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H.B. 127

             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) 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          (2) A series may have a business purpose or investment objective separate from the
             86      company.
             87          (3) Notwithstanding any other applicable law, a series' debts, liabilities, obligations,
             88      and expenses are enforceable against the assets of that series only, and not against the assets of
             89      the company generally or any other series if:


             90          (a) the operating agreement provides for separate treatment of the series;
             91          (b) separate and distinct records are maintained concerning the series;
             92          (c) the assets associated with the series are held and accounted for separately from the
             93      other assets of the company and any other series; and
             94          (d) notice of the limitation on liability of a series is included in the company's articles
             95      of organization.
             96          (4) Unless otherwise provided in the operating agreement, none of the debts, liabilities,
             97      obligations, and expenses incurred, contracted for, or otherwise existing with respect to the
             98      company generally or any other series are enforceable against the assets of a series.
             99          Section 3. Section 48-2c-607 is enacted to read:
             100          48-2c-607. Notice of series -- Articles of organization.
             101          (1) Notice in a company's articles of organization of the limitation on liabilities of a
             102      series, as required by Section 48-2c-606 , is sufficient whether or not the company has
             103      established any series at the time the notice is included in the articles of organization.
             104          (2) The notice required by Section 48-2c-606 need not reference any specific series.
             105          (3) The filing of the notice required by Section 48-2c-606 with the division constitutes
             106      notice of the limitation on liability of a series.
             107          Section 4. Section 48-2c-608 is enacted to read:
             108          48-2c-608. Agreement to be liable.
             109          Notwithstanding Section 48-2c-601 , a member or manager may agree to be obligated
             110      personally for any or all of the debts, obligations, and liabilities of one or more series.
             111          Section 5. Section 48-2c-609 is enacted to read:
             112          48-2c-609. Series related provisions in operating agreement.
             113          (1) An operating agreement may provide for classes or groups of members or managers
             114      associated with a series.
             115          (2) An operating agreement may provide for the future creation of additional classes or
             116      groups of members or managers associated with a series having such relative rights, powers,
             117      and duties as may from time to time be established, including rights, powers, and duties senior
             118      to existing classes and groups of members or managers associated with the series.
             119          (3) An operating agreement may provide for the taking of an action without the vote or
             120      approval of any member or manager, or class or group of members or managers, including:


             121          (a) an action to create a class or group of a series of interests in the company that was
             122      not previously outstanding; and
             123          (b) amending the operating agreement.
             124          (4) An operating agreement may provide that any member or class or group of
             125      members associated with a series has no voting rights.
             126          (5) (a) An operating agreement may grant to all or certain identified members or
             127      managers, or a specified class or group of the members or managers associated with a series,
             128      the right to vote separately or with all or any class or group of the members or managers
             129      associated with the series, on any matter.
             130          (b) Voting by members or managers associated with a series may be on a per capita,
             131      number, financial interest, class, group, or any other basis.
             132          Section 6. Section 48-2c-610 is enacted to read:
             133          48-2c-610. Management of a series.
             134          (1) Unless otherwise provided in an operating agreement, the management of a series is
             135      vested in the members associated with the series in proportion to the then-current percentage or
             136      other interest of members in the profits of the series owned by all of the members associated
             137      with the series.
             138          (2) The decision of members owning more than 50% of the then-current percentage or
             139      other interest in the profits controls.
             140          (3) Notwithstanding Subsection (2), if an operating agreement provides for the
             141      management of the series in whole or in part by a manager, the management of the series is
             142      vested to that extent in the manager, who is chosen in the manner provided in the operating
             143      agreement.
             144          (4) The manager of a series holds the offices and has the responsibilities accorded to
             145      the manager under the operating agreement.
             146          (5) A series may have more than one manager.
             147          (6) Subject to a manager's resignation, a manager ceases to be a manager with respect
             148      to a series as provided in the operating agreement.
             149          (7) Except as otherwise provided in an operating agreement, any event under this
             150      chapter or in an operating agreement that causes a manager to cease to be a manager with
             151      respect to a series does not, by itself, cause the manager to cease to be a manager of the limited


             152      liability company or with respect to any other series.
             153          Section 7. Section 48-2c-611 is enacted to read:
             154          48-2c-611. Distributions concerning a series.
             155          (1) Subject to an operating agreement, at the time a member associated with a series
             156      becomes entitled to receive a distribution with respect to the series, the member has the status
             157      of, and is entitled to all remedies available to, a creditor of the series with respect to the
             158      distribution.
             159          (2) An operating agreement may provide for the establishment of a record date for
             160      allocations and distributions concerning a series.
             161          (3) Notwithstanding Section 48-2c-1005 , a limited liability company may make a
             162      limited distribution with respect to a series only.
             163          (4) No distribution may be made by a company under this section with respect to a
             164      series if, after giving effect to the distribution:
             165          (a) the series would not be able to pay its debts as they become due in the usual and
             166      regular course of its business; or
             167          (b) the value of the series' total assets would be less than the sum of:
             168          (i) its total liabilities; and
             169          (ii) unless the articles of organization or the operating agreement permit otherwise, the
             170      amount that would be needed, if the series were to be dissolved and wound up at the time of the
             171      distribution, to satisfy the preferential rights upon dissolution and winding up of members
             172      whose preferential rights are superior to the rights of members receiving the distribution.
             173          (5) The company may base a determination that a distribution is not prohibited under
             174      Subsection (4) either on:
             175          (a) financial statements prepared on the basis of accounting practices and principles
             176      that are reasonable in the circumstances; or
             177          (b) a fair valuation or other method that is reasonable in the circumstances.
             178          (6) For purposes of this section, amounts constituting reasonable compensation for
             179      present or past services or reasonable payments made in the ordinary course of business
             180      pursuant to a bona fide retirement plan or other benefits program do not constitute a
             181      distribution.
             182          (7) A member who receives a distribution in violation of this section, and who knew at


