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S.B. 148

             1     

LOW-PROFIT LIMITED LIABILITY

             2     
COMPANY ACT

             3     
2009 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Chief Sponsor: Lyle W. Hillyard

             6     
House Sponsor: Kraig Powell

             7     
             8      LONG TITLE
             9      General Description:
             10          This bill modifies the Utah Revised Limited Liability Company Act to provide for low-
             11      profit limited liability companies.
             12      Highlighted Provisions:
             13          This bill:
             14          .    defines terms;
             15          .    addresses name requirements;
             16          .    creates requirements to be a low-profit limited liability company, including making
             17      a statement in the articles of organization;
             18          .    addresses when a low-profit limited liability company ceases to be a low-profit
             19      limited liability company;
             20          .    provides for conversions or mergers involving a low-profit limited liability
             21      company; and
             22          .    makes technical and conforming amendments.
             23      Monies Appropriated in this Bill:
             24          None
             25      Other Special Clauses:
             26          None
             27      Utah Code Sections Affected:


             28      AMENDS:
             29          48-2c-102, as last amended by Laws of Utah 2008, Chapters 249 and 364
             30          48-2c-106, as last amended by Laws of Utah 2002, Chapter 222
             31          48-2c-403, as last amended by Laws of Utah 2008, Chapter 364
             32          48-2c-405, as enacted by Laws of Utah 2001, Chapter 260
             33      ENACTS:
             34          48-2c-412, Utah Code Annotated 1953
             35          48-2c-1411, Utah Code Annotated 1953
             36     
             37      Be it enacted by the Legislature of the state of Utah:
             38          Section 1. Section 48-2c-102 is amended to read:
             39           48-2c-102. Definitions.
             40          As used in this chapter:
             41          (1) "Bankruptcy" includes bankruptcy under federal bankruptcy law or under Utah
             42      insolvency law.
             43          (2) "Business" includes a lawful trade, occupation, profession, business, investment, or
             44      other purpose or activity, whether or not that trade, occupation, profession, business,
             45      investment, purpose, or activity is carried on for profit.
             46          (3) "Capital account," unless otherwise provided in the operating agreement, means the
             47      account, as adjusted from time to time, maintained by the company for each member to reflect:
             48          (a) the value of all contributions by that member;
             49          (b) the amount of all distributions to that member or the member's assignee;
             50          (c) the member's share of profits, gains, and losses of the company; and
             51          (d) the member's share of the net assets of the company upon dissolution and winding
             52      up that are distributable to the member or the member's assignee.
             53          (4) "Company," "limited liability company," or "domestic company" means a person
             54      organized as a:
             55          (a) limited liability company [organized] under or subject to this chapter; or
             56          (b) a low-profit limited liability company under or subject to this chapter.
             57          (5) (a) "Distribution" means a direct or indirect transfer by a company of money or
             58      other property, except:


             59          (i) an interest in the company; or
             60          (ii) incurrence of indebtedness by a company, to or for the benefit of members in the
             61      company in respect of any interest in the company.
             62          (b) "Distribution" does not include amounts constituting:
             63          (i) reasonable compensation for present or past services; or
             64          (ii) reasonable payments made in the ordinary course of business pursuant to a bona
             65      fide retirement plan or other benefits program.
             66          (6) "Division" means the Division of Corporations and Commercial Code of the Utah
             67      Department of Commerce.
             68          (7) "Entity" includes:
             69          (a) a domestic or foreign corporation;
             70          (b) a domestic or foreign nonprofit corporation;
             71          (c) a company or foreign company;
             72          (d) a profit or nonprofit unincorporated association;
             73          (e) a business trust;
             74          (f) an estate;
             75          (g) a general partnership or a domestic or foreign limited partnership;
             76          (h) a trust;
             77          (i) a state;
             78          (j) the United States; or
             79          (k) a foreign government.
             80          (8) (a) "Filed with the division" means that a statement, document, or report:
             81          (i) complies with the requirements of Section 48-2c-207 ; and
             82          (ii) is accepted for filing by the division.
             83          (b) "Filed with the division" includes filing by electronic means approved by the
             84      division.
             85          (9) "Foreign company" means a person organized as a:
             86          (a) limited liability company [organized] under a law other than the laws of this state;
             87      or
             88          (b) low-profit limited liability company under a law other than the laws of this state.
             89          (10) "Interest in the company" means a member's economic rights in [the] a company


