—Judicial Support Of Transfer Restrictions ...... 170
§ 5.3 TRANSFERS AT DEATH, DISABILITY, OR DISSOLUTION ...... 171
§ 5.3.1—Limited Liability Companies ...... 171 § 5.3.2—Partnerships ...... 172 § 5.3.3—Transfer Restrictions Of No Effect In Bankruptcy ...... 174
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Chapter 6 CREDITOR RIGHTS ...... 179
§ 6.1 INTRODUCTION ...... 180
§ 6.2 GENERAL DISCUSSION ...... 180
§ 6.2.1—Introduction ...... 180 § 6.2.2—General Discussion Of A Security Interest ...... 182
§ 6.3 PRE-DEBT NEGOTIATION ...... 183
§ 6.3.1—Grant Of A Security Interest In A Membership Interest Or Partnership Interest ...... 183 § 6.3.2—Treatment Under UCC Article 8 ...... 183 § 6.3.3—Sample Agreement Language For Article 8 Election ...... 186 § 6.3.4—Need For A Control Agreement ...... 187
§ 6.4 POST-DEBT COLLECTION ...... 189
§ 6.4.1—Charging Orders ...... 189 § 6.4.2—Development Of Charging Orders ...... 189 § 6.4.3—Colorado Charging Order Statutes ...... 190 § 6.4.4—Summary Of Colorado Charging Order Statutes ...... 191 § 6.4.5—Charging Orders — Colorado LLCs ...... 192 § 6.4.6—Charging Orders — Colorado LLPs, LPs, And LLLPs ...... 193 § 6.4.7—Dueling Charging Orders ...... 194 § 6.4.8—Is The Charging Order The Sole Remedy? ...... 195 § 6.4.9—Who Are The Necessary Parties To An Action Seeking A Charging Order? ...... 196 § 6.4.10—What Does A Creditor Get With A Charging Order? ...... 197 § 6.4.11—Is The Availability Or Not Of Foreclosure Significant? ...... 199
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§ 6.5 CREDITOR RIGHTS IN OTHER STATES ...... 199
§ 6.5.1—Delaware, Kansas, Wyoming, And Nevada ...... 199 § 6.5.2—Must Colorado Apply Another State’s Charging Order Statute? ...... 202
§ 6.6 CONCLUSIONS REGARDING POST-DEBT COLLECTION ...... 204
Chapter 7 OWNER LIABILITY FOR DEBTS OF AN ENTITY, REVERSE VEIL PIERCING, AND LIABILITY TO RETURN UNLAWFUL DISTRIBUTIONS ...... 217
§ 7.1 INTRODUCTION ...... 217
§ 7.2 OWNER LIABILITY FOR DEBTS OF AN ENTITY ...... 218
§ 7.2.1—General ...... 218 § 7.2.2—Statutory Provisions Regarding Liability Of Owner For Debts Of LLC, Partnership, Or LP . . . 218 § 7.2.3—Veil Piercing In General ...... 221 § 7.2.4—Multi-Member Limited Liability Companies . . . . 223 § 7.2.5—Piercing The Veil Of An LLP Or LLLP ...... 232 § 7.2.6—Reverse Veil Piercing ...... 232 § 7.2.7—Piercing Conclusion ...... 235 § 7.2.8—Single-Member LLCs ...... 236 § 7.2.9—Possible Direct Liability Of Owners ...... 244 § 7.2.10—Other Bases For Holding Equity Owners Liable For The Debts Of The Entity ...... 254
§ 7.3 LIABILITY TO RETURN UNLAWFUL DISTRIBUTIONS ...... 254
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Chapter 8 DERIVATIVE ACTIONS ...... 277
§ 8.1 DERIVATIVE ACTIONS — GENERALLY ...... 277
§ 8.2 STAY AND DISMISSAL ...... 278
§ 8.3 DETERMINATION BY INDEPENDENT DECISION-MAKERS ...... 278
§ 8.4 MODIFICATION OF DERIVATIVE LITIGATION RIGHTS ...... 281
§ 8.5 FEDERAL LITIGATION ...... 281
Chapter 9 SPECIAL USES FOR LLCs AND PARTNERSHIPS ...... 285
§ 9.1 SINGLE (OR SPECIAL) PURPOSE ENTITIES (SPEs) ...... 285
