PARTS IV(A), (B), AND (C) Are Authored By: Stephen T. Byrd
Manning, Fulton & Skinner, P.A.
Raleigh, North Carolina

PART IV(D) Is Authored By: W.B. Rodman Davis
Adams, Kleemeier, Hagan, Hannah & Fouts, L.L.P.
Greensboro, North Carolina

January 14, 1994

A. Internal Management and Regulation. As background to this discussion, it should be noted again that an LLC is a hybrid entity, a cross between the corporation and the partnership. The basic statutory framework with respect to the operation of LLC`s will be interpreted and applied in many instances by drawing upon principles applicable to general corporate and partnership law, and management issues are no exception. Moreover, various corporate, general partnership and limited partnership models will be incorporated into the operating agreement of an LLC in any individual case as the members agree on the structure of management rights and responsibilities relative to the members as a whole, and at times relative to individual member interests.

1. Two Basic Management Models. Generally speaking, there are two basic management models under the Act: member-managed LLC`s and manager-managed LLC`s. Sec 57C-3-20(a) of the Act (unless otherwise specified, all section references made herein are to the Act) provides that unless an LLC`s Articles of Organization provides otherwise, all members (by virtue of their status as members) are managers of the LLC (i.e., member-managed). Nonmembers also can serve as managers. Id.; sec 57C-3-21( Alternatively, if the Articles of -Organization provide that all members are not necessarily managers, then those persons designated (or chosen as provided) in the operating agreement are managers (i.e., manager-managed). Id. In the latter case, for any period during which the managers have not been so designated, then all members are managers, which potentially places them in unnecessary liability exposure to the extent any duties of managers are invoked during such period (see "B.5" below). Id.

2. Management Vested in Mangers. Management of the business and affairs of the LLC is vested in the managers. Sec 57C-3-20(b). The Articles of Organization or the operating agreement may contain any provisions which serve to restrict, enlarge or modify either the management procedures of the LLC or the management rights and duties of any manager. Id.

3. Manager`s Management Rights. Absent any agreement or provisions described in "2" above, each manager has equal rights and authority to participate in the management of the LLC. Id. Further, absent other agreement, management decisions require the approval, consent, agreement, or ratification of a majority (i.e., per capita) of the managers. Id.

a. Note that the member-managed LLC accordingly is equivalent to the general partnership management model, with all partners having equal management. rights absent other agreement. See N.C.G.S. Sec 59-48(5).

b. The manager-managed LLC of course is equivalent to the limited partnership management model or the corporate model with a board of directors.

c. The operating agreement often will modify the statutory default provision regarding per capita voting rights; e.g., provide that managers (1) receive one vote for every percentage point (including fractional votes) of their profits percentage in the LLC, or (2) receive one vote for every dollar of their capital account balance at specified intervals.

4.Designation and Number of Managers; Flexibility in Structure. The Articles of Organization or a written operating agreement may designate the number, qualifications, and manner of selection of the managers. Sec 57C-3-21. Because this may be a matter of contractual agreement among the members who sign the operating agreement, a number of management models for the selection of managers are possible, including for example:

a. regular (e.g., annual) designation in an operating agreement without the formality of a meeting (ideal for small number of members);

b. regular (e.g., annual) election by duly called meeting and vote of the members, as set forth in the operating agreement (i.e., corporate board of directors model);

c. a self-perpetuating board model, whereby the managers are required under the operating agreement to elect their successors, with possible provisions for terms, staggered terms, or term limitations on serving as a manager;

d. selection of managers by required agreement of members (or managers) at unspecified intervals as business needs arise, which is a similar arrangement to the statutory default provision described in "5" below (i.e., an informal or closely held partnership model);

e. the agreement might provide for minority representation the managers by a manager or managers who would be selected exclusively by a minority percentage member or members, for purposes of representing the minority`s interests in management of the LLC;

f. alternatively, the agreement could provide for minority representation among the managers using a corporate model for cumulative voting;

g. unique or limited management rights might be created by agreement, e.g., decision making over a particular project or area of the business, to protect a particular member`s interests, to take into account a party`s particular talents or experience, to protect a creditor`s interests, etc.;

h. the agreement might be made in special business circumstances (e.g., need for a turnaround expert or in the case of the death, incapacity, or retirement of the operator of a family business) to designate and hire a professional manager to run the business; of course, these management duties instead could simply be delegated to such person (see "B.3" below) rather than designate them a manager; or

i. a corporate joint venturing model, whereby two or more entities (other LLC`s, corporations, partnerships, and/or individuals) form an LLC and each member is free at any time to appoint or remove a manager(s) or other representative (s) to represent its interests on a governing board for the LLC, with each such manager (representative) empowered to vote on LLC business on a per capita basis or in accordance with the voting interest of the member it represents or any other basis upon which the members may agree.

