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First Substitute S.B. 215

Senator Lyle W. Hillyard proposes the following substitute bill:


             1     
FINANCIAL INSTITUTIONS AS LIMITED

             2     
LIABILITY COMPANIES

             3     
2005 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Sponsor: Lyle W. Hillyard

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies the Financial Institutions Act to address limited liability companies.
             10      Highlighted Provisions:
             11          This bill:
             12          .    exempts a financial institution formed as a limited liability company from specified
             13      provisions of the Utah Revised Limited Liability Company Act under certain
             14      circumstances;
             15          .    addresses how limited liability companies are treated under the Financial
             16      Institutions Act or for purposes of transferring a member's interest; and
             17          .    makes technical changes.
             18      Monies Appropriated in this Bill:
             19          None
             20      Other Special Clauses:
             21          None
             22      Utah Code Sections Affected:
             23      AMENDS:
             24          7-1-810, as enacted by Chapter 92, Laws of Utah 2004
             25     


             26      Be it enacted by the Legislature of the state of Utah:
             27          Section 1. Section 7-1-810 is amended to read:
             28           7-1-810. Limited liability companies.
             29          (1) Notwithstanding any other provision of this title, if the conditions of this section are
             30      met, the following may be organized as or convert to a limited liability company under Title
             31      48, Chapter 2c, Utah Revised Limited Liability Company Act:
             32          (a) an industrial bank chartered under Chapter 8, Industrial Banks;
             33          (b) an industrial loan company as defined in Section 7-8-21 ; or
             34          (c) any of the following if the institution is an S Corporation, as defined in Section
             35      1361, Internal Revenue Code, immediately before becoming a limited liability company:
             36          (i) a bank chartered under Chapter 3, Banks;
             37          (ii) a savings and loan association chartered under Chapter 7, Savings and Loan
             38      Associations Act; or
             39          (iii) a depository institution holding company.
             40          (2) (a) Before an institution described in Subsection (1) may organize as or convert to a
             41      limited liability company, the institution shall obtain approval of the commissioner.
             42          (b) (i) To obtain the approval under this section from the commissioner, the institution
             43      shall file a request for approval with the commissioner at least 30 days before the day on which
             44      the institution becomes a limited liability company.
             45          (ii) If the commissioner does not disapprove the request for approval within 30 days
             46      from the day on which the commissioner receives the request, the request is considered
             47      approved.
             48          (iii) When taking action on a request for approval filed under this section, the
             49      commissioner may:
             50          (A) approve the request;
             51          (B) approve the request subject to terms and conditions the commissioner considers
             52      necessary; or
             53          (C) disapprove the request.
             54          (3) To approve a request for approval, the commissioner shall find:
             55          (a) for an institution described in Subsection (1) that is required to be insured by a
             56      federal deposit insurance agency, that the institution:


             57          (i) will operate in a safe and sound manner;
             58          (ii) has the following characteristics:
             59          (A) the institution is not subject to automatic termination, dissolution, or suspension
             60      upon the happening of some event other than the passage of time;
             61          (B) the exclusive authority to manage the institution is vested in a board of managers
             62      or directors that:
             63          (I) is elected or appointed by the owners;
             64          (II) is not required to have owners of the institution included on the board;
             65          (III) possesses adequate independence and authority to supervise the operation of the
             66      institution; and
             67          (IV) operates with substantially the same rights, powers, privileges, duties, and
             68      responsibilities as the board of directors of a corporation;
             69          (C) neither state law, nor the institution's operating agreement, bylaws, or other
             70      organizational documents provide that an owner of the institution is liable for the debts,
             71      liabilities, and obligations of the institution in excess of the amount of the owner's investment;
             72      and
             73          (D) (I) neither state law, nor the institution's operating agreement, bylaws, or other
             74      organizational documents require the consent of any other owner of the institution in order for
             75      any owner to transfer an ownership interest in the institution, including voting rights; and
             76          (II) the institution is able to obtain new investment funding if needed to maintain
             77      adequate capital; and
             78          (iii) is able to comply with all legal and regulatory requirements for an insured
             79      depository institution under applicable federal and state law; and
             80          (b) for an institution described in Subsection (1) that is not required to be insured by a
             81      federal deposit insurance agency, that the institution will operate in a safe and sound manner.
             82          (4) [(a)] An institution [listed] described in Subsection (3)(a) that is organized as a
             83      limited liability company shall maintain the characteristics listed in Subsection (3)(a)(ii) during
             84      such time as it is authorized to conduct business under this title as a limited liability company.
             85          [(b) Notwithstanding Subsection (3)(a)(ii)(A), an institution listed in Subsection (3)(a)
             86      that is a limited liability company may be voluntarily dissolved by its members:]
             87          [(i) in accordance with Title 48, Chapter 2c, Part 12, Dissolution; and]


