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South Carolina Limited LiabilityCompanies20-35Friday, September 18, 2020presented byThe South Carolina BarContinuing Legal Education Divisionhttp://www.scbar.org/CLESC Supreme Court Commission on CLE Course No. 207561ADO

Table of ContentsAgenda . 3Speaker Biographies . 4Overview of the S.C. Uniform Limited Liability Company Act .7David A. Merline, Jr. and Scott Y. BarnesChoice of Entity .88Scott Y. BarnesCapital Accounts .151Scott Y. BarnesSecurities .179Suzanne H. ClawsonSingle Members LLCs, LLCs taxed as S Corps, Professional LLCs, LLCs used in EstatePlanning .204David A. Merline, Jr.Case Law Update .230Stafford J. McQuillin, IIICurrent Events in Ethics and Discipline .231Barbara SeymourSC Bar-CLE publications and oral programs are intended to provide current and accurate informationabout the subject matter covered and are designed to help attorneys maintain their professionalcompetence. Publications are distributed and oral programs presented with the understanding that the SCBar-CLE does not render any legal, accounting or other professional service. Attorneys using SC Bar-CLEpublications or orally conveyed information in dealing with a specific client's or their own legal mattersshould also research original sources of authority. 2020 by the South Carolina Bar-Continuing Legal Education Division. All Rights ReservedTHIS MATERIAL MAY NOT BE REPRODUCED IN WHOLE OR IN PART WITHOUT THEEXPRESS WRITTEN PERMISSION OF THE CLE DIVISION OF THE SC BAR.TAPING, RECORDING, OR PHOTOGRAPHING OF SC BAR-CLE SEMINARS OR OTHER LIVE,BROADCAST, OR PRE-RECORDED PRESENTATIONS IS PROHIBITED WITHOUT THE EXPRESSWRITTEN PERMISSION OF THE SC BAR - CLE DIVISION.

LIVE WEBCASTSouth Carolina Limited Liability CompaniesSeptember 18, 2020This program qualifies for 5.0 MCLE Credit Hours, including up to 1.0 LEPR Credit HourSC Supreme Commission on CLE Course #:207561ADO8:50 a.m.Welcome and Opening Remarks9:00 a.m.Overview of the S.C. Uniform Limited Liability Company ActDavid A. Merline, Jr., Merline & Meacham, PAScott Y. Barnes, Haynsworth Sinkler Boyd, PA10:00 a.m.Choice of EntityScott Y. Barnes, Haynsworth Sinkler Boyd, PA10:20 a.m.Break10:35 a.m.Capital AccountsScott Y. Barnes, Haynsworth Sinkler Boyd, PA11:05 a.m.SecuritiesSuzanne H. Clawson, Haynsworth Sinkler Boyd, PA11:35 a.m.Single Members LLCs, LLCs taxed as S Corps, Professional LLCs, LLCs used in EstatePlanningDavid A. Merline, Jr., Merline & Meacham, PA12:15 p.m.Lunch Break1:15 p.m.Case Law UpdateStafford J. McQuillin, III, Haynsworth Sinkler Boyd, PA2:15 p.m.Current Events in Ethics and DisciplineBarbara Seymour, Clawson & Staubes, LLC3:15 p.m.Adjourn

South Carolina Limited LiabilityCompaniesSPEAKER BIOGRAPHIES(by order of presentation)David A. Merline, Jr.Merline & Meacham, PA(course planner)Professional Qualifications South Carolina Supreme Court, Certified Specialist in Taxation Law South Carolina Supreme Court, Certified Specialist in Estate Planning and Probate Law AV Preeminent rated by Martindale-Hubbell Peer Review Ratings Professional Associations and Memberships American College of Trust and Estate Counsel (Fellow) American Bar Association – Business Law Section (Member) South Carolina Bar – Probate, Estate Planning and Trust Section (Member) South Carolina Bar – Tax Law Section (Member) Greenville County Bar Association (Member) Greenville Estate Planning Council (Member) Greenville County Estate Planning Study Group (Member) Rotary Club of Greenville – Paul Harris FellowAwards and Honors Ranked as a Leading Attorney in Private Wealth Law in South Carolina by Chambers Professional Advisers (2019– 2020) Listed in The Best Lawyers in America for 2021 in the fields of: o Corporate Law (Lawyer of the Year 2021 inGreenville, SC)o Employee Benefits (ERISA) Law (Lawyer of the Year 2017 in Greenville, SC)o Litigation – ERISA (Lawyer of the Year 2019 in Greenville, SC)o Litigation – Trusts and Estateso Litigation and Controversy -Taxo Mergers & Acquisitions Lawo Non-Profit/Charities Lawo Tax Law (Lawyer of the Year 2010 in Greenville, SC)o Trusts and Estates (Lawyer of the Year 2018 in Greenville, SC) Best Lawyers in America previous Lawyer of the Year in the fields of: o Business Organizations (includingLLCs and Partnerships) (Lawyer of the Year 2013, 2016 and 2020 in Greenville, SC)o Closely Held Companies and Family Businesses Law (Lawyer of the Year 2014 in Greenville, SC) Greenville Business Magazine Legal Elite (2012-Present) South Carolina Super Lawyers (2008-Present)Education University of Miami, (LL.M) Taxation (1985) University of South Carolina School of Law, (J.D.) (1983) Furman University, (B.A.) Magna Cum Laude (1980)Publications and Presentations

