H.B. 127 Enrolled

1

LIMITED LIABILITY COMPANY
2 AMENDMENTS
3 2006 GENERAL SESSION
4 STATE OF UTAH
5 Chief Sponsor: J. Stuart Adams
6 Senate Sponsor: Curtis S. Bramble
7
8 LONG TITLE
9 General Description:
10 This bill modifies Title 48, Chapter 2c, Utah Revised Limited Liability Company Act.
11 Highlighted Provisions:
12 This bill:
13 . allows the creation of a series within a limited liability company;
14 . provides that a series may have a separate business purpose and separate rights and
15 liabilities from the limited liability company or another series of the company;
16 . describes the requirements for creating a series;
17 . provides a method for making distributions from a series;
18 . outlines methods for termination of a series;
19 . describes the winding up process for a series;
20 . outlines the requirements for a foreign limited liability company, the operating
21 agreement of which allows the creation of a series, to do business in the state; and
22 . makes technical changes.
23 Monies Appropriated in this Bill:
24 None
25 Other Special Clauses:
26 None
27 Utah Code Sections Affected:
28 AMENDS:
29 48-2c-120, as last amended by Chapter 141, Laws of Utah 2005

30 ENACTS:
31 48-2c-606, Utah Code Annotated 1953
32 48-2c-607, Utah Code Annotated 1953
33 48-2c-608, Utah Code Annotated 1953
34 48-2c-609, Utah Code Annotated 1953
35 48-2c-610, Utah Code Annotated 1953
36 48-2c-611, Utah Code Annotated 1953
37 48-2c-612, Utah Code Annotated 1953
38 48-2c-613, Utah Code Annotated 1953
39 48-2c-614, Utah Code Annotated 1953
40 48-2c-615, Utah Code Annotated 1953
41 48-2c-616, Utah Code Annotated 1953
42
43 Be it enacted by the Legislature of the state of Utah:
44 Section 1. Section 48-2c-120 is amended to read:
45 48-2c-120. Articles of organization and operating agreement.
46 (1) A company's articles of organization or operating agreement may not:
47 (a) restrict a right to inspect and copy records under Section 48-2c-113 ;
48 (b) reduce the duties of members or managers under Section 48-2c-807 ;
49 (c) eliminate the obligation of good faith and fair dealing, except that the members by
50 written agreement may determine the standards by which the performance of the obligation is
51 to be measured, if the standards are not manifestly unreasonable;
52 (d) vary any filing requirement under this chapter;
53 (e) vary any requirement under this chapter that a particular action or provision be
54 reflected in a writing;
55 (f) vary the right to expel a member based on any event specified in Subsection
56 48-2c-710 (3);
57 (g) vary the remedies under Section 48-2c-1210 for judicial dissolution of a company;

58 (h) except as allowed by Section 48-2c-1103 or any other provision of law, restrict
59 rights of, or impose duties on, persons other than the members, their assignees and transferees,
60 the managers, and the company, without the consent of those persons; or
61 (i) eliminate or limit the personal liability of any person vested with management
62 authority to the company or its members for damages for any breach of duty in the capacity
63 where a judgment or other final adjudication adverse to the manager establishes that the
64 manager's acts or omissions:
65 (i) were in bad faith;
66 (ii) involved gross negligence;
67 (iii) involved willful misconduct; or
68 (iv) [the manager personally gained] resulted in a financial profit or other advantage to
69 which the manager was not legally entitled.
70 (2) The articles of organization and operating agreement may:
71 (a) vary the requirement under Section 48-2c-1104 that, if all of the other members of
72 the company other than the member proposing to dispose of the member's interest do not
73 approve of the proposed transfer or assignment by unanimous written consent, the transferee of
74 the member's interest shall have no right to participate in the management of the business or
75 affairs of the company or to become a member; and
76 (b) vary the requirement under Section 48-2c-703 that, after the filing of the original
77 articles of organization, a person may be admitted as an additional member only upon the
78 written consent of all members.
79 Section 2. Section 48-2c-606 is enacted to read:
80 48-2c-606. Series of members, managers, or limited liability company interests.
81 (1) (a) An operating agreement may establish or provide for the establishment of one or
82 more designated series of members, managers, or interests in the company having separate
83 rights, powers, or duties with respect to specified property or obligations of the limited liability
84 company or profits and losses associated with specified property or obligations.
85 (b) The separate rights, powers, and duties of a series shall be identified in the

