H.B. 295

1

LIMITED LIABILITY COMPANY ACT AMENDMENTS
2 1997 GENERAL SESSION
3 STATE OF UTAH
4 Sponsor: John L. Valentine
5 AN ACT RELATING TO LIMITED LIABILITY COMPANIES; PERMITTING ONE MEMBER
6 LIMITED LIABILITY COMPANIES; ADDRESSING TRANSFER OF INTEREST;
7 ADDRESSING TAXATION OF LIMITED LIABILITY COMPANIES; AMENDING
8 PROVISIONS ON ARTICLES OF ORGANIZATION AND OPERATING AGREEMENTS;
9 PERMITTING CHARGING ORDERS UNDER CERTAIN CIRCUMSTANCES; AND
10 MAKING TECHNICAL CORRECTIONS.
11 This act affects sections of Utah Code Annotated 1953 as follows:
12 AMENDS:
13 48-2b-103, as last amended by Chapter 176, Laws of Utah 1996
14 48-2b-116, as last amended by Chapter 176, Laws of Utah 1996
15 48-2b-122, as enacted by Chapter 258, Laws of Utah 1991
16 48-2b-126, as last amended by Chapter 168, Laws of Utah 1992
17 48-2b-131, as last amended by Chapter 176, Laws of Utah 1996
18 48-2b-137, as last amended by Chapter 176, Laws of Utah 1996
19 59-10-801, as enacted by Chapter 83, Laws of Utah 1994
20 Be it enacted by the Legislature of the state of Utah:
21 Section 1. Section 48-2b-103 is amended to read:
22 48-2b-103. Formation.
23 (1) A limited liability company may be formed by delivering to the division articles of
24 organization for the limited liability company:
25 (a) meeting the requirements of [Subsection (2)(a) and] Section 48-2b-116; and
26 (b) executed as required by Section 48-2b-134.
27 (2) (a) A limited liability company shall at formation of the limited liability company and

1 at all times have at least [two members] one member.
2 (b) Any person may be a member of a limited liability company.
3 (c) Failure to maintain [two members] one member shall be an event of dissolution,
4 subject to Section 48-2b-137.
5 Section 2. Section 48-2b-116 is amended to read:
6 48-2b-116. Articles of organization.
7 (1) The articles of organization of a limited liability company shall set forth:
8 (a) the name of the limited liability company;
9 (b) the period of its duration, which shall not exceed 99 years from the date of filing with
10 the division;
11 (c) the business purpose or purposes for which the limited liability company is organized;
12 (d) the street address of its registered office in the state;
13 (e) the name and signature of its initial registered agent at that address, as required by
14 Section 48-2b-123;
15 (f) if the limited liability company is to be managed by a manager or managers[,]:
16 (i) a statement that the company is to be managed in that fashion; and
17 (ii) the names and street addresses of the managers who are to serve until the first meeting
18 of members or until their successors are elected;
19 (g) if the management of a limited liability company is reserved to the members, the names
20 and street addresses of the members; and
21 (h) any other provision, not inconsistent with law, that the members choose to include in
22 the articles of organization for the regulation of the internal affairs of the limited liability company,
23 including any provision that is required or permitted to be included in the operating agreement of
24 the limited liability company under this chapter.
25 (2) It is not necessary to include in the articles of organization any of the powers
26 enumerated in this chapter.
27 (3) If a limited liability company is to be managed by one or more managers, the articles
28 of organization do not need to state the name or address of any member.
29 Section 3. Section 48-2b-122 is amended to read:
30 48-2b-122. Additional members.
31 After the filing of a limited liability company's original articles of organization, additional

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1 members may be admitted:
2 (1) as provided in the operating agreement; or[,]
3 (2) if the operating agreement does not provide for the admission of additional members,
4 with the written consent of all members[, except that, notwithstanding any provision in the
5 operating agreement, no additional member may be admitted without the written consent of the
6 members entitled to receive a majority of the profits of the company].
7 Section 4. Section 48-2b-126 is amended to read:
8 48-2b-126. Operating agreements.
9 (1) An operating agreement may be adopted with the unanimous consent of the members.
10 (2) An operating agreement may be altered, amended, or repealed as provided in the
11 operating agreement of the limited liability company.
12 (3) The operating agreements may provide for:
13 (a) the regulation and management of the affairs of the limited liability company in any
14 manner not inconsistent with law or the articles of organization[.];
15 [(4) The operating agreement may also provide for] (b) the removal of a manager or
16 managers; and [for]
17 (c) the termination of a member's interest in the limited liability company.
18 (4) If a member's interest in the limited liability company is terminated pursuant to the
19 operating agreement, the member may rightfully demand a return of the member's contribution
20 pursuant to Section 48-2b-132.
21 (5) A written declaration or written guidelines adopted by the sole member of a limited
22 liability company constitutes an operating agreement for purposes of this chapter if:
23 (a) the limited liability company has only one member; and
24 (b) the member designates in the written declaration or guidelines that the written
25 declaration or guidelines is the operating agreement.
26 Section 5. Section 48-2b-131 is amended to read:
27 48-2b-131. Character, transfer, adjustment, and assignment of member interests --
28 Effect -- Charge order.
29 (1) An interest of a member in a limited liability company is personal property.
30 (2) (a) An interest of a member in a limited liability company may be adjusted, transferred,
31 or assigned as provided in the operating agreement. [If]