Scott Y. BarnesHaynsworth Sinkler Boyd, PAScott Y. Barnes is Of Counsel to the law firm of Haynsworth Sinkler Boyd, PA in its Charleston, South Carolina office.His practice revolves around federal and state tax issues as they relate primarily to real estate transactions, partnership taxation, limited liability companies, conservation easements and corporate formation and operations. He is anadjunct professor at the Charleston School of Law where he teaches a class on Limited Liability Companies and wasformerly an adjunct professor at the University of South Carolina School of Law. He has been listed for the last 27years in The Best Lawyers in America by Woodward White, Inc. in the Corporate, Business Organizations (includingLLC and Partnerships) and Tax Sections, and was named Charleston Lawyer of the Year for 2011 in Corporate Lawand 2012 for Tax Law. He is currently and has been listed as a South Carolina Super Lawyer for tax since 2008.Suzanne H. ClawsonHaynsworth Sinkler Boyd, PASuzi is a shareholder with Haynsworth Sinkler Boyd, P.A. She represents both public and private issuers with respect to securities registration and exemptions from registration and reporting compliance issues, while also advisingpublic and private company clients on both sides of merger and acquisition transactions. Suzi has participated ascounsel in numerous IPOs and other registered offerings. She routinely advises public companies on SEC annualand quarterly reporting requirements, proxy matters, and insider trading issues, as well as stock exchange listing andreporting requirements. She has also acted as counsel in going private transactions, tender offers and proxy contests.Suzi also advises on corporate governance issues, including corporate structure, committee charters and governance principles, director and committee independence, related party transaction issues, and fiduciary duties of directors.Stafford J. McQuillin, IIIHaynsworth Sinkler Boyd, PAA versatile litigation attorney with deep ties to his native Charleston, South Carolina, Mac McQuillin blends an established LLC and partnership litigation practice with an emerging practice as a certified Circuit Court Mediator. He frequently represents managers and members of LLCs in “business divorce” cases involving breach of fiduciary duty,oppression, buy out disputes, and misappropriation of company funds. He has participated in numerous mediationsinvolving LLC and partnership disputes as both an advocate and as a mediator. He regularly advises LLC and partnership clients in complex matters, and has extensive experience with both jury and non-jury trials. As lead trialcounsel, Mac recently tried to verdict an LLC derivative action, involving multi-million dollar claims.Mac is listed in The Best Lawyers in America Commercial Litigation (2020-2021) and South Carolina Super Lawyers “Rising Stars” Business Litigation (2014-2020). In 2017, Mac was awarded the South Carolina Lawyers Weekly Leadership in Law Award and recognized by Charleston Business Magazine as one of the "Legal Elite of the Lowcountry."Mac is a frequent speaker on LLC and litigation topics, including "Irreconcilable Differences - LLC Disputes - Business Divorce Cases,” “Managing Your Liability When Clients Breach Their Fiduciary Duties,” and "How to Get YourSocial Media, Email and Text Evidence Admitted (and Keep Theirs Out)." University of South Carolina, J.D., cum laude, 2009 (Order of Coif) University of South Carolina, B.A., magna cum laude, 2005