             183      the time of the distribution that the distribution violated this section, is liable to the series for
             184      the amount of the distribution.
             185          (8) Subject to Section 48-2c-1006 , this section does not affect any obligation or
             186      liability of a member under an agreement or other applicable law for the amount of a
             187      distribution.
             188          Section 8. Section 48-2c-612 is enacted to read:
             189          48-2c-612. Member removal from a series -- Effect.
             190          (1) Unless otherwise provided in the operating agreement, a member ceases to be
             191      associated with a series and to have the power to exercise any rights or powers of a member
             192      with respect to the series upon the assignment of all of the member's interest in the company
             193      with respect to the series.
             194          (2) Unless otherwise provided in an operating agreement, any event under this chapter
             195      or the operating agreement that causes a member to cease to be associated with a series does
             196      not, by itself:
             197          (a) cause the member to cease to be associated with any other series;
             198          (b) terminate the continued membership of a member in the limited liability company;
             199      or
             200          (c) cause the termination of the series, regardless of whether the member is the last
             201      remaining member associated with the series.
             202          Section 9. Section 48-2c-613 is enacted to read:
             203          48-2c-613. Termination of series.
             204          (1) Subject to Section 48-2c-1201 , except to the extent otherwise provided in the
             205      operating agreement, a series may be terminated and its affairs wound up without causing the
             206      dissolution of the limited liability company.
             207          (2) The termination of a series does not affect the limitation on liabilities of the series
             208      provided by Section 48-2c-606 .
             209          (3) A series is terminated and its affairs shall be wound up upon the dissolution of the
             210      limited liability company under Section 48-2c-1201 or otherwise upon the first to occur of the
             211      following:
             212          (a) the time specified in the operating agreement;
             213          (b) the happening of events specified in the operating agreement;


             214          (c) unless otherwise provided in the operating agreement, the affirmative vote or
             215      written consent of:
             216          (i) (A) the members of the limited liability company associated with the series; or
             217          (B) if there is more than one class or group of members associated with the series, by
             218      each class or group of members associated with the series; and
             219          (ii) (A) members associated with the series who own more than 2/3 of the then-current
             220      percentage or other interest in the profits of the series owned by all of the members associated
             221      with the series; or
             222          (B) the members in each class or group of the series, as appropriate; or
             223          (d) the termination of the series under Section 48-2c-614 .
             224          Section 10. Section 48-2c-614 is enacted to read:
             225          48-2c-614. Court-decreed termination of series.
             226          On application by or for a member or manager associated with a series, the district court
             227      may decree termination of the series whenever it is not reasonably practicable to carry on the
             228      business of the series in conformity with an operating agreement.
             229          Section 11. Section 48-2c-615 is enacted to read:
             230          48-2c-615. Participation in winding up.
             231          (1) Notwithstanding Section 48-2c-1303 , unless otherwise provided in the operating
             232      agreement, the series' affairs may be wound up by the following:
             233          (a) a manager associated with a series who has not wrongfully terminated the series; or
             234          (b) if there is no manager under Subsection (1)(a):
             235          (i) the members associated with the series, or a person approved by the members
             236      associated with the series, who own more than 50% of the then-current percentage or other
             237      interest in the profits of the series owned by all of the members associated with the series; or
             238          (ii) if there is more than one class or group of members associated with the series, then
             239      by each class or group of members associated with the series owning more than 50% of the
             240      then-current percentage or other interest in the profits of the series owned by all of the
             241      members in each class or group associated with the series.
             242          (2) (a) The district court may, upon cause shown, wind up the affairs of the series upon
             243      application of any member associated with the series, the member's personal representative, or
             244      the member's assignee.


             245          (b) If the district court winds up the affairs of a series under Subsection (2)(a), the
             246      district court may appoint a liquidating trustee.
             247          (3) (a) A person winding up the affairs of a series may, in the name of the limited
             248      liability company and on behalf of the limited liability company and the series, take any action
             249      with respect to the series that is allowed by Part 13, Winding Up.
             250          (b) A person winding up the affairs of a series shall comply with Part 13, Winding Up.
             251          (c) The winding up the affairs of a series in accordance with this section does not:
             252          (i) affect the liability of members; or
             253          (ii) impose liability on a liquidating trustee.
             254          Section 12. Section 48-2c-616 is enacted to read:
             255          48-2c-616. Foreign limited liability company -- Series.
             256          (1) If a foreign limited liability company that is registering to do business in the state is
             257      governed by an operating agreement establishing or providing for the establishment of a series,
             258      that fact shall be stated on the application for authority to transact business in the state.
             259          (2) (a) A company shall identify on an application for authority to transact business in
             260      the state which of the protections for the series and company found in Section 48-2c-606 apply
             261      to a series.
             262          (b) If different protections found in Section 48-2c-606 apply to different series of a
             263      company, the application for authority to transact business in the state shall identify:
             264          (i) the protections that apply to each existing series; and
             265          (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.

Office of Legislative Research and General Counsel


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