             90      including the right to receive:
             91          (a) a distribution from the company; and
             92          (b) a portion of the net assets of the company upon dissolution and winding up of the
             93      company.
             94          (11) "Low-profit limited liability company" means a company meeting the
             95      requirements of Section 48-2c-412 .
             96          [(11)] (12) "Manager" means a person elected or otherwise designated by the members
             97      to manage a manager-managed company pursuant to Part 8, Management.
             98          [(12)] (13) "Manager-managed company" means a company whose management is
             99      vested in managers pursuant to Part 8, Management.
             100          [(13)] (14) "Member" means a person with:
             101          (a) an ownership interest in a company; and
             102          (b) the rights and obligations specified under this chapter.
             103          [(14)] (15) "Member-managed company" means a company whose management is
             104      vested in its members pursuant to Part 8, Management.
             105          [(15)] (16) (a) "Operating agreement" means a written agreement of the members:
             106          (i) concerning the business or purpose of the company and the conduct of its affairs;
             107      and
             108          (ii) which complies with Part 5, Operating Agreements.
             109          (b) "Operating agreement" includes a written amendment agreed to by all members or
             110      other writing adopted in any other manner as may be provided in the operating agreement.
             111          [(16)] (17) "Person" means an individual or entity.
             112          [(17)] (18) "Proceeding" means an administrative, judicial or other trial, hearing, or
             113      other action, whether civil, criminal, or investigative, the result of which may be that a court,
             114      arbitrator, or governmental agency may enter a judgment, order, decree, or other determination
             115      which, if not appealed or reversed, would be binding upon any person subject to the
             116      jurisdiction of that court, arbitrator, or governmental agency.
             117          [(18)] (19) "Professional services" is as defined in Part 15, Professions.
             118          [(19)] (20) "Profits interest" means that portion of the company's profits to be allocated
             119      to an individual member upon an allocation of profits.
             120          [(20)] (21) "Profits interests" or "interests in profits" with respect to a company means


             121      the total interests of all of the company's members in the company's profits.
             122          [(21)] (22) "Signed," "signs," or "signature" means:
             123          (a) a manual signature or authorized facsimile of the signature; or
             124          (b) an electronic signature approved by the division.
             125          [(22)] (23) "State" means:
             126          (a) a state, territory, or possession of the United States;
             127          (b) the District of Columbia; or
             128          (c) the Commonwealth of Puerto Rico.
             129          (24) "Tribal limited liability company" means a limited liability company:
             130          (a) formed under the law of a tribe; and
             131          (b) that is at least 51% owned or controlled by the tribe.
             132          [(23)] (25) "Tribe" means a tribe, band, nation, pueblo, or other organized group or
             133      community of Indians, including an Alaska Native village, that is legally recognized as eligible
             134      for and is consistent with a special program, service, or entitlement provided by the United
             135      States to Indians because of their status as Indians.
             136          Section 2. Section 48-2c-106 is amended to read:
             137           48-2c-106. Name -- Exclusive right.
             138          (1) [The] Except as provided in Subsection (8), the name of [each] a company as set
             139      forth in the articles of organization:
             140          (a) shall contain the terms:
             141          (i) "limited company";
             142          (ii) "limited liability company";
             143          (iii) "L.C." or "LC"; or
             144          (iv) "L.L.C." or "LLC";
             145          (b) may not contain:
             146          (i) the terms:
             147          (A) "association";
             148          (B) "corporation";
             149          (C) "incorporated";
             150          (D) "limited partnership";
             151          (E) "limited";


             152          (F) "L.P."; or
             153          (G) "Ltd."; or
             154          (ii) words or [any] an abbreviation with a similar meaning in any other language;
             155          (c) without the written consent of the United States Olympic Committee, may not
             156      contain the words:
             157          (i) "Olympic";
             158          (ii) "Olympiad"; or
             159          (iii) "Citius Altius Fortius"; and
             160          (d) without the written consent of the Division of Consumer Protection in accordance
             161      with Section 13-34-114 , may not contain the words:
             162          (i) "university";
             163          (ii) "college"; or
             164          (iii) "institute".
             165          (2) (a) A person, other than a company formed under this chapter or a foreign company
             166      authorized to transact business in this state, may not use in its name in this state any of the
             167      terms:
             168          (i) "limited liability company";
             169          (ii) "limited company";
             170          (iii) "L.L.C.";
             171          (iv) "L.C.";
             172          (v) "LLC"; or
             173          (vi) "LC".
             174          (b) Notwithstanding Subsection (2)(a):
             175          (i) a foreign corporation whose actual name includes the word "limited" or "Ltd." may
             176      use its actual name in this state if it also uses:
             177          (A) "corporation" or "corp."; or
             178          (B) "incorporated" or "inc."; and
             179          (ii) a limited liability partnership may use in its name the terms:
             180          (A) "limited liability partnership";
             181          (B) "L.L.P."; or
             182          (C) "LLP".


