COMMITTEE SUBSTITUTE
FOR
Senate Bill No. 338
(By Senators Ross, Anderson, Miller,
Buckalew and Yoder)
__________
[Originating in the Committee on the Judiciary;
reported February 22, 1996.]
__________
A BILL to repeal article one-a, chapter thirty-one of the code of
West Virginia, one thousand nine hundred thirty-one, as
amended; and to further amend said code by adding thereto a
new chapter, designated chapter thirty-one-b, all relating
to adopting the uniform limited liability company act of
1996; general provisions; definitions; knowledge and notice
of a fact; effect of operating agreement; nonwaivable
provisions; applicability of supplemental principles of law
and equity; requirements for name; reservation of name;
registration of name; designation of office and agent for
service of process; change thereof; resignation of agent for
service of process; agent for service of process; nature of
business and powers; organization; limited liability company
as legal entity; articles of organization; amendment or restatement thereof; signing of records; requirement for
filing in office of secretary of state; correction of filed
record; certificate of existence or authorization; liability
for false statement in filed record; filing compelled by
court; annual report to be filed with secretary of state;
relations of members and managers to persons dealing with
limited liability company; agency of members and managers;
limited liability company liable for member's or manager's
actionable conduct; liability of members and managers;
relations of members to each other and to limited liability
company; form of contribution; member's liability for
contributions; member's and manager's rights to payments and
reimbursement; management of limited liability company;
sharing of and right to distributions; limitations on
distributions; liability for unlawful distributions;
member's right to information; general standards of member's
and manager's conduct; actions by members; continuation of
limited liability company after expiration of specified
term; transferees and creditors of member; member's
distributional interest; transfer of distributional
interest; rights of transferee; rights of creditor; member's
dissociation; events causing member's dissociation; member's power to dissociate; wrongful dissociation; effect of
member's dissociation; member's dissociation when business
not wound up; company purchase of distributional interest;
court action to determine fair value of distributional
interest; dissociated member's power to bind limited
liability company; statement of dissociation; winding up
company's business; events causing dissolution and winding
up of company's business; limited liability company
continues after dissolution; right to wind up limited
liability company's business; member's or manager's power
and liability as agent after dissolution; articles of
termination; distribution of assets in winding up business;
known claims against dissolved limited liability company;
other claims against dissolved limited liability company;
grounds for administrative dissolution by secretary of
state; procedures for and effect thereof; reinstatement
following administrative dissolution; appeal from denial of
reinstatement; conversions and mergers; definitions;
conversion of partnership or limited partnership to limited
liability company; effect of conversion; entity unchanged;
merger of entities; confirmation of title to real estate;
articles of merger; effect of merger; article not exclusive over conversion or merger; foreign limited liability
companies; law governing same; application for certificate
of authority; activities not constituting transaction of
business; issuance of certificate of authority; name of
foreign limited liability company; revocation of certificate
of authority; cancellation of authority; effect of failure
to obtain certificate of authority; action by attorney
general; derivative actions; right of action; proper
plaintiff; requirements of pleading; award of expenses;
miscellaneous provisions; uniformity of application and
construction; short title; severability; effective date;
transitional provisions; savings clause; professional
limited liability companies; definitions; membership and
authorization; name requirements; duty of professional
licensing boards; professional relationship not affected;
liability of company, its members, managers, agents and
employees; professional liability insurance and
requirements; and applicability of other provisions of law.
Be it enacted by the Legislature of West Virginia:
That article one-a, chapter thirty-one of the code of West
Virginia, one thousand nine hundred thirty-one, as amended, be
repealed; and that said code be further amended by adding thereto
a new chapter, designated chapter thirty-one-b, all to read as follows:
CHAPTER 31B. UNIFORM LIMITED LIABILITY COMPANY ACT.
ARTICLE 1. GENERAL PROVISIONS.
§31B-1-101. Definitions.
In this chapter:
(1) "Articles of organization" means initial, amended, and
restated articles of organization and articles of merger. In the
case of a foreign limited liability company, the term includes
all records serving a similar function required to be filed in
the office of the secretary of state or other official having
custody of company records in the state or country under whose
law it is organized.