The designation of managers (except for member-managed LLC`s), once made, shall be set forth in a written operating agreement, as amended from time to time. Sec 57C-3-21(2). Special care should be taken in structuring the management model that the "centralization of management" prong of the four factor federal tax classification test (as a partnership or corporation for tax purposes) is taken into account, as discussed elsewhere in this presentation. Reg. sec 301.7701-2 (c)(1). In addition, careful consideration must be given to federal and state securities law implications when the structure of the management model is anything other than a closely held member-managed general partnership model. An LLC membership interest will be a security if it meets the securities law definition of an investment contract, which generally speaking means an arrangement or contract whereby a person invests money in a common or pooled enterprise in which he is led to expect profits derived solely from the efforts of others. SEC v. W.J. Howey Co., 328 U.S. 293 (1946). A fair amount of relevant precedent exists in the partnership arena. General partnership interests generally are presumed not to be securities, while limited partnership interests generally are presumed to be securities. Analogies are easily drawn to LLC membership interests, with the linchpin determination being the degree of management rights and control that an LLC member has pursuant to the Articles of organization and operating agreement. If a membership interest allows for significant management rights and control, then it is anticipated that it likely is not a security, while if the interest does not allow for such rights, then it may well be a security. If a membership interest provides for such rights but the member chooses to delegate management, the delegation does not transform the interest into a security. If the interests nominally have such rights and control but the facts indicate that effective exercise of such rights and control over the LLC business is precluded, e.g., because of a large number of managers whose geographical dislocation from the business makes it impracticable for them to exercise such rights, precedent indicates that such interests may be treated as securities. If an LLC`s membership interests are securities, then the expansive disclosure requirements of federal and state securities laws apply. In addition, the securities may have to be registered for federal and/or state securities law purposes before they can be offered or sold, unless an exemption from registration is available which may nonetheless require a substantial filing with the applicable securities agency. The securities law of every state where offerees reside should be examined for applicability. Strong remedies and stiff penalties apply in case of noncompliance.

5. Removal or Replacement of Managers. The Articles of Organization or a written operating agreement may specify procedures for the removal or replacement of managers or for a manager otherwise to cease to be a manager. Sec 57C-3-21. Again, since the matter is subject to the contractual agreement of the members, a number of models for these determinations such as those specified in "4" above are possible. Absent such provisions, sec 57C-3-21(3) provides that a manager shall serve until the earliest to occur of (a) such person`s resignation, (b) certain determinations regarding such person in bankruptcy, insolvency, or equivalent proceedings or similar matters or assignments in connection with the same as specified in sec 57C-3-02(3), or (c) the amendment of the written operating agreement removing the person as a manager.

6. Members` Voting Rights. Sec 57C-3-03 indicates that unlimited discretion is available to LLC organizers in providing for members` voting rights, as expressed in the Articles of organization or a written operating agreement. Accordingly, different classes of membership interests can be created, each class (as so specified) having voting rights identical or varying from other classes, ranging from completely nonvoting, to voting on specified matters, to unlimited voting rights on all matters of business. The management rights granted to various classes of membership interests therefore can equate them with, for example, limited partner interests with no voting rights, limited partner interests with limited voting rights, or general partner interests. In this regard, if a class of membership interest has unlimited voting and management rights, there may be no reason to avoid designation of the owners of such interest as managers, unless any such member desires such voting rights for "veto" or director equivalent reasons and intends actual business operations to managed by another, or wants to avoid manager designation because of perceived increased liability exposure. (Note that sec 57C-3-30(a) provides that a member does not become liable for the obligations of the LLC solely by reason of being a manager, and does not become so liable by participating in whatever capacity in the management or control of the business. Nonetheless, the section does acknowledge that a member or manager may become personally liable by reason of their own acts or conduct.) As indicated in "4" above, the extent and nature of these voting rights will determine the management model ultimately created for the LLC. As in a partnership model, any voting rights can be suspended or terminated for any reasons set forth in the operating agreement including, e.g., breach of any term of the operating agreement, events equivalent to bankruptcy, certain transfers of membership interests such as to a family member or another person not currently a member, etc.