86 operating agreement.
87 (2) A series may have a business purpose or investment objective separate from the
88 company.
89 (3) A series' debts, liabilities, obligations, and expenses are enforceable against the
90 assets of that series only, and not against the assets of the company generally or any other series
91 if:
92 (a) the operating agreement provides for separate treatment of the series;
93 (b) separate and distinct records are maintained concerning the series;
94 (c) the assets associated with the series are held and accounted for separately from the
95 other assets of the company and any other series; and
96 (d) notice of the limitation on liability of a series is included in the company's articles
97 of organization.
98 (4) None of the debts, liabilities, obligations, and expenses incurred, contracted for, or
99 otherwise existing with respect to the company generally or any other series are enforceable
100 against the assets of a series if:
101 (a) the operating agreement provides for separate treatment of the series;
102 (b) separate and distinct records are maintained concerning the series;
103 (c) the assets associated with the series are held and accounted for separately from the
104 other assets of the company and any other series; and
105 (d) notice of the limitation on liability of a series is included in the company's articles
106 of organization.
107 (5) A series may contract on its own behalf and in its own name, including through a
108 manager.
109 (6) Notwithstanding other provisions of this section:
110 (a) property and assets of a series may not be transferred to the company generally or
111 another series if the transfer impairs the ability of the series releasing the property or assets to
112 pay its debts existing at the time of the transfer unless fair value is given to the transferring
113 series for the property or assets transferred; and

114 (b) a tax or other liability of the company generally or of a series may not be assigned
115 by the series against which the tax or other liability is imposed to the company generally or to
116 another series within the company if the assignment impairs a creditor's right and ability to
117 fully collect an amount due when owed.
118 Section 3. Section 48-2c-607 is enacted to read:
119 48-2c-607. Notice of series -- Articles of organization.
120 (1) Notice in a company's articles of organization of the limitation on liabilities of a
121 series, as required by Section 48-2c-606 , is sufficient whether or not the company has
122 established any series at the time the notice is included in the articles of organization.
123 (2) The notice required by Section 48-2c-606 need not reference any specific series.
124 (3) The filing of the notice required by Section 48-2c-606 with the division constitutes
125 notice of the limitation on liability of a series.
126 Section 4. Section 48-2c-608 is enacted to read:
127 48-2c-608. Agreement to be liable.
128 Notwithstanding Section 48-2c-601 , a member or manager may agree to be obligated
129 personally for any or all of the debts, obligations, and liabilities of one or more series.
130 Section 5. Section 48-2c-609 is enacted to read:
131 48-2c-609. Series related provisions in operating agreement.
132 (1) An operating agreement may provide for classes or groups of members or managers
133 associated with a series with separate rights, powers, or duties as provided in Subsection
134 48-2c-606 (1).
135 (2) An operating agreement may provide for the future creation of additional classes or
136 groups of members or managers associated with a series having such relative rights, powers,
137 and duties as may from time to time be established, including rights, powers, and duties senior
138 to existing classes and groups of members or managers associated with the series.
139 (3) An operating agreement may provide for the taking of an action without the vote or
140 approval of any member or manager, or class or group of members or managers, including:
141 (a) an action to create a class or group of a series of interests in the company that was