(2) "At-will company" means a limited liability company
other than a term company.
(3) "Business" includes every trade, occupation, profession
and other lawful purpose, whether or not carried on for profit.
(4) "Debtor in bankruptcy" means a person who is the
subject of an order for relief under Title 11 of the United
States Code or a comparable order under a successor statute of
general application or a comparable order under federal, state or
foreign law governing insolvency.
(5) "Distribution" means a transfer of money, property or
other benefit from a limited liability company to a member in the member's capacity as a member or to a transferee of the member's
distributional interest.
(6) "Distributional interest" means all of a member's
interest in distributions by the limited liability company.
(7) "Entity" means a person other than an individual.
(8) "Foreign limited liability company" means an
unincorporated entity organized under laws other than the laws of
this state which afford limited liability to its owners
comparable to the liability under section 3-303 and is not
required to obtain a certificate of authority to transact
business under any law of this state other than this chapter.
(9) "Limited liability company" means a limited liability
company organized under this chapter.
(10) "Manager" means a person, whether or not a member of
a manager-managed company, who is vested with authority under
section 3-301.
(11) "Manager-managed company" means a limited liability
company which is so designated in its articles of organization.
(12) "Member-managed company" means a limited liability
company other than a manager-managed company.
(13) "Operating agreement" means the agreement under
section 1-103 concerning the relations among the members, managers and limited liability company. The term includes
amendments to the agreement.
(14) "Person" means an individual, corporation, business
trust, estate, trust, partnership, limited liability company,
association, joint venture, government, governmental subdivision,
agency, or instrumentality or any other legal or commercial
entity.
(15) "Principal office" means the office, whether or not in
this state, where the principal executive office of a domestic or
foreign limited liability company is located.
(16) "Record" means information that is inscribed on a
tangible medium or that is stored in an electronic or other
medium and is retrievable in perceivable form.
(17) "Sign" means to identify a record by means of a
signature, mark or other symbol, with intent to authenticate it.
(18) "State" means a state of the United States, the
District of Columbia, the Commonwealth of Puerto Rico or any
territory or insular possession subject to the jurisdiction of
the United States.
(19) "Term company" means a limited liability company in
which its members have agreed to remain members until the
expiration of a term specified in the articles of organization.
(20) "Transfer" includes an assignment, conveyance, deed,
bill of sale, lease, mortgage, security interest, encumbrance and
gift.
§31B-1-102. Knowledge and notice.
(a) A person knows a fact if the person has actual
knowledge of it.
(b) A person has notice of a fact if the person:
(1) Knows the fact;
(2) Has received a notification of the fact; or
(3) Has reason to know the fact exists from all of the
facts known to the person at the time in question.
(c) A person notifies or gives a notification of a fact to
another by taking steps reasonably required to inform the other
person in ordinary course, whether or not the other person knows
the fact.
(d) A person receives a notification when the notification:
(1) Comes to the person's attention; or
(2) Is duly delivered at the person's place of business or
at any other place held out by the person as a place for
receiving communications.
(e) An entity knows, has notice or receives a notification
of a fact for purposes of a particular transaction when the
individual conducting the transaction for the entity knows, has notice, or receives a notification of the fact, or in any event
when the fact would have been brought to the individual's
attention had the entity exercised reasonable diligence. An
entity exercises reasonable diligence if it maintains reasonable
routines for communicating significant information to the
individual conducting the transaction for the entity and there is
reasonable compliance with the routines. Reasonable diligence
does not require an individual acting for the entity to
communicate information unless the communication is part of the
individual's regular duties or the individual has reason to know
of the transaction and that the transaction would be materially
affected by the information.
§31B-1-103. Effect of operating agreement; nonwaivable
provisions.
(a) Except as otherwise provided in subsection (b) of this
section, all members of a limited liability company may enter
into an operating agreement, which need not be in writing, to
regulate the affairs of the company and the conduct of its
business, and to govern relations among the members, managers and
company. To the extent the operating agreement does not
otherwise provide, this chapter governs relations among the
members, managers and company.