7. More on Minority Interest Voting Protection. Absent a contrary provision in the Articles or written operating agreement (as discussed in "6") above), sec 57C-3-03 requires the affirmative vote, approval, agreement, or consent of all members to

a. adopt or amend an operating agreement;

b. admit any person as a member;

c. sell, transfer, or otherwise dispose of all or substantially all LLC assets prior to its dissolution; or

d. merge the LLC into or with another LLC.

Note also that sec 57C-6-O1 provides that dissolution and winding up of an LLC occur upon the earliest of several events including (i) the time specified in the Articles of Organization, (ii) any event specified in the Articles or a written operating agreement, or (iii) the unanimous written consent of the members, among others. With regard to these unanimous consent provisions, the North Carolina Bar Association`s Subcommittee which drafted the proposed legislation which became the Act (herein referred to as the "Drafters") in its "Initial Report" dated September 1, 1992 (herein referred to as the "Report") reflected some concern about protection of minority member interests. The Drafters stated that (under the default provision) amendment of the Articles of Organization requires unanimous consent since it controls "such critical determinations as whether all members are managers". Report, pp. VI-e, VI-6. Unanimous consent for the specified major actions seems reasonable as a default provision in the statute, since unlike the North Carolina Business Corporation Act, the Act does not provide dissenters` or appraisal rights for a minority interest which objects to the transaction. Nonetheless, the Drafters (see Report, p. VI-8) and the statute acknowledge that these protections may be contracted away in the operating agreement, which may provide for simple majority or otherwise supermajority votes to approve these matters. Moreover, membership interests may be created which have no voting rights. In fact, in numerous business situations it would be inappropriate to require unanimous voting requirements, which would allow a minority interest to stonewall or block desirable transactions or extract unreasonable concessions from other parties.

1. Corporate Model for Internal Management. As discussed in "411 above, because the relationships among members and managers of the LLC are matters of contract (unless determined by the Act by default or otherwise), the parties are free to create almost any imaginable structure for management and internal regulation. In the case of an LLC having a large number of members with the resulting need to centralize management in order to facilitate efficient business operations, the members may agree to a corporate model for these purposes. Other reasons to use a corporate model may be that the members are more familiar with it, are comfortable with corporate business activity being conducted by directors and officers, and anticipate that relationships with customers and suppliers and in other third party business dealings might be on more familiar ground than would be the case if LLC management were held out to the public using the term "manager". Sec 57C-3-24(a) allows managers to delegate authority to manage the LLC, either generally or as limited to specific matters, if and to the extent that a written operating agreement so provides. The act of any such person within the scope of the delegated authority is binding on the LLC (see further discussion and limitations of this delegation of authority at "B.3" below). Id. Sec 57C-2-02(10) authorizes an LLC (unless its Articles of Organization or another provision of the Act provides otherwise) to elect or appoint officers or agents and define their duties. Accordingly, an LLC through its members, agreement may create a Board of Directors and such familiar offices as President, Vice President, Secretary, Treasury, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, etc. The members in their operating agreement simply could incorporate by reference relevant portions of the North Carolina Business Corporation Act (or similar act from another state for that matter) and agree among themselves that such provisions would govern internal regulation, empower officers to the extent indicated in the statute, etc. The members could adopt Bylaws (consider attaching them as an exhibit to the operating agreement which incorporates them by reference as part of the agreement among the members) prepared from the standard corporate model form of Bylaws, modified to reflect appropriate changes for an LLC including indemnification rights granted by the Act or otherwise agreed to by the members. The Bylaws also could provide terms for selection, removal, meetings, etc. of the Board of Directors or Board of Managers (or whatever label suits the members).

B. Powers and Duties.

1. Powers of the LLC. Sec 57C-2-02 grants the LLC essentially unlimited powers (unless its Articles of organization or another provision of the Act provides otherwise); i.e., "the same powers as an individual to do all things necessary or convenient to carry out its business and affairs", including without limitation, the following powers:

a. To sue and be sued, complain, and defend in its own name;

b. To make and amend operating agreements, not inconsistent with its articles of organization or with the laws of this State, for managing the business and regulating the affairs of the limited liability company;

c. To purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and otherwise deal with, real or personal property, wherever located;

d. To sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any part of its property;

e. To purchase, receive, subscribe for, or otherwise acquire; own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of; and deal in and with shares or other interest in, or obligations of, any other entity;

f. To make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations (which may be convertible into or include the option to purchase other interests in the limited liability company), and secure any of its obligations by mortgage or pledge of any of its property, franchises, or income;

g. To lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment;

h. To be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity; i. To conduct its business, locate offices, and exercise the powers granted by this Chapter within or without this State; j. To elect or appoint managers, officers, employees, and agents of the limited liability company, define their duties, fix their compensation, and lend them money and credit;

k. To pay pensions and establish pension plans, pension trusts, profit-sharing plans, and other benefit or incentive plans of any or all of its current or former managers, officers, employees, and agents;

