Question

4. Alex, Becky, and Cindy form a limited liability company. Alex contributes 60% of the capital, and Becky and Cindy each contribute 20%. Nothing is decided about how profits will be divided. Alex assumes that he will be entitled to 60% of the profits, in accordance with his contribution. Becky and Cindy, however, assume that the profits will be divided equally. A dispute over the profits arises, and ultimately a court has to decide the issue. What law will the court apply? In most states, what will be the result? How could this dispute have been avoided in the first place?

Answer 1

Step-by-step explanation:

fact of the case

three people formed a limited liability company with contributions as follows:

• Alex - 60 percent
• Becky - 20 percent
• Cindy - 20 per cent

They dispute over the division of profits.

profit division

In a limited liability cooperation whose profit division has not been stated in the operation agreement under the UNIFORM LIMITED LIABILITY COMPANY ACT( ULLCA) , then state law will determine the division of profits. Usually in the absense of an agreement state have divided profits equally among the members.

operating agreement

An operating agreement for an LLC spells out the details of how a business will be managed and operated. Additionally, the term for settling profits and losses may be specified.

opinion

The court may decide that partners will receive an equal division of profits. courts rely usually on the principles of partnership law. in order to avoid the tension of discord between the partners it is best spelt out how the company will be managed as well as profit and loss division in an operating agreement.