Barbara SeymourClawson & Staubes, LLCBarbara Seymour represents lawyers, law firms, judges, and law students in matters related to ethics, professionaldiscipline, and Bar admissions at the law firm of Clawson and Staubes, LLC in Columbia, SC. She earned her Bachelor’s Degree in Management and Marketing from the University of North Carolina at Greensboro in 1990 and herJuris Doctor from the University of Georgia in 1993. Barbara worked as a trial lawyer at Harris & Graves until 2000when she joined the staff of the Office of Disciplinary Counsel. She served as the Deputy Disciplinary Counsel from2007 until 2017. Barbara is a member of the South Carolina Bar, the Georgia State Bar, the Association of Professional Responsibility Lawyers, the South Carolina Association of Ethics Counsel, and the South Carolina WomenLawyers Association. She currently serves on the Law Related Education, Professional Responsibility, UnauthorizedPractice of Law, Future of the Profession, and Diversity Committees at the South Carolina Bar. She was a 2006 and2011 Fellow of the National Institute for the Teaching of Ethics and Professionalism. Barbara has served as an adjunct instructor in the Professional Legal Assistants Program at Converse College and the Paralegal Degree Program at Midlands Technical College. Her courses have included Civil Litigation, Legal Research & Writing, BusinessLaw, Torts, Legal Ethics, and Law Office Management. www.linkedin.com/in/barbaraseymour

Overview of the S.C. Uniform Limited LiabilityCompany ActDavid A. Merline, Jr.Scott Y. Barnes

OVERVIEW OF THE 1996 UNIFORMLIMITED LIABILITY COMPANY ACTSouth Carolina Bar September 18, 2020Scott Y. Barnes, Haynsworth Sinkler Boyd, P.A.David Merline, Jr., Merline & Meacham, P.A.

OVERVIEW South Carolina remains under the 1996Uniform Act and has not adopted the 2006Uniform Limited Liability Company Act.2

FORMING THE LLC

FORMING THE LLC At Will v. Term––At will – perpetual existenceTerm – specific term4

CHARGING ORDER TRAP– Creditor of a member in an at will company can foreclosethat member's membership interests.– The creditor following foreclosure has the rights of atransferee.– A transferee in an at will company can require the limitedliability company to purchase the transferee creditorsdistributional interest for fair value.– Term company transferee creditor can only be bought out atthe end of the term.5

WITHDRAWAL RIGHTS UNDER THE ACT At Will – Member may withdraw at any time. Term – Member may withdraw only at the endof the term.6

"MANAGER MANAGED/MEMBER MANAGED" Manager Managed – only the manager hasapparent authority to act on behalf of the LLC Member Managed – all members haveapparent authority to act on behalf of the LLC7

DESIGNATED OFFICE/DESIGNATED AGENT Designated office must be located in SouthCarolina. Registered Agent must be:– a resident of South Carolina, or– a domestic corporation or LLC, or– a foreign company authorized to do business in SC8

NAME AND NUMBER OF MEMBERS Name– "Limited Liability Company", "Limited Company","L.L.C.", "LLC", "L.C.", "LC" or "Ltd. Co." Number of Members– An LLC can have as few as one member– An LLC can have an unlimited number of members9

CAPITAL CONTRIBUTIONS Members of an LLC have a capital account. Capital accounts go up by the amount of:– Cash or the fair market value of propertycontributed by a member– Profits allocated to a member Capital accounts go down by the amount of:– Cash or the fair market value of propertydistributed to a member– Losses allocated to a member10

LLC IS A SEPARATE LEGAL ENTITY Once the Articles of Organization are filed, anLLC is an entity separate and distinct from itsmembers. A membership interest in an LLC is an item ofpersonal property.11

KNOWLEDGE AND NOTICE

KNOWLEDGE AND NOTICE An LLC has knowledge and notice when anindividual conducting the transaction for theLLC knows, has notice, or receives a notificationof the fact or when the fact would have beenbrought to the individuals attention had theentity exercised reasonable diligence.13

FINANCIAL STRUCTURE

FINANCIAL STRUCTURE The LLC Act has no provision for profit & losssharing. The Operating Agreement must specify:– the arrangement, and– how distributions of cash and other property aremade to members With certain exceptions, care must be takenthat distributions track the allocation of profits.15

FINANCIAL STRUCTURE Because members of an LLC are not employeesbut rather partners for tax purposes, they willreceive a K-1 rather than a W-2 at the end ofthe year. Members who work for an LLC and receive a"salary" are not treated as employees for taxpurposes. The "salary" is treated as a"guaranteed payment" and reported on themembers K-1.16

OPERATING AGREEMENT

OPERATING AGREEMENT Members of an LLC may enter into anOperating Agreement which can be written ororal. If there is no written OperatingAgreement, the members "course or conduct"may raise to the level of an OperatingAgreement.18

OPERATING AGREEMENT The terms of the Operating Agreement will overridethe provisions of the Act, with one exception. S.C. Code Ann. §33-44-103 prohibits the operatingagreement from changing the following items:–––––Limit a member's rights to inspect recordsReduce certain fiduciary dutiesVary the right to expel membersVary the duty to wind up in certain circumstancesRestrict the rights of third parties19