142 not previously outstanding; and
143 (b) amending the operating agreement.
144 (4) An operating agreement may provide that any member or class or group of
145 members associated with a series has no voting rights.
146 (5) (a) An operating agreement may grant to all or certain identified members or
147 managers, or a specified class or group of the members or managers associated with a series,
148 the right to vote separately or with all or any class or group of the members or managers
149 associated with the series, on any matter.
150 (b) Voting by members or managers associated with a series may be on a per capita,
151 number, financial interest, class, group, or any other basis.
152 Section 6. Section 48-2c-610 is enacted to read:
153 48-2c-610. Management of a series.
154 (1) Unless otherwise provided in an operating agreement, the management of a series is
155 vested in the members associated with the series in proportion to the then-current percentage or
156 other interest of members in the profits of the series owned by all of the members associated
157 with the series.
158 (2) Unless otherwise provided in an operating agreement, the decision of members
159 owning more than 50% of the then-current percentage or other interest in the profits controls.
160 (3) Notwithstanding Subsection (2), if an operating agreement provides for the
161 management of the series in whole or in part by a manager, the management of the series is
162 vested to that extent in the manager, who is chosen in the manner provided in the operating
163 agreement.
164 (4) The manager of a series holds the offices and has the responsibilities accorded to
165 the manager under the operating agreement.
166 (5) A series may have more than one manager.
167 (6) Subject to a manager's resignation, a manager ceases to be a manager with respect
168 to a series as provided in the operating agreement.
169 (7) Except as otherwise provided in an operating agreement, any event under this

170 chapter or in an operating agreement that causes a manager to cease to be a manager with
171 respect to a series does not, by itself, cause the manager to cease to be a manager of the limited
172 liability company or with respect to any other series.
173 Section 7. Section 48-2c-611 is enacted to read:
174 48-2c-611. Distributions concerning a series.
175 (1) Subject to an operating agreement, at the time a member associated with a series
176 becomes entitled to receive a distribution with respect to the series, the member has the status
177 of, and is entitled to all remedies available to, a creditor of the series with respect to the
178 distribution.
179 (2) An operating agreement may provide for the establishment of a record date for
180 allocations and distributions concerning a series.
181 (3) Notwithstanding Section 48-2c-1005 , a limited liability company may make a
182 limited distribution with respect to a series only.
183 (4) No distribution may be made by a company under this section with respect to a
184 series if, after giving effect to the distribution:
185 (a) the series would not be able to pay its debts as they become due in the usual and
186 regular course of its business; or
187 (b) the value of the series' total assets would be less than the sum of:
188 (i) its total liabilities; and
189 (ii) unless the articles of organization or the operating agreement permit otherwise, the
190 amount that would be needed, if the series were to be dissolved and wound up at the time of the
191 distribution, to satisfy the preferential rights upon dissolution and winding up of members
192 whose preferential rights are superior to the rights of members receiving the distribution.
193 (5) The company may base a determination that a distribution is not prohibited under
194 Subsection (4) either on:
195 (a) financial statements prepared on the basis of accounting practices and principles
196 that are reasonable in the circumstances; or
197 (b) a fair valuation or other method that is reasonable in the circumstances.

198 (6) For purposes of this section, amounts constituting reasonable compensation for
199 present or past services or reasonable payments made in the ordinary course of business
200 pursuant to a bona fide retirement plan or other benefits program do not constitute a
201 distribution.
202 (7) A member who receives a distribution in violation of this section is liable to the
203 series for the amount of the distribution.
204 (8) Subject to Section 48-2c-1006 , this section does not affect any obligation or
205 liability of a member under an agreement or other applicable law for the amount of a
206 distribution.
207 Section 8. Section 48-2c-612 is enacted to read:
208 48-2c-612. Member removal from a series -- Effect.
209 (1) Unless otherwise provided in the operating agreement, a member ceases to be
210 associated with a series and to have the power to exercise any rights or powers of a member
211 with respect to the series upon the assignment of all of the member's interest in the company
212 with respect to the series.
213 (2) Unless otherwise provided in an operating agreement, any event under this chapter
214 or the operating agreement that causes a member to cease to be associated with a series does
215 not, by itself:
216 (a) cause the member to cease to be associated with any other series;
217 (b) terminate the continued membership of a member in the limited liability company;
218 or
219 (c) cause the termination of the series, regardless of whether the member is the last
220 remaining member associated with the series.
221 Section 9. Section 48-2c-613 is enacted to read:
222 48-2c-613. Termination of series.
223 (1) Subject to Section 48-2c-1201 , except to the extent otherwise provided in the
224 operating agreement, a series may be terminated and its affairs wound up without causing the
225 dissolution of the limited liability company.