§ 9.2 USE OF LLCs OR LLPs FOR JOINT VENTURES . . . 288
§ 9.3 USE OF LLCs OR PARTNERSHIPS FOR REGULATED BUSINESSES ...... 289
§ 9.4 LLCs AS SPECIAL PURPOSE ENTITIES ...... 294
§ 9.4.1—Single-Member LLCs — Single-Purpose Entities And The Corporate Family Doctrine . . . . 294
§ 9.5 USE OF LLCs AS AN S CORPORATION ...... 298
Chapter 10 ENTITY CONVERSIONS, MERGERS, AND DIVISIONS . . . . . 303
§ 10.1 CONVERSIONS ...... 304
§ 10.1.1—Procedure For Conversion ...... 304 § 10.1.2—State Law Effects Of Conversion ...... 306 § 10.1.3—Federal Tax Consequences Of Conversion . . . . . 306
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§ 10.2 MERGERS ...... 309
§ 10.2.1—Procedure For Merger ...... 309 § 10.2.2—State Law Effects Of Merger ...... 309 § 10.2.3—Federal Tax Effects Of Mergers ...... 310
§ 10.3 DIVISIONS ...... 312
§ 10.4 DISSENTERS’ RIGHTS ...... 313
§ 10.5 VOTING REQUIREMENTS ...... 314
§ 10.6 OOPS, WE SHOULDN’T HAVE CONVERTED/ MERGED/DIVIDED — CAN WE UNWIND THE TRANSACTION WITHOUT TAX CONSEQUENCES? ...... 314
§ 10.7 TAX-ONLY CONVERSIONS ...... 318
Chapter 11 DISSOLUTION, DELINQUENCY, AND REINSTATEMENT ...... 323
§ 11.1 DISSOLUTION OF LIMITED LIABILITY COMPANIES ...... 325
§ 11.1.1—Dissolution Of An LLC ...... 325 § 11.1.2—LLC Dissolution — Filing Requirements ...... 325 § 11.1.3—Winding-Up Process ...... 326 § 11.1.4—Involuntary Dissolution Of LLCs ...... 327 § 11.1.5—Disposition Of Claims Against A Dissolved LLC ...... 328
§ 11.2 DISSOLUTION OF GENERAL AND LIMITED PARTNERSHIPS ...... 330
§ 11.2.1—Dissolution Of A Partnership Under CUPA . . . . . 330 § 11.2.2—Dissolution Of A Partnership Under CUPL . . . . . 332 § 11.2.3—Winding Up ...... 333 § 11.2.4—Statement Of Dissolution ...... 335 § 11.2.5—Dissolution Of A Limited Partnership ...... 336
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§ 11.3 LLPs AND LLLPs ...... 337
§ 11.3.1—Generally ...... 337 § 11.3.2—Withdrawal Of Registration ...... 337
§ 11.4 DELINQUENCY ...... 337
§ 11.4.1—Reporting Requirements ...... 337 § 11.4.2—Delinquency ...... 338
§ 11.5 REINSTATEMENT OF DISSOLVED ENTITIES . . . . . 341
§ 11.5.1—Reinstatement Of Dissolved Entities ...... 341
Chapter 12 INCOME TAX ...... 351
§ 12.1 INCOME TAX — PARTNERSHIPS ...... 352
§ 12.1.1—Recognition Of An Unincorporated Entity As A Partnership — Beyond The Check-The-Box Regulations ...... 352 § 12.1.2—Taxation Upon Formation Of Partnerships — General Rule Of Non-Taxability ...... 359 § 12.1.3—Exceptions To General Rule Of Non-Taxability Upon Formation Of Partnerships ...... 359 § 12.1.4—Basis Of Partnership Interest And Basis To Partnership ...... 362 § 12.1.5—Taxation Of Operations Of Partnerships ...... 362 § 12.1.6—Taxation Of Distributions From Partnerships . . . 376 § 12.1.7—Partner Not Acting In Capacity Of Partner; Guaranteed Payments ...... 378 § 12.1.8—Receipt Of Partnership Interest For Services . . . 379 § 12.1.9—Taxation Upon Sale Or Exchange Of Partnership Interest ...... 387 § 12.1.10—Taxation Upon Liquidation/Termination Of Partnerships ...... 389 § 12.1.11—Partnerships With Foreign Partners ...... 391
