If a Georgia LLC's Articles do not vest management of the LLC in one or more managers, thenevery member is an agent of the limited liability company for the purpose of its business and affairs, and the act of any member, including, but not limited to, the execution in the name of the limited liability company of any instrument for apparently carrying on in the usual way the business and affairs of the limited liability company of which he or she is a member, binds the limited liability company, unless the member so acting has, in fact, no authority to act for the limited liability company in the particular matter, and the person with whom he or she is dealing has knowledge of the fact that the member has no such authority. If an LLC's articles of organization do not vest management in one or more managers, but the LLC's operating agreement provides that one or more members will manage the LLC, this should not necessarily result in centralized management under the Regulations.Caution should be taken in relying on this approach, however, as it appears under Rev. 95-10 and previously published private ruling that the service's view here may be more functional than technical.
A flexible statute on the other hand allows variations with respect to (1) the events that will cause a dissolution of the LLC; (2) the vote required to continue an LLC after the occurrence of a dissolution event; or (3) the vote necessary to admit a transferee as a member. 93-38 was the first published ruling addressing a flexible statute.
An LLC formed under a flexible statute may be classified as either a corporation or a partnership, depending upon how the documents are drafted. There the IRS ruled that a Delaware LLC will be classified as a corporation or partnership depending upon the terms of its limited liability company agreement, because the statutory provisions of the Delaware LLC act that affect the relevant characteristics may be modified by agreement.
The Regulations state that the persons who are vested with such management authority resemble the board of directors of a corporation in powers and functions.
The Regulations further state that for centralization of management to exist, the managers must have sole authority to make management decisions.
There are two types of LLC statutes: "bulletproof" and "flexible".
95-10 is widely perceived as containing what are as a practical matter safe harbor's for LLC classification.If either the member-managers are subject to periodic elections by the members or, the nonmanaging members have a substantially unrestricted power to remove the member-managers, the IRS will not rule that the LLC lacks centralized management. Usually, the act of any partner within the scope of the partnership business binds all the partners; and even if the partners agree among themselves that the powers of management shall be exclusively in a selected few, this agreement will be ineffective as against an outsider who had no notice of it.For principles of agency law, management of an LLC is vested in the members unless the articles of organization provide that management of the LLC is vested in one or more managers, who need not be members. Conceptually, this same rationale should extend to LLCs formed under the Georgia LLC act when the articles of organization do not provide that management of the LLC is vested in one or more managers."Capital" is determined as of the date of the dissolution event.If capital accounts are determined and maintained through the date of the dissolution event in accordance with the capital account rules of Regulation § 1.704-1 (b)(2)(iv), then capital determined as of the date of the dissolution event represents the capital account balances determined on that date.A number of subsequent revenue rulings involving states with flexible statutes have held the same.