226 (2) The termination of a series does not affect the limitation on liabilities of the series
227 provided by Section 48-2c-606 .
228 (3) A series is terminated and its affairs shall be wound up upon the dissolution of the
229 limited liability company under Section 48-2c-1201 or otherwise upon the first to occur of the
230 following:
231 (a) the time specified in the operating agreement;
232 (b) the happening of events specified in the operating agreement;
233 (c) unless otherwise provided in the operating agreement, the affirmative vote or
234 written consent of:
235 (i) (A) the members of the limited liability company associated with the series; or
236 (B) if there is more than one class or group of members associated with the series, by
237 each class or group of members associated with the series; and
238 (ii) (A) members associated with the series who own more than 2/3 of the then-current
239 percentage or other interest in the profits of the series owned by all of the members associated
240 with the series; or
241 (B) the members in each class or group of the series, as appropriate; or
242 (d) the termination of the series under Section 48-2c-614 .
243 Section 10. Section 48-2c-614 is enacted to read:
244 48-2c-614. Court-decreed termination of series.
245 On application by or for a member or manager associated with a series, the district court
246 may decree termination of the series whenever it is not reasonably practicable to carry on the
247 business of the series in conformity with an operating agreement.
248 Section 11. Section 48-2c-615 is enacted to read:
249 48-2c-615. Participation in winding up.
250 (1) Notwithstanding Section 48-2c-1303 , unless otherwise provided in the operating
251 agreement, the series' affairs may be wound up by the following:
252 (a) a manager associated with a series who has not wrongfully terminated the series; or
253 (b) if there is no manager under Subsection (1)(a):

254 (i) the members associated with the series, or a person approved by the members
255 associated with the series, who own more than 50% of the then-current percentage or other
256 interest in the profits of the series owned by all of the members associated with the series; or
257 (ii) if there is more than one class or group of members associated with the series, then
258 by each class or group of members associated with the series owning more than 50% of the
259 then-current percentage or other interest in the profits of the series owned by all of the
260 members in each class or group associated with the series.
261 (2) (a) The district court may, upon cause shown, wind up the affairs of the series upon
262 application of any member associated with the series, the member's personal representative, or
263 the member's assignee.
264 (b) If the district court winds up the affairs of a series under Subsection (2)(a), the
265 district court may appoint a liquidating trustee.
266 (3) (a) A person winding up the affairs of a series may, in the name of the limited
267 liability company and on behalf of the limited liability company and the series, take any action
268 with respect to the series that is allowed by Part 13, Winding Up.
269 (b) A person winding up the affairs of a series shall comply with Part 13, Winding Up.
270 (c) The winding up the affairs of a series in accordance with this section does not:
271 (i) affect the liability of members; or
272 (ii) impose liability on a liquidating trustee.
273 Section 12. Section 48-2c-616 is enacted to read:
274 48-2c-616. Foreign limited liability company -- Series.
275 (1) If a foreign limited liability company that is registering to do business in the state is
276 governed by an operating agreement establishing or providing for the establishment of a series,
277 that fact shall be stated on the application for authority to transact business in the state.
278 (2) (a) A company shall identify on an application for authority to transact business in
279 the state which of the protections for the series and company found in Section 48-2c-606 apply
280 to a series.
281 (b) If different protections found in Section 48-2c-606 apply to different series of a

282 company, the application for authority to transact business in the state shall identify:
283 (i) the protections that apply to each existing series; and
284 (ii) the protections that will apply to any later-created series.