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§ 12.1.12—Non-Compensatory Options Issued By Partnerships ...... 392 § 12.1.13—Partnership Audit Procedures And Tax Assessments Against Partnerships ...... 396
§ 12.2 INCOME TAX — CORPORATIONS ...... 397
§ 12.2.1—C Corporations In General ...... 398 § 12.2.2—S Corporations In General ...... 398 § 12.2.3—Taxation Upon Formation — Corporations . . . . . 402 § 12.2.4—Taxation Of Operations — C Corporations . . . . . 409 § 12.2.5—Taxation Of Operations — S Corporations . . . . . 410 § 12.2.6—Taxation Upon Liquidation — C Corporations . . 412 § 12.2.7—Taxation Upon Liquidation — S Corporations . . . 413 § 12.2.8—Use Of LLCs As An S Or C Corporation ...... 413 § 12.2.9—Conversion Of An S Corporation Into An LLC To Be Treated As An S Corporation ...... 417 § 12.2.10—Just Because You Can Doesn’t Mean You Should ...... 418
Chapter 13 EMPLOYMENT TAXES ...... 435
§ 13.1 CORPORATE EMPLOYEES ...... 436
§ 13.1.1—Corporate Employees — General ...... 436 § 13.1.2—Employee Shareholders Of S Corporations . . . . . 436 § 13.1.3—Employee Shareholders Of C Corporations . . . . 437
§ 13.2 PARTNERS, SELF-EMPLOYED INDIVIDUALS, AND DISREGARDED ENTITIES ...... 437
§ 13.2.1—Determination Whether An Entity Is A Partnership ...... 437 § 13.2.2—Self-Employment Tax ...... 438 § 13.2.3—Self-Employment Tax Not Applicable To Limited Partners ...... 438 § 13.2.4—Self-Employment Tax And Disregarded Entities ...... 439
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§ 13.3 PATIENT PROTECTION AND AFFORDABLE CARE ACT (PPACA) ...... 439
§ 13.4 GENERAL PARTNER OR LIMITED PARTNER FOR SELF-EMPLOYMENT TAX PURPOSES? ...... 440
§ 13.4.1—Partnerships ...... 440 § 13.4.2—Limited Liability Companies ...... 440
§ 13.5 1994 PROPOSED REGULATIONS ...... 440
§ 13.6 1997 PROPOSED REGULATIONS ...... 441
§ 13.7 WHAT SHOULD BE DONE? ...... 443
§ 13.7.1—Current Law ...... 443 § 13.7.2—A Possible But Likely Erroneous Assumption . . . 443 § 13.7.3—Assume That The 1997 Proposed Regulations Are Close To What The Final Regulations Will Look Like ...... 443 § 13.7.4—Other Planning Possibilities ...... 445 § 13.7.5—Conclusion — And Perhaps An Answer — But Maybe Not The Answer Wanted ...... 445
Chapter 14 SECURITIES LAW CONSIDERATIONS ...... 451
§ 14.1 INTRODUCTION ...... 452
§ 14.2 DEFINITION OF A SECURITY ...... 453
§ 14.2.1—General ...... 453 § 14.2.2—The Williamson Presumption And Economic Realities ...... 456 § 14.2.3—Interests In General Partnerships, Limited Liability Partnerships, And Limited Partnerships ...... 460 § 14.2.4—Interests In Limited Liability Companies ...... 461 § 14.2.5—Rejection Of The Sale Of A Business Doctrine ...... 465
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§ 14.3 FEDERAL REGULATION ...... 466
§ 14.3.1—Federal Statutory Exemptions ...... 466 § 14.3.2—Regulation D ...... 472 § 14.3.3—Important Defined Terms In Regulation D . . . . . 473 § 14.3.4—Integration Of Offerings ...... 474 § 14.3.5—Information Required ...... 475 § 14.3.6—Restriction On Manner Of Offering ...... 477 § 14.3.7—Limitations On Resale ...... 477 § 14.3.8—Rule 504 ...... 478 § 14.3.9—Rule 505 ...... 479 § 14.3.10—Rule 506 ...... 479 § 14.3.11—Filing Notice Of Sales ...... 482