             183          (3) Except as authorized by Subsection (4), the name of a company must be
             184      distinguishable as defined in Subsection (5) upon the records of the division from:
             185          (a) the actual name, reserved name, or fictitious or assumed name of any entity
             186      registered with the division; or
             187          (b) any tradename, trademark, or service mark registered with the division.
             188          (4) (a) A company may apply to the division for approval to file its articles of
             189      organization under or to reserve a name that is not distinguishable upon the division's records
             190      from one or more of the names described in Subsection (3).
             191          (b) The division shall approve the name for which the company applies under
             192      Subsection (4)(a) if:
             193          (i) the other person whose name is not distinguishable from the name under which the
             194      applicant desires to file:
             195          (A) consents to the filing in writing; and
             196          (B) submits an undertaking in a form satisfactory to the division to change its name to
             197      a name that is distinguishable from the name of the applicant; or
             198          (ii) the applicant delivers to the division a certified copy of the final judgment of a
             199      court of competent jurisdiction establishing the applicant's right to use the name in this state.
             200          (5) A name is distinguishable from other names, trademarks, and service marks
             201      registered with the division if it contains one or more different words, letters, or numerals from
             202      other names upon the division's records.
             203          (6) The following differences are not distinguishing:
             204          (a) the terms:
             205          (i) "corporation";
             206          (ii) "incorporated";
             207          (iii) "company";
             208          (iv) "limited partnership";
             209          (v) "limited";
             210          (vi) "L.P." or "LP";
             211          (vii) "Ltd.";
             212          (viii) "limited liability company";
             213          (ix) "limited company";


             214          (x) "L.C." or "LC"; or
             215          (xi) "L.L.C." or "LLC";
             216          (b) an abbreviation of a word listed in Subsection (6)(a);
             217          (c) the presence or absence of the words or symbols of the words "the," "and," "a," or
             218      "plus";
             219          (d) differences in punctuation and special characters;
             220          (e) differences in capitalization; or
             221          (f) for a company that is formed in this state on or after May 4, 1998, or registered as a
             222      foreign company in this state on or after May 4, 1998, differences between singular and plural
             223      forms of words.
             224          (7) A name that implies that a company is an agency of this state or any of its political
             225      subdivisions, if it is not actually a legally established agency or political subdivision, may not
             226      be approved for filing by the division.
             227          (8) The name of a low-profit limited liability company shall contain the abbreviation
             228      "L3C" or "l3c".
             229          Section 3. Section 48-2c-403 is amended to read:
             230           48-2c-403. Articles of organization.
             231          (1) The articles of organization of a company shall set forth:
             232          (a) the name of the company;
             233          (b) the business purpose for which the company is organized;
             234          (c) if the company is to be a low-profit limited liability company, that the company is a
             235      low-profit limited liability company;
             236          [(c)] (d) the information required by Subsection 16-17-203 (1);
             237          [(d)] (e) the name and street address of each organizer who is not a member or
             238      manager;
             239          [(e)] (f) if the company is to be manager-managed:
             240          (i) a statement that the company is to be managed by a manager or managers; and
             241          (ii) the names and street addresses of the initial managers; and
             242          [(f)] (g) if the company is to be member-managed:
             243          (i) a statement that the company is to be managed by its members; and
             244          (ii) the names and street addresses of the initial members.