1. To make donations- for the public welfare or for charitable,. religious, cultural, scientific, or educational purposes;

m. To transact any lawful business that will aid governmental policy;

n. To make payments or donations, or do any other act, not inconsistent with law, that furthers the business and affairs of the limited liability company;

o. To provide insurance for its benefit on the life or physical or mental ability of any of its managers, officers, or employees or on the life or physical or mental ability of any owner of any interest in the limited liability company for the purpose of acquiring the interest owned by him at the time of his death or disability, and for these purposes the limited liability company is deemed to have an insurable interest in its managers, officers, employees, or members and other interest owners; and to provide insurance for its benefit on the life or physical or mental ability of any other person in whom it has an insurable interest; and

p. To render professional services, subject to G.S. 57C-201(c).

2. General Powers of Managers; Agency. The management powers of managers were mentioned generally at "A" above. As noted in that section, these management powers may be enlarged, restricted, or modified substantially by the contractual flexibility available to the members in making their operating agreement. The power to delegate authority is discussed at "3" below. The Act provides agency powers for managers, which were derived from the general partnership model. Every manager is an agent of the LLC for the purpose of its business. Sec 57C-3-23. The act of every manager (including execution in the name of the LLC of any instrument) for apparently carrying on the LLC`s business in the usual way, binds the LLC unless (a) such manager in fact has no authority to act for the LLC in the particular matter, and (b) the person with whom the manager is dealing knows that the manager has no authority. Id. In addition, an act of a manager that is not apparently for carrying on the usual course of the business of the LLC does not bind the LLC unless authorized in fact or ratified by the managers of the LLC. Id. This suggests the need for third parties to obtain consent resolutions of the members of the LLC, or alternatively to obtain authenticated (see "4" below) copies of LLC agreements or resolutions which indicate a manager`s authority to act or sign on behalf of the LLC, when the applicable transaction is significant enough that it may not represent carrying on the applicable business in its usual course.

3. Delegation of Authority of Managers. If and to the extent a written operating agreement provides for delegation, the authority of a .manager to act on behalf of the LLC may be delegated to persons other than managers, which delegation may be general or limited to specific matters (see, e.g., discussion at "A.8" above). Sec 57C-3-24(a). The act of any such person within the scope of the delegated authority will bind the LLC, to the same extent as if it were the act of the managers. Id. Again, third parties may require authenticated documents from the LLC which demonstrate this delegation of authority before conducting business dealings with such delegatees. The delegatee`s acts do not bind the LLC if the delegation has been revoked and the third party has actual knowledge of the revocation. Id. Note that the delegation of authority by the manager, or a delegatee`s actions under such authority, does not discharge the manager`s fiduciary duties in "5" below. Sec 57C-3-24(b). This principle derives from the fiduciary duty applicable to directors under corporate law, accordingly, managers must stay "interested and involved" in business and management affairs of the LLC, even though great delegation of responsibility or activity is permitted.

4. Authentication Execution Power. Any manager of an LLC authorized to transact business in N.C. may authenticate copies of the operating agreement and any records of actions of its members or managers. Sec 57C-3-25(b). This is equivalent to the corporate authentication now given by the secretary or other officer of a corporation to show due authority of the entity to undertake transactional matters. Third parties may rely conclusively upon the certificate or written manager authentication statement except to the extent that they have actual knowledge that the same is false. Id. In this regard, third parties may rely conclusively on the LLC`s most recent annual report (see "C.2" below) and any amendments thereto regarding the identity of managers, except to the extent they have actual knowledge that such person is not a manager. Sec 57C-3-25(a). Any document or instrument required or permitted to be filed, registered, or recorded (e.g., deeds, amendments to Articles of organization, assumed name certificates, etc.) with any public authority by the LLC shall be sufficiently executed for such purpose if signed on its behalf by one of its managers. Sec 57C-3-25(c).