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1 (b) Except as otherwise provided in the operating agreement, if the nontransferring
2 members entitled to receive a majority of the nontransferred profits of the limited liability
3 company, pursuant to Section 48-2b-130, do not consent to the proposed transfer or assignment:
4 [(a)] (i) the transferee of the interest of the member has no right to:
5 (A) participate in the management of the business and affairs of the limited liability
6 company[,]; or [to]
7 (B) become a member; and
8 [(b)] (ii) the transferee is entitled to receive only the share of profits or other compensation
9 by way of income and the return of contributions to which that member would otherwise be
10 entitled.
11 (3) A member of a limited liability company organized to render professional services may
12 voluntarily transfer the member's interest in a limited liability company only to a person who is
13 licensed or registered by the jurisdiction in which the person resides to render the same type of
14 professional services as those for which the company was organized.
15 (4) (a) On application to a court of competent jurisdiction by any judgment creditor of a
16 member in a limited liability company, the court may charge the interest of the member in the
17 limited liability company with payment of the unsatisfied amount of the judgment with interest.
18 (b) To the extent a judgment creditor is a beneficiary of a charging order issued under
19 Subsection (4)(a), the judgment creditor has only the rights of an assignee of the member's interest
20 in the limited liability company.
21 (c) This chapter does not deprive any member of the benefit of any exemption laws
22 applicable to the member's interest in the limited liability company.
23 [(4)] (5) Any transfer of a member's interest in a limited liability company in violation of
24 this section is void.
25 Section 6. Section 48-2b-137 is amended to read:
26 48-2b-137. Dissolution.
27 A limited liability company organized under this chapter shall be dissolved upon the
28 occurrence of any of the following events:
29 (1) when the period fixed for the duration of the limited liability company in its articles
30 of organization or operating agreement expires;
31 (2) when the limited liability company fails to meet the requirement to maintain at least

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1 [two members, unless within 90 days after the event of dissolution a member is added, in a manner
2 consistent with the operating agreement, if any, of the limited liability company, so that the limited
3 liability company meets the minimum membership requirement] one member;
4 (3) by written agreement signed by the members entitled to receive a majority of the
5 profits of the limited liability company, unless otherwise provided in the operating agreement;
6 (4) except as provided otherwise in the operating agreement, upon the death, retirement,
7 resignation, expulsion, bankruptcy, or dissolution of a member or upon the occurrence of any other
8 event that terminates the continued eligibility for membership of a member in the limited liability
9 company, unless the business of the limited liability company is continued by the members:
10 (a) under a right to continue the business, as provided in the operating agreement, but only
11 in accordance with the terms, conditions, and provisions specified in the operating agreement; or
12 (b) if the right to continue is not specified in the operating agreement, by the consent of
13 all remaining members within 90 days after the event of dissolution; or
14 (5) when the limited liability company is not the successor limited liability company in
15 the merger or consolidation of two or more limited liability companies.
16 Section 7. Section 59-10-801 is amended to read:
17 59-10-801. Taxation of limited liability companies.
18 For purposes of taxation under this title, a limited liability company or a foreign limited
19 liability company transacting business in the state shall be classified [as a partnership or
20 corporation] in the same manner as it is classified for federal income tax purposes. [For example:]
21 [(1) members of a limited liability company classified as a partnership for federal income
22 tax purposes shall be treated as partners for state income tax purposes; and]
23 [(2) a limited liability company classified as a corporation for federal income tax purposes
24 shall be taxed as a corporation for state tax purposes as provided in Chapter 7.]




Legislative Review Note
as of 12-13-96 8:10 AM

A limited legal review of this bill raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel

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