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H.B. 127
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LIMITED LIABILITY COMPANY
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AMENDMENTS
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2006 GENERAL SESSION
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STATE OF UTAH
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Chief Sponsor: J. Stuart Adams
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Senate Sponsor:
Curtis S. Bramble
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LONG TITLE
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General Description:
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This bill modifies Title 48, Chapter 2c, Utah Revised Limited Liability Company Act.
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Highlighted Provisions:
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This bill:
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. allows the creation of a series within a limited liability company;
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. provides that a series may have a separate business purpose and separate rights and
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liabilities from the limited liability company or another series of the company;
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. describes the requirements for creating a series;
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. provides a method for making distributions from a series;
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. outlines methods for termination of a series;
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. describes the winding up process for a series;
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. outlines the requirements for a foreign limited liability company, the operating
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agreement of which allows the creation of a series, to do business in the state; and
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. makes technical changes.
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Monies Appropriated in this Bill:
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None
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Other Special Clauses:
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None
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Utah Code Sections Affected:
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AMENDS:
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48-2c-120, as last amended by Chapter 141, Laws of Utah 2005
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ENACTS:
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48-2c-606, Utah Code Annotated 1953
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48-2c-607, Utah Code Annotated 1953
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48-2c-608, Utah Code Annotated 1953
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48-2c-609, Utah Code Annotated 1953
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48-2c-610, Utah Code Annotated 1953
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48-2c-611, Utah Code Annotated 1953
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48-2c-612, Utah Code Annotated 1953
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48-2c-613, Utah Code Annotated 1953
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48-2c-614, Utah Code Annotated 1953
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48-2c-615, Utah Code Annotated 1953
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48-2c-616, Utah Code Annotated 1953
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Be it enacted by the Legislature of the state of Utah:
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Section 1.
Section
48-2c-120
is amended to read:
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48-2c-120. Articles of organization and operating agreement.
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(1) A company's articles of organization or operating agreement may not:
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(a) restrict a right to inspect and copy records under Section
48-2c-113
;
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(b) reduce the duties of members or managers under Section
48-2c-807
;
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(c) eliminate the obligation of good faith and fair dealing, except that the members by
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written agreement may determine the standards by which the performance of the obligation is
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to be measured, if the standards are not manifestly unreasonable;
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(d) vary any filing requirement under this chapter;
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(e) vary any requirement under this chapter that a particular action or provision be
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reflected in a writing;
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(f) vary the right to expel a member based on any event specified in Subsection
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48-2c-710
(3);
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(g) vary the remedies under Section
48-2c-1210
for judicial dissolution of a company;
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(h) except as allowed by Section
48-2c-1103
or any other provision of law, restrict
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rights of, or impose duties on, persons other than the members, their assignees and transferees,
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the managers, and the company, without the consent of those persons; or
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(i) eliminate or limit the personal liability of any person vested with management
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authority to the company or its members for damages for any breach of duty in the capacity
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where a judgment or other final adjudication adverse to the manager establishes that the
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manager's acts or omissions:
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(i) were in bad faith;
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(ii) involved gross negligence;
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(iii) involved willful misconduct; or
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(iv) [the manager personally gained] resulted in a financial profit or other advantage to
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which the manager was not legally entitled.
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(2) The articles of organization and operating agreement may:
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(a) vary the requirement under Section
48-2c-1104
that, if all of the other members of
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the company other than the member proposing to dispose of the member's interest do not
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approve of the proposed transfer or assignment by unanimous written consent, the transferee of
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the member's interest shall have no right to participate in the management of the business or
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affairs of the company or to become a member; and
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(b) vary the requirement under Section
48-2c-703
that, after the filing of the original
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articles of organization, a person may be admitted as an additional member only upon the
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written consent of all members.
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Section 2.
Section
48-2c-606
is enacted to read:
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48-2c-606. Series of members, managers, or limited liability company interests.
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(1) An operating agreement may establish or provide for the establishment of one or
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more designated series of members, managers, or interests in the company having separate
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rights, powers, or duties with respect to specified property or obligations of the limited liability
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company or profits and losses associated with specified property or obligations.
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(2) A series may have a business purpose or investment objective separate from the
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company.
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(3) Notwithstanding any other applicable law, a series' debts, liabilities, obligations,
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and expenses are enforceable against the assets of that series only, and not against the assets of
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the company generally or any other series if:
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(a) the operating agreement provides for separate treatment of the series;
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(b) separate and distinct records are maintained concerning the series;
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(c) the assets associated with the series are held and accounted for separately from the
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other assets of the company and any other series; and
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(d) notice of the limitation on liability of a series is included in the company's articles
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of organization.