5. Duties of Managers. The statutory duties of managers are derived from the general statutory duties applicable to directors under the N.C. Business Corporation Act (see N.C.G.S. sec 55-8-30(a)-(e)) and the fiduciary duties of partners (see N.C.G.S. sec 59-51(a)). Report, p. VI-9. A manager is required to discharge his duties in good faith, with the care an ordinary prudent person in a like position would exercise under the circumstances, and in a manner the manager reasonablv believes to be in the best interests of the LLC. Sec 57C-3-22(b). In discharging his duties, a manager is entitled to rely on information, opinions, reports, or statements, including but not limited to financial statements or other financial data, if prepared or presented by:

a. one or more employees of the LLC whom the manager reasonably believes to be reliable and competent in the matters presented;

b. legal counsel, certified public accountants, or other persons on matters the manager reasonably believes are within the person`s professional or expert competence; or

c. a committee of managers of which the manager is not a member if the manager reasonably believes the committee merits confidence. Id.

A manager is not acting in good faith if the manager has actual knowledge concerning the matter in question that makes the reliance on another described above unwarranted. Sec 57C-3-22(c). If the manager performs the duties of such office in compliance with the foregoing principles (derived from corporate law), the manager is not liable for any action taken as a manager or for failure to take action. Sec 57C-322(d). The partnership fiduciary principles are provided by sec 57C-322(e): except as otherwise provided in the Articles of Organization or a written operating agreement, every manager must account to the LLC and hold as trustee for it any profit or benefit

derived (without the informed consent of the members) by the manager from any transaction connected with the formation, conduct, or liquidation of the LLC or from any personal use by the manager of its property. In interpreting and applying these standards, all relevant common law principles and judicial precedent will be brought to bear to determine the extent to which a manager discharges his duties to the LLC. There is an extensive body of law applicable to the duties and standards of care applicable to corporate directors, including the duty of good faith, duty of due care, duty of loyalty (including principles applicable to conflict of interest transactions and the corporate opportunity doctrine), and the business judgment rule. General principles of fiduciary and agency law will be relevant in light of the integration of partnership principles in the Act`s requirements concerning duties of a manager. In this regard, it often will be important for the written operating agreement to reflect the members` consent that managers have rights to pursue transactions that might be viewed as corporate opportunities or conflicts of interest, if that in fact is the agreement of the members.

6. Liability of Managers: Generally. Sec 57C-3-30(a) provides that a person who is a manager of an LLC is not liable for the obligations of the LLC solely by reason of being a manager or solely by participating in the management or control of the LLC`s business. Nonetheless, the statute also acknowledges that the manager may become personally liable by reason of his own acts or conduct, e.g., by breach of any of the duties set forth in 1`5" above, or by guaranty of an LLC obligation or other contractual obligations amounting to indemnity.

7. Manager Liability for Wrongful Distributions. Further, sec 57C4-07 provides for manager liability for wrongful distributions from the LLC, determined with reference to whether the distributions violate sec 57C-4-06 (i.e., basically, distributions which make the LLC insolvent in either the balance sheet or equity sense) or otherwise are in violation of the written operating agreement. The manager is personally liable only if he voted for or assented to the distribution, and only if it is established that the manager did not discharge his duties with respect to the matter, as discussed in "5° above. Id. The manager`s personal liability is equal to the portion of the distribution which exceeds the amount that could lawfully be distributed under the statute and the operating agreement. Id. If held liable under this provision, a ,manager may be entitled to:

a. Contribution from each other manager who could be held liable under the foregoing provisions; and

b. Reimbursement from each member for the amount the member received knowing that the distribution was "wrongful" as discussed above.

Sec 57C-4-07(b). There is a three year statute of limitations for bringing an action under this section, which runs from the date determined in the statute. Sec 57C-4-07(c).

8. Mandatory Indemnification of Managers. The Act, carrying over the recent trend of business corporation acts (including North Carolina`s) to broaden indemnification rights for directors and officers in an increasingly litigious society (which tends to chill the interest of qualified persons from serving in such capacities), provides for mandatory indemnification of managers in the following circumstances. An LLC must indemnify every manager in respect of payments made and personal liabilities reasonably incurred by the manager in the authorized conduct of its business, or for the preservation of its business or property. Sec 57C-3-31 (a). More importantly, unless limited by its Articles of Organization, the LLC must indemnify a manager who is wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he is or was a manager of the LLC, against reasonable expenses incurred by him in connection with the proceeding. Sec 57C-3-31(b). (Note that this same protection applies to members in like circumstances. Id.)