§ 14.4 STATE REGULATION ...... 483
§ 14.5 REGISTRATION REQUIREMENTS AND EXEMPTIONS IN COLORADO ...... 484
§ 14.5.1—Colorado’s Registration Requirements ...... 484 § 14.5.2—Exemptions From Securities Registration Under Colorado Law ...... 487 § 14.5.3—Interplay Of Federal And State Securites Law . . . 489 § 14.5.4—Multi-State Offerings ...... 490
§ 14.6 DISCLOSURE ISSUES ...... 491
§ 14.7 FINDERS AND BROKER-DEALERS ...... 491
§ 14.7.1—Finders And Broker-Dealers Generally ...... 491 § 14.7.2—Business Brokers ...... 493 § 14.7.3—M&A Brokers ...... 494 § 14.7.4—Industry Websites Are Incomplete At Best . . . . . 496
§ 14.8 WHAT CAN GO WRONG — CIVIL LITIGATION AND ENFORCEMENT ISSUES ...... 496
§ 14.8.1—General ...... 496 § 14.8.2—Registration Requirements Are Separate And Distinct From Anti-Fraud Provisions ...... 497
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Chapter 15 SERIES LLCs ...... 511
§ 15.1 ORIGIN OF SERIES CONCEPT ...... 512
§ 15.1.1—Dawn Of Series LLCs ...... 513 § 15.1.2—Several Potential Reasons For Using A Series LLC ...... 515
§ 15.2 STATUS AS A SEPARATE STATE-LAW ENTITY . . . . 516
§ 15.2.1—Individual Series Generally Not A Separate State-Law Entity ...... 516 § 15.2.2—Absence Of Separate Entity Status Consistent With Statutory Trusts ...... 517 § 15.2.3—Significance Of Non-Separate Entity Status . . . . 517 § 15.2.4—Significance Of Separate Entity Status ...... 518
§ 15.3 DUTIES AND INFORMATION RIGHTS IN SERIES LLCs ...... 520
§ 15.4 SERIES LLCs AND THE UCC, FEDERAL AND STATE TAX LAW, AND SECURITIES LAW ISSUES ...... 524
§ 15.4.1—UCC ...... 524 § 15.4.2—Federal And State Taxation ...... 525 § 15.4.3—Securities Law Issues ...... 526
§ 15.5 FOREIGN QUALIFICATION ISSUES ...... 528
§ 15.5.1—The Problem ...... 528 § 15.5.2—Foreign Qualification — Non-Series State . . . . . 528 § 15.5.3—Foreign Qualification Issues—Series State . . . . . 529
§ 15.6 INTERNAL LIABILITY SHIELDS IN A NON-SERIES STATE ...... 531
§ 15.7 CASES INVOLVING SERIES LLCs ...... 533
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§ 15.8 SERIES LLCs AND THE FUTURE ...... 537
§ 15.8.1—What Issues Should Be Analyzed By A State When Considering Whether To Adopt Or Modify Series Provisions? ...... 537 § 15.8.2—When Should A Series LLC Be Used? ...... 540 § 15.8.3—What Public Notice Of The Formation Of A Series Is Appropriate? ...... 541 § 15.8.4—Areas Of Potential Confusion And Uncertainty ...... 542 § 15.8.5—Conclusion ...... 544
Chapter 16 USE OF LLCs AND LPs FOR ESTATE PLANNING ...... 561
§ 16.1 CURRENT ESTATE, GIFT, AND GENERATION-SKIPPING TAX BASICS ...... 562
§ 16.1.1—Basic Exclusion ...... 562 § 16.1.2—Gift Tax Exclusion ...... 563 § 16.1.3—Net Effect Of Current Law ...... 563
§ 16.2 VALUATION DISCOUNTS ...... 564
§ 16.2.1—Proposed Regulations Would Dramatically Change The Rules For Valuation Discounts . . . . 564 § 16.2.2—Valuation Discounts Before The Proposed Valuation Regulations ...... 565