             245          (2) If the company is to be manager-managed, the articles of organization do not need
             246      to state the name or address of any member, except as required by Part 15, Professions.
             247          (3) It is not necessary to include in the articles of organization any of the powers
             248      enumerated in this chapter.
             249          (4) The articles of organization may contain any other provision not inconsistent with
             250      law, including:
             251          (a) a provision limiting or restricting:
             252          (i) the business in which the company may engage;
             253          (ii) the powers that the company may exercise; or
             254          (iii) both Subsections (4)(a)(i) and (ii);
             255          (b) a statement of whether there are limitations on the authority of managers or
             256      members to bind the company and, if so, what the limitations are, set out in detail and not with
             257      reference to any other document; or
             258          (c) a statement of the period of duration of the company, which may be as long as 99
             259      years from the date the articles of organization, or the latest of any amendments to the articles
             260      of organization effecting a change in the period of duration, were filed with the division.
             261          (5) If the articles of organization of a company do not specify a period of duration, the
             262      period of duration for that company is 99 years from the date the articles of organization were
             263      filed with the division, unless the period of duration is extended by an amendment to the
             264      articles of organization as permitted by this chapter.
             265          Section 4. Section 48-2c-405 is amended to read:
             266           48-2c-405. When amendment to articles of organization required.
             267          The articles of organization of a company shall be amended when:
             268          (1) there is a change in the name of the company;
             269          (2) there is a change in the character of the business of the company specified in the
             270      articles of organization;
             271          (3) there is a false or erroneous statement in the articles of organization;
             272          (4) there is a change in the period of duration of the company that is:
             273          (a) stated in the articles of organization; or
             274          (b) provided for in Section 48-2c-403 ;
             275          (5) there is a change in:


             276          (a) the management structure of the company from a manager-managed company to a
             277      member-managed company or from a member-managed company to a manager-managed
             278      company;
             279          (b) if the company is manager-managed, who is a manager of the company; or
             280          (c) if the company is member-managed, who is a member of the company; [or]
             281          (6) in accordance with Section 48-2c-412 , the company ceases to be a low-profit
             282      limited liability company; or
             283          [(6)] (7) the members desire to make a change in any other statement in the articles of
             284      organization in order for the articles to accurately represent the agreement among the members.
             285          Section 5. Section 48-2c-412 is enacted to read:
             286          48-2c-412. Low-profit limited liability company.
             287          (1) (a) To be a low-profit limited liability company, a company shall:
             288          (i) state in its articles of organization that it is a low-profit limited liability company;
             289          (ii) organize under this chapter; and
             290          (iii) be organized for a business purpose that satisfies, and at all times operates to
             291      satisfy each of the requirements under Subsection (1)(b).
             292          (b) A low-profit limited liability company:
             293          (i) shall significantly further the accomplishment of one or more charitable or
             294      educational purposes within the meaning of Section 170(c)(2)(B), Internal Revenue Code;
             295          (ii) shall demonstrate that it would not be formed but for the company's relationship to
             296      the accomplishment of a charitable or educational purpose;
             297          (iii) subject to Subsection (3), may not have as a significant purpose the production of
             298      income or the appreciation of property; and
             299          (iv) may not have as a purpose to accomplish one or more political or legislative
             300      purposes within the meaning of Section 170(c)(2)(D), Internal Revenue Code.
             301          (2) (a) If a company that is a low-profit limited liability company at its formation at any
             302      time ceases to meet a requirement to be a low-profit limited liability company under
             303      Subsection (1), the company:
             304          (i) ceases to be a low-profit limited liability company on the day on which the company
             305      no longer meets the requirement; and
             306          (ii) if it continues to meet the requirements of this chapter to be a limited liability


             307      company, continues to exist as a limited liability company that is not a low-profit limited
             308      liability company.
             309          (b) A low-profit limited liability company's failure to meet a requirement of Subsection
             310      (1) may be:
             311          (i) voluntary, in order to convert to a limited liability company that is not a low-profit
             312      limited liability company; or
             313          (ii) involuntary.
             314          (c) If a low-profit limited liability company ceases to be a low-profit limited liability
             315      company in accordance with Subsection (2)(a), the company shall:
             316          (i) change its name to conform with Section 48-2c-106 ; and
             317          (ii) amend its articles of organization in accordance with Section 48-2c-403 .
             318          (3) Notwithstanding Subsection (1), if a low-profit limited liability company produces
             319      significant income or capital appreciation, in the absence of other factors, the fact that the
             320      low-profit limited liability company produces significant income or capital appreciation is not
             321      conclusive evidence of a significant purpose involving the production of income or the
             322      appreciation of property.
             323          Section 6. Section 48-2c-1411 is enacted to read:
             324          48-2c-1411. Conversion or merger of a low-profit limited liability company.
             325          A low-profit limited liability company may engage in the following to the same extent
             326      as a limited liability company that is not a low-profit limited liability company may do so under
             327      this part:
             328          (1) convert to another subject entity;
             329          (2) convert from another subject entity; or
             330          (3) participate in a merger.




Legislative Review Note
    as of 1-29-09 6:26 AM


Office of Legislative Research and General Counsel


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