9. Limitation of Liability for Managers and Permissive Indemnification. In order to attract qualified persons as managers as noted in "8" above, LLC`s may in their Articles of organization or written operating agreement (except as provided below):

a. Eliminate or limit the personal liability of a manager for monetary damages for breach of any duty described in "5" above, other than liability for wrongful distributions (see "7" above); or

b. If approved by all members, provide for indemnification of a manager or member for judgments, settlements, penalties, fines, or expenses incurred in a proceeding to which such person is a party because he is or was a manager or member. Sec 57C-3-32(a).

Such limitation of liability or permissive indemnification does not apply for

(i) acts or omissions that the manager knew at the time of the acts or omissions were clearly in conflict with the LLC`s interests,

(ii) any transaction from which the manager derived an improper personal benefit, or

(iii) acts or omissions occurring before the date the provision became effective. Sec 57C-3-32(b).

"Improper personal benefit" does not include reasonable compensation or reasonable incidental benefit for service as a manager, an officer, an employee, independent contractor, attorney, or consultant of the LLC. Id. Such provisions are not effective to limit or eliminate liability (otherwise imposed by law) of managers or members for nonpayment of certain LLC taxes such as withholding or other "trust fund" taxes. Id. In addition, following the corporate model, an LLC is authorized to purchase insurance on behalf of a present or former manager, employee, or agent of the LLC to protect against liability asserted against or incurred by such person in that capacity (or arising from his status as such), whether or not the LLC would have the power to indemnify him against the liability under the Act. Sec 57C-3-32(c). Such insurance also may provide like coverage with respect to the activities of such person performed at the request of the LLC as a director, officer, partner, manager, trustee, employee, or agent of any other entity or person. Id.

C. Records. Returns and Reports.

1. Records. The Act requires LLC`s to maintain certain specified records for inspection by the members. Sec 57C-3-04. These records may be maintained in other than written form if they are capable of conversion into written form within a reasonable time. Sec 57C-3-04(b). The records required to be maintained are as follows:

a. information regarding the status of the business and financial condition of the LLC;

b. copies of the LLC`s federal, state, and local income tax returns for each year;

c. a current list of the name and last known business, residence, or mailing address of each member;

d. a copy of the articles of organization and any written operating agreement and all amendments thereto, together with copies of any written powers of attorney pursuant to which the articles of organization, operating agreement, and all amendments thereto have been executed;

e. information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each member, and the property and services (if any) that each member has agreed to contribute in the future, and the date on which each became a member; and

f. such other information regarding the affairs of the LLC as is just and reasonable.

Sec 57C-3-04 (a). Each member has the right to obtain access to these records upon reasonable demand for any purpose reasonably related to the member`s interest as a member. Id. A member`s right of access is subject to any reasonable standards (including what information and documents are to be furnished, at what time and location, and at whose expense) which may be stated in the Articles of Organization or written operating agreement. Id. Any demand for access must be in writing, and also must be made in good faith and for a proper purpose, and must describe with reasonable particularity the purpose and the records or information desired. Sec 57C-3-04(c). The managers have the right to keep confidential from members who are not managers (for time periods deemed reasonable by the managers) any trade secrets or other information the disclosure of which the managers in good faith believe is not in the LLC`s best interest. Sec 57C-3-04(e).

2. Annual Report. Sec 57C-2-23 (a) requires every LLC authorized to do

business in North Carolina (domestic and foreign) to file with the Secretary of State an annual report containing (i) its name and state or country of organization, (ii) street address (and mailing address) including county of its registered office, name of registered agent at that office, and statement of any change in the registered agent or office, (iii) address of principal office, (iv) names and addresses of managers, and (v) brief description of the nature of its business. The annual report is due within 60 days after the last day of the month of the LLC`s organization in North Carolina (or qualification to do business here if a foreign LLC). Sec 57C-2-23 (c). The Secretary of State mails forms for filing the report to the LLC at its registered office for the first report, and thereafter to the principal office for subsequent reports. Id. The Secretary of State is directed to return incomplete reports to the LLC for correction, which then has 30 days after the effective date of notice from the Secretary to refile the report. Sec 57C-2-23(d). Amendments to any previously filed annual report may be filed at any time to correct, update, or augment the report. Sec 57C-2-23(e).

3. Returns. LLC`s which are treated as partnerships under Subchapter K of the Internal Revenue Code are required to file their federal income tax returns using Form 1065, "U.S. Partnership Return of Income". LLC`s treated as corporations must file Form 1120, "U.S. Corporation Income Tax Return", unless an effective S election has been made in which case the filing is on Form 1120S, "U.S. Income Tax Return for an S Corporation".