§ 16.3 ADJUSTMENTS TO BASIS ...... 568
§ 16.4 ESTATE AND GIFT TAX PLANNING WHEN CLIENT OWNS STOCK IN AN S CORPORATION ...... 570
§ 16.5 IRS ATTACKS ON FLPs AND FLLCs ...... 570
§ 16.5.1—I.R.C. §§ 2703 And 2704 ...... 570 § 16.5.2—The Strangi Case ...... 572
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§ 16.6 DEVELOPMENTS SINCE STRANGI ...... 574
§ 16.6.1—Kimbell v. United States ...... 574 § 16.6.2—Estate of Mirowski v. Commissioner ...... 575 § 16.6.3—Holman v. Commissioner ...... 577 § 16.6.4—Astleford v. Commissioner ...... 579 § 16.6.5—Gross v. Commissioner ...... 579 § 16.6.6—Estate of Clyde W. Turner, Sr. v. Commissioner ...... 579 § 16.6.7—Estate of Joanne Harrison Stone v. Commissioner ...... 580 § 16.6.8—United States v. Byrum ...... 580 § 16.6.9—Estate of Barbara M. Purdue v. Commissioner ...... 580
§ 16.7 AVOIDING A SUCCESSFUL IRS CHALLENGE . . . . . 581
§ 16.8 POTENTIAL ADDITIONAL BENEFITS OF USING LLCs/LPs FOR ESTATE PLANNING ...... 583
§ 16.9 CONCLUDING THOUGHTS ...... 583
Chapter 17 ETHICAL CONSIDERATIONS ...... 589
§ 17.1 ETHICAL CONSIDERATIONS IN GENERAL ...... 590
§ 17.1.1—The Basics ...... 590 § 17.1.2—Who Is The Client? ...... 590 § 17.1.3—Representation Of Multiple Clients — Conflicts Of Interest ...... 594 § 17.1.4—Representation Of An Entity To Be Formed . . . . 596 § 17.1.5—Colo. RPC 1.13 — Organization As Client . . . . . 596 § 17.1.6—Potential Issues In Multiple Representation . . . . 598 § 17.1.7—May The Lawyer Represent Only The Entity To Be Formed? ...... 598 § 17.1.8—Nonconsentable Conflicts ...... 600 § 17.1.9—What Must Be Communicated To The Client To Obtain Informed Consent? ...... 601 § 17.1.10—Entity Adverse To A Constituent ...... 603
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§ 17.2 DOING BUSINESS WITH A CLIENT ...... 604
§ 17.2.1—Accepting An Ownership Interest For Fees . . . . . 604 § 17.2.2—Business Dealings With Clients Are Fraught With Peril ...... 605 § 17.2.3—It Can Be Done If You Are Willing To Accept The Risk ...... 606 § 17.2.4—Invest In The Client; Do Not Take Ownership Interest For Fees ...... 608 § 17.2.5—There Are Still Other Issues ...... 608 § 17.2.6—If You Are Going To Take An Ownership Interest In A Client, Follow The Rules ...... 609
§ 17.3 CONFIDENTIALITY — THE LAWYER’S OBLIGATION TO KEEP A CLIENT’S SECRETS . . . . 610
§ 17.4 FORMAL OPINION 113 — ETHICAL DUTIES TO DISCLOSE ERRORS TO THE CLIENT ...... 613
§ 17.5 FORMAL OPINION 80 — LAWYER’S DUTY TO DISCLOSE MISTAKES IN COMMERCIAL CLOSING ...... 614
§ 17.6 RECOVERY IN QUANTUM MERUIT WHEN NOT ALL AGREED WORK UNDER FLAT FEE AGREEMENT PERFORMED ...... 615
§ 17.7 FORMAL OPINION 126 — REPRESENTING THE ADULT CLIENT WITH DIMINISHED CAPACITY ...... 616
Appendix A ILLUSTRATIVE FORM OF MULTI-MEMBER OPERATING AGREEMENT ...... 623
Appendix B ILLUSTRATIVE FORM OF SINGLE-MEMBER OPERATING AGREEMENT ...... 705
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Appendix C LLC FORMATION CHECKLIST ...... 723
TABLE OF AUTHORITIES ...... 729
SUBJECT INDEX ...... 771
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