Operating Agreement

Fennimore Larch LLC is a manager-managed limited liability company with six members. Its designated manager, Rolf Kettleby, comes into a branch of Ashwold Crane Securities to open an account for the company and says that as manager he alone is authorised to trade. Two other members telephone the branch separately, each insisting that no trade should be placed without their approval. What document should the firm obtain and rely on?

1. A.A corporate resolution, since an LLC is treated as a corporation for account documentation purposes.An LLC is not a corporation and its authority derives from its operating agreement, not from corporate formalities.
2. B.The operating agreement and any authorising resolution, which determine who may bind the company on the account.Correct. The LLC's governing document establishes whether the manager may act alone or whether member approval is required.
3. C.Written consent from a majority of the six members, since members are the ultimate owners of the company.Ownership does not determine authority. The operating agreement may vest full trading authority in the manager alone.
4. D.Nothing further; a designated manager has authority over company assets as a matter of law.There is no such automatic rule. A manager's powers are whatever the operating agreement confers.

Why: The firm should obtain the LLC's OPERATING AGREEMENT, together with any authorising resolution the company adopts, and identify from those documents exactly who may bind the company on the account. A limited liability company is a creature of its own governing document: whether it is member-managed or manager-managed, and what authority a manager has to deal in the company's assets, are set out there rather than supplied by any default assumption. The competing telephone calls are not resolved by counting voices or by deferring to whoever calls last. If the operating agreement confers trading authority on the manager, Rolf may act alone; if it requires member approval, it does not matter how confidently he asserts otherwise. The firm reads the document and records who is authorised.

When a private placement issuer is organized as a limited liability company (LLC) rather than a corporation, what does a "membership interest" typically represent?

1. A.An equity-like ownership interest in the LLC, governed by the operating agreement rather than corporate bylaws, analogous in economic function to stock in a corporation.Correct. A membership interest is the LLC equivalent of corporate stock, governed by the operating agreement.
2. B.A fixed-income debt claim entitling the holder to scheduled interest payments regardless of the LLC's performance.Wrong. That describes a debt instrument, not a membership interest.
3. C.A right to use the issuer's physical facilities without any financial stake in the entity.Wrong. This is unrelated to the economic and governance function of a membership interest.
4. D.A short-term loan that automatically converts to LLC equity after a stated holding period.Wrong. That describes a convertible note feature, not what a membership interest itself represents.

Why: A membership interest is an equity-like ownership interest in the LLC, governed by the operating agreement rather than corporate bylaws, and it functions economically much like stock in a corporation. It is not a fixed-income claim, a facilities-use right, or a short-term loan that later converts.