OPERATING AGREEMENT Section 33-44-404 of the Act lists those matterswhich, if not otherwise provided for in theOperating Agreement, require the unanimousconsent of the members –– Amend the Operating Agreement– Amend the duty of loyalty– Amend the Articles of Organization– Compromise the obligation to make a capitalcontribution20

OPERATING AGREEMENT– Compromise the obligation of a member to returnmoney or property wrongfully paid or distributed– Make interim distributions– Redeem a members interest– Admit a new member– Use company property to redeem an interestsubject to a charging order– Consent to dissolve the company21

OPERATING AGREEMENT– Waive the right to have the company's businesswound up following dissolution– Merge with another entity– Sale of substantially all the assets of the company22

MANAGEMENT

MEMBER MANAGED OR MANAGER MANAGED In a Member Managed Company:– Each member has equal rights in the managementand conduct the company's business; and– Has apparent authority to act on behalf of thecompany. In a Manager Managed Company:– Each manager has equal rights in the managementand conduct of the company's business.– Only a manager has apparent authority to act onbehalf of the company.24

VOTING Other than the provisions of S.C. Code Ann.§33-44-404(c) which requires unanimousconsent of the members, the Act requiresmajority vote. The Operating Agreement canmodify these voting requirements.25

REAL ESTATE TRANSFERS – 33-44-301(C) For real estate transfers a manager of a managermanaged LLC or any member of a member managedLLC may execute and deliver real estate transferdocuments and a third party giving value withoutknowledge of lack of authority may rely upon theauthority of the member/manager signing documents. The Articles of Organization may limit the authority ofa member or manager and if the limitation is in placeS.C. Code Ann. §33-44-301(c) will not apply.26

INDEMNIFICATION S.C. Code Ann. §33-44-403(a) provides for theindemnification of a member or manager forliabilities incurred in the ordinary course ofbusiness of the company or preservation of thecompany's businesses or property. TheOperating Agreement may expand or limit theindemnification obligation.27

FIDUCIARY DUTIES

FIDUCIARY DUTIES Member Managed LLC– Members have the duty of care, duty of loyalty andthe obligation of good faith and fair dealing Manager Managed LLC– Only the managers have the duty of care, duty ofloyalty and the obligation of good faith and fairdealing– The members have no fiduciary duties29

FIDUCIARY DUTIES The Operating Agreement may modify the duty ofcare and the duty of loyalty so long as themodification is not "manifestly unreasonable." A member of a member managed company will notviolate his fiduciary duty or obligation merely becausethe members conduct furthers the members owninterest.30

FIDUCIARY DUTIES A member of a member managed company may lendmoney to and transact other business with thecompany and the rights and obligations of the lendingmembers are the same as those of a person who isnot a member. Upon a members dissociation his duty of loyalty torefrain from competing terminates and his duty ofloyalty to account and refrain from dealing with theLLC on behalf of a competitor and his duty of care onlyapplies to matters arising before the dissociation.31

RECORDS

RECORDS The Act does not require the LLC to maintain records. The Act does require limited liability companies toprovide members (and former members) and theiragents access to the books and records. Operating Agreements may provide some restrictionon access but may not "unreasonably restrict" a rightto information or access to records.33

TERM PARTNERSHIP INCLUDES LLCS

TERM PARTNERSHIP INCLUDES LLCS S.C. Code Ann. §33-44-1205 makes it clear thatunless the context requires otherwise the termpartnership includes and means limited liabilitycompany.35

LIMITED LIABILITY OF MEMBERS

LIMITED LIABILITY OF MEMBERS S.C. Code Ann. §33-44-303(a) provides:– A member or manager is not personally liable for adebt, obligation, or liability of the limited liabilitycompany solely by being or acting as a member ormanager.37

LIMITED LIABILITY OF MEMBERS This language does not protect a member or managerfor his own torts or contractual liabilities even if theywere incurred in his capacity as a member or managerof the company. Examples:– The member or manager commits a tort when acting withinthe scope of the LLC business.– The member or manager personally makes a contract orguarantees an LLC obligation.38

LIMITED LIABILITY OF MEMBERS, EXAMPLES CONTINUED– The member or manager fails to disclose that he is acting onbehalf of the LLC.– The member or manager takes action prior to the formationof the LLC.– The member or manager acts on behalf of the LLC butwithout authority to do so.– The member fails to make a capitol contribution whenrequested to do so.– The member or manager makes or receives improperdistribution or benefit from the LLC.39

LIMITED LIABILITY OF MEMBERS, EXAMPLES CONTINUED– The member or manager is subject to personalliability becau