             88          [(ii) with the prior written approval of the commissioner.]
             89          (5) (a) All rights, privileges, powers, duties, and obligations of an institution described
             90      in Subsection (1) that is organized as a limited liability company and its members and
             91      managers shall be governed by Title 48, Chapter 2c, Utah Revised Limited Liability Company
             92      Act, except:
             93          (i) the following sections do not apply to an institution that is described in Subsection
             94      (3)(a):
             95          (A) Subsection 48-2c-402 (2)(a)(ii);
             96          (B) Section 48-2c-604 ;
             97          (C) Section 48-2c-703 ;
             98          (D) Section 48-2c-708 ;
             99          (E) Subsection 48-2c-801 (2);
             100          (F) Section 48-2c-1102 ;
             101          (G) Section 48-2c-1104 ; and
             102          (H) Subsections 48-2c-1201 (2) through (5); and
             103          (ii) as otherwise provided in this title.
             104          (b) Notwithstanding Subsection (5)(a), for an institution that is described in Subsection
             105      (3)(a):
             106          (i) for purposes of transferring a member's interests in the institution, a member's
             107      interest in the institution shall be treated like a share of stock in a corporation; and
             108          (ii) if a member's interest in the institution is transferred voluntarily or involuntarily to
             109      another person, the person who receives the member's interest shall obtain the member's entire
             110      rights associated with the member's interest in the institution including:
             111          (A) all economic rights; and
             112          (B) all voting rights.
             113          (c) An institution described in Subsection (3)(a) may not by agreement or otherwise
             114      change the application of Subsection (5)(a) to the institution.
             115          (6) Unless the context requires otherwise, for the purpose of applying this title to an
             116      institution described in Subsection (1) that is organized as a limited liability company:
             117          (a) a citation to Title 16, Chapter 10a, Utah Revised Business Corporation Act,
             118      includes the equivalent citation to Title 48, Chapter 2c, Utah Revised Limited Liability


             119      Company Act;
             120          (b) "articles of incorporation" includes a limited liability company's articles of
             121      organization as that term is used in Section 48-2c-403 ;
             122          (c) "board of directors" includes [any of the following of a limited liability company:
             123      (i) all managers; (ii) all directors; or (iii)] one or more persons who have, with respect to an
             124      institution described in Subsection (1), authority substantially similar to that of a board of
             125      directors of a corporation;
             126          (d) "bylaws" includes a limited liability company's operating agreement as that term is
             127      defined in Section 48-2c-102 ;
             128          (e) "corporation" includes a limited liability company organized under Title 48,
             129      Chapter 2c, Utah Revised Limited Liability Company Act;
             130          (f) "director" includes any of the following of a limited liability company:
             131          (i) a manger;
             132          (ii) a director; or
             133          (iii) other person who has with respect to the institution described in Subsection (1),
             134      authority substantially similar to that of a director of a corporation;
             135          (g) "dividend" includes distributions made by a limited liability company under Title
             136      48, Chapter 2c, Part 10, Distributions;
             137          (h) "incorporator" includes the organizers of a limited liability company as provided in
             138      Title 48, Chapter 2c, Part 4, Formation;
             139          (i) "officer" includes any of the following of an institution described in Subsection (1):
             140          (i) an officer; or
             141          (ii) other person who has with respect to the institution described in Subsection (1)
             142      authority substantially similar to that of an officer of a corporation;
             143          (j) "security," "shares," or "stock" of a corporation includes:
             144          (i) a membership interest in a limited liability company as provided in Title 48,
             145      Chapter 2c, Part 7, Members; and
             146          (ii) any certificate or other evidence of an ownership interest in a limited liability
             147      company; and
             148          (k) "stockholder" or "shareholder" includes an owner of an interest in an institution
             149      described in Subsection (1) including a member as provided in Title 48, Chapter 2c, Part 7,


             150      Members.
             151          (7) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
             152      commissioner shall make rules governing the form of a request for approval filed under this
             153      section.


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