Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Issue Sheet
Simon Leung
file: 5-950564
November 27, 1995
Issue
Whether a LLC formed under the laws of Kentucky be considered a corporation for purposes of the Act.
Position
Yes
Rationale
Pursuant to IT-343 and the
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where a foreign entity is considered a separate legal entity and its members/shareholders have limited liability, then the entity would likely be a corporation for Canadian tax purposes. A Kentucky LLC has both of these characteristics:
Separate Legal Person and Existence
- A Kentucky LLC has to be formed formally by filing with the Secretary of State of Kentucky articles of organization. It legal entity status is evidenced by a certificate of existence issued by the Secretary of State of Kentucky. (Articles 275.020 and 275.085)
- It can sue and be sued in a court of law. (Article 275.330)
- It can acquire, own, hold and convey property in its own name. It can have title of real property in its own name. (Articles 275.240 and 275.245(5)(b))
- It and its members are separate and can sue each other and can have obligation to each other. (Article 275.155)
- It may conduct its business, carry on its operations and exercise its power granted by the law in any state or in any foreign country. (Articles 275.160, 275.010 and 275.455)
However, the legislation governing Kentucky LLC's fails short of declaring that the LLC's are separate legal persons and entities.
Limited Liability
- The members of the LLC are not liable for the debts and obligations of the LLC. (Article 275.150) It appears that this provision is not subject to the provisions of the operating agreement and articles of organization.
- The members of the LLC are not a party to a proceeding solely by reason of being members except as otherwise provided in an operating agreement. (Article 275.155)
- Unless otherwise provided in an operating agreement, a member or manager of the LLC shall not be liable, responsible or accountable in damages or otherwise to the LLC or the member of the LLC for any action taken or failure to act on behalf of the LLC unless the act or omission constitutes wanton or reckless misconduct. (Article 275.170)
As with regard to other criteria:
.Unless otherwise provided in an operating agreement, an assignment of a LLC interest shall not dissolve the LLC. (Article 275.255)
.Unless otherwise provided in an operating agreement, an assignee of a LLC interest shall become a member of the LLC only if the other members unanimously consent. (Article 275.265)
.A LLC shall be dissolved upon the happening of the first to occur:
- at the time or upon the occurrence of events specified in the articles of organization or a written operating agreement.
- a written consent of all members.
- •any event of dissociation of a member of the LLC unless:
?the business of the LLC is continued by the consent of all the remaining members on or before the 90th day following the occurrence of the event; or
?otherwise provided in a written operating agreement. (Article 275.285)
.Unless the articles of organization vest management of the LLC in a manager or managers, management of the business and affair of the LLC shall vest in the members. (Article 275.165)
.Unless the articles of organization provide that management of the LLC is vested in a manager or managers, every member shall be an agent of the LLC for the purposes of its business or affairs. (Article 275.135)
.Profits and losses of a LLC shall be allocated among members and among classes of members in a manner provided in the operating agreement. If the operating agreement does not otherwise provide, profits and losses shall be allocated on a per capital basis. (Article 275.205)
.Distributions of cash or other assets of a LLC shall be allocated among the members and among classes of members in the manner provided in writing in an operating agreement. If an operating agreement does not so provide in writing, each member shall share equally in any distribution. (Article 275.210)
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