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(4) Unless otherwise provided in the operating agreement, none of the debts, liabilities,
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obligations, and expenses incurred, contracted for, or otherwise existing with respect to the
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company generally or any other series are enforceable against the assets of a series.
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Section 3.
Section
48-2c-607
is enacted to read:
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48-2c-607. Notice of series -- Articles of organization.
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(1) Notice in a company's articles of organization of the limitation on liabilities of a
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series, as required by Section
48-2c-606
, is sufficient whether or not the company has
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established any series at the time the notice is included in the articles of organization.
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(2) The notice required by Section
48-2c-606
need not reference any specific series.
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(3) The filing of the notice required by Section
48-2c-606
with the division constitutes
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notice of the limitation on liability of a series.
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Section 4.
Section
48-2c-608
is enacted to read:
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48-2c-608. Agreement to be liable.
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Notwithstanding Section
48-2c-601
, a member or manager may agree to be obligated
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personally for any or all of the debts, obligations, and liabilities of one or more series.
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Section 5.
Section
48-2c-609
is enacted to read:
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48-2c-609. Series related provisions in operating agreement.
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(1) An operating agreement may provide for classes or groups of members or managers
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associated with a series.
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(2) An operating agreement may provide for the future creation of additional classes or
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groups of members or managers associated with a series having such relative rights, powers,
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and duties as may from time to time be established, including rights, powers, and duties senior
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to existing classes and groups of members or managers associated with the series.
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(3) An operating agreement may provide for the taking of an action without the vote or
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approval of any member or manager, or class or group of members or managers, including:
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(a) an action to create a class or group of a series of interests in the company that was
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not previously outstanding; and
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(b) amending the operating agreement.
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(4) An operating agreement may provide that any member or class or group of
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members associated with a series has no voting rights.
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(5) (a) An operating agreement may grant to all or certain identified members or
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managers, or a specified class or group of the members or managers associated with a series,
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the right to vote separately or with all or any class or group of the members or managers
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associated with the series, on any matter.
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(b) Voting by members or managers associated with a series may be on a per capita,
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number, financial interest, class, group, or any other basis.
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Section 6.
Section
48-2c-610
is enacted to read:
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48-2c-610. Management of a series.
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(1) Unless otherwise provided in an operating agreement, the management of a series is
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vested in the members associated with the series in proportion to the then-current percentage or
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other interest of members in the profits of the series owned by all of the members associated
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with the series.
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(2) The decision of members owning more than 50% of the then-current percentage or
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other interest in the profits controls.
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(3) Notwithstanding Subsection (2), if an operating agreement provides for the
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management of the series in whole or in part by a manager, the management of the series is
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vested to that extent in the manager, who is chosen in the manner provided in the operating
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agreement.
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(4) The manager of a series holds the offices and has the responsibilities accorded to
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the manager under the operating agreement.
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(5) A series may have more than one manager.
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(6) Subject to a manager's resignation, a manager ceases to be a manager with respect
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to a series as provided in the operating agreement.
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(7) Except as otherwise provided in an operating agreement, any event under this
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chapter or in an operating agreement that causes a manager to cease to be a manager with
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respect to a series does not, by itself, cause the manager to cease to be a manager of the limited
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liability company or with respect to any other series.
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Section 7.
Section
48-2c-611
is enacted to read:
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48-2c-611. Distributions concerning a series.
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(1) Subject to an operating agreement, at the time a member associated with a series
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becomes entitled to receive a distribution with respect to the series, the member has the status
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of, and is entitled to all remedies available to, a creditor of the series with respect to the
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distribution.
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(2) An operating agreement may provide for the establishment of a record date for
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allocations and distributions concerning a series.
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(3) Notwithstanding Section
48-2c-1005
, a limited liability company may make a
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limited distribution with respect to a series only.
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(4) No distribution may be made by a company under this section with respect to a
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series if, after giving effect to the distribution:
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(a) the series would not be able to pay its debts as they become due in the usual and
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regular course of its business; or
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(b) the value of the series' total assets would be less than the sum of:
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(i) its total liabilities; and
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(ii) unless the articles of organization or the operating agreement permit otherwise, the
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amount that would be needed, if the series were to be dissolved and wound up at the time of the
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distribution, to satisfy the preferential rights upon dissolution and winding up of members
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whose preferential rights are superior to the rights of members receiving the distribution.
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(5) The company may base a determination that a distribution is not prohibited under
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Subsection (4) either on:
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(a) financial statements prepared on the basis of accounting practices and principles
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that are reasonable in the circumstances; or
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(b) a fair valuation or other method that is reasonable in the circumstances.
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(6) For purposes of this section, amounts constituting reasonable compensation for
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present or past services or reasonable payments made in the ordinary course of business
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pursuant to a bona fide retirement plan or other benefits program do not constitute a
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distribution.
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(7) A member who receives a distribution in violation of this section, and who knew at
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the time of the distribution that the distribution violated this section, is liable to the series for
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the amount of the distribution.
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(8) Subject to Section
48-2c-1006
, this section does not affect any obligation or
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liability of a member under an agreement or other applicable law for the amount of a
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distribution.
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Section 8.
Section
48-2c-612
is enacted to read:
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48-2c-612. Member removal from a series -- Effect.
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(1) Unless otherwise provided in the operating agreement, a member ceases to be
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associated with a series and to have the power to exercise any rights or powers of a member
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with respect to the series upon the assignment of all of the member's interest in the company
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with respect to the series.
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(2) Unless otherwise provided in an operating agreement, any event under this chapter
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or the operating agreement that causes a member to cease to be associated with a series does
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not, by itself:
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(a) cause the member to cease to be associated with any other series;
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(b) terminate the continued membership of a member in the limited liability company;
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or
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(c) cause the termination of the series, regardless of whether the member is the last
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remaining member associated with the series.
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Section 9.
Section
48-2c-613
is enacted to read:
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48-2c-613. Termination of series.
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(1) Subject to Section
48-2c-1201
, except to the extent otherwise provided in the
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operating agreement, a series may be terminated and its affairs wound up without causing the
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dissolution of the limited liability company.
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(2) The termination of a series does not affect the limitation on liabilities of the series
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provided by Section
48-2c-606
.
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(3) A series is terminated and its affairs shall be wound up upon the dissolution of the
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limited liability company under Section
48-2c-1201
or otherwise upon the first to occur of the
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following:
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(a) the time specified in the operating agreement;
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(b) the happening of events specified in the operating agreement;
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(c) unless otherwise provided in the operating agreement, the affirmative vote or
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written consent of:
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(i) (A) the members of the limited liability company associated with the series; or
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(B) if there is more than one class or group of members associated with the series, by
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each class or group of members associated with the series; and
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(ii) (A) members associated with the series who own more than 2/3 of the then-current
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percentage or other interest in the profits of the series owned by all of the members associated
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with the series; or
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(B) the members in each class or group of the series, as appropriate; or
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(d) the termination of the series under Section
48-2c-614
.
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Section 10.
Section
48-2c-614
is enacted to read:
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48-2c-614. Court-decreed termination of series.
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On application by or for a member or manager associated with a series, the district court
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may decree termination of the series whenever it is not reasonably practicable to carry on the
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business of the series in conformity with an operating agreement.
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Section 11.
Section
48-2c-615
is enacted to read:
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48-2c-615. Participation in winding up.
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(1) Notwithstanding Section
48-2c-1303
, unless otherwise provided in the operating
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agreement, the series' affairs may be wound up by the following:
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(a) a manager associated with a series who has not wrongfully terminated the series; or
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(b) if there is no manager under Subsection (1)(a):
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(i) the members associated with the series, or a person approved by the members
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associated with the series, who own more than 50% of the then-current percentage or other
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interest in the profits of the series owned by all of the members associated with the series; or
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(ii) if there is more than one class or group of members associated with the series, then
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by each class or group of members associated with the series owning more than 50% of the
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then-current percentage or other interest in the profits of the series owned by all of the
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members in each class or group associated with the series.
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(2) (a) The district court may, upon cause shown, wind up the affairs of the series upon
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application of any member associated with the series, the member's personal representative, or
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the member's assignee.
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(b) If the district court winds up the affairs of a series under Subsection (2)(a), the
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district court may appoint a liquidating trustee.
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(3) (a) A person winding up the affairs of a series may, in the name of the limited
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liability company and on behalf of the limited liability company and the series, take any action
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with respect to the series that is allowed by Part 13, Winding Up.
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(b) A person winding up the affairs of a series shall comply with Part 13, Winding Up.
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(c) The winding up the affairs of a series in accordance with this section does not:
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(i) affect the liability of members; or
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(ii) impose liability on a liquidating trustee.
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Section 12.
Section
48-2c-616
is enacted to read:
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48-2c-616. Foreign limited liability company -- Series.
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(1) If a foreign limited liability company that is registering to do business in the state is
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governed by an operating agreement establishing or providing for the establishment of a series,
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that fact shall be stated on the application for authority to transact business in the state.
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(2) (a) A company shall identify on an application for authority to transact business in
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the state which of the protections for the series and company found in Section
48-2c-606
apply
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to a series.
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(b) If different protections found in Section
48-2c-606
apply to different series of a
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company, the application for authority to transact business in the state shall identify:
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(i) the protections that apply to each existing series; and
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(ii) the protections that will apply to any later-created series.
Legislative Review Note
as of 1-18-06 8:12 AM
Based on a limited legal review, this legislation has not been determined to have a high
probability of being held unconstitutional.