(b) The operating agreement may not:
(1) Unreasonably restrict a right to information or access
to records under section 4-408;
(2) Eliminate the duty of loyalty under section 4-409(b) or
6-603(b)(3), but the agreement may:
(i) Identify specific types or categories of activities that
do not violate the duty of loyalty, if not manifestly
unreasonable; and
(ii) Specify the number or percentage of members or
disinterested managers that may authorize or ratify, after full
disclosure of all material facts, a specific act or transaction
that otherwise would violate the duty of loyalty;
(3) Unreasonably reduce the duty of care under section 4-
409(c) or 6-603(b)(3);
(4) Eliminate the obligation of good faith and fair dealing
under section 4-409(d), but the operating agreement may determine
the standards by which the performance of the obligation is to be
measured, if the standards are not manifestly unreasonable;
(5) Vary the right to expel a member in an event specified
in section 6-601(6);
(6) Vary the requirement to wind up the limited liability
company's business in a case specified in section 8-801(b)(6)
More than $1,000,000.(1(4) or (b)(5); or
(7) Restrict rights of a person, other than a manager,
member and transferee of a member's distributional interest,
under this chapter.
§31B-1-104. Supplemental principles of law.
(a) Unless displaced by particular provisions of this
chapter, the principles of law and equity supplement this
chapter.
(b) If an obligation to pay interest arises under this
chapter and the rate is not specified, the rate is that specified
in section thirty-one, article six, chapter fifty-six of this
code.
§31B-1-105. Name.
(a) The name of a limited liability company must contain
"limited liability company" or "limited company" or the
abbreviation "L.L.C.", "LLC", "L.C." or "LC". "Limited" may be
abbreviated as "Ltd." and "company" may be abbreviated as "Co.".
(b) Except as authorized by subsections (c) and (d) of this
section, the name of a limited liability company must be
distinguishable upon the records of the secretary of state from:
(1) The name of any corporation, limited partnership or
company incorporated, organized or authorized to transact
business in this state;
(2) A name reserved or registered under section
1-106 or 1-107;
(3) A fictitious name approved under section 10-1005 for a
foreign company authorized to transact business in this state
because its real name is unavailable.
(c) A limited liability company may apply to the secretary
of state for authorization to use a name that is not
distinguishable upon the records of the secretary of state from
one or more of the names described in subsection (b) of this
section. The secretary of state shall authorize use of the name
applied for if:
(1) The present user, registrant or owner of a reserved name
consents to the use in a record and submits an undertaking in
form satisfactory to the secretary of state to change the name to
a name that is distinguishable upon the records of the secretary
of state from the name applied for; or
(2) The applicant delivers to the secretary of state a
certified copy of the final judgment of a court of competent
jurisdiction establishing the applicant's right to use the name
applied for in this state.
(d) A limited liability company may use the name, including
a fictitious name, of another domestic or foreign company which
is used in this state if the other company is organized or authorized to transact business in this state and the company
proposing to use the name has:
(1) Merged with the other company;
(2) Been formed by reorganization with the other company; or
(3) Acquired substantially all of the assets, including the
name, of the other company.
§31B-1-106. Reserved name.
(a) A person may reserve the exclusive use of the name of
a limited liability company, including a fictitious name for a
foreign company whose name is not available, by delivering an
application to the secretary of state for filing. The
application must set forth the name and address of the applicant
and the name proposed to be reserved. If the secretary of state
finds that the name applied for is available, it must be reserved
for the applicant's exclusive use for a nonrenewable one hundred
twenty-day period.
(b) The owner of a name reserved for a limited liability
company may transfer the reservation to another person by
delivering to the secretary of state a signed notice of the
transfer which states the name and address of the transferee.
§31B-1-107. Registered name.
(a) A foreign limited liability company may register its
name subject to the requirements of section 10-1005, if the name is distinguishable upon the records of the secretary of state
from names that are not available under section 1-105(b).
(b) A foreign limited liability company registers its name,
or its name with any addition required by section 10-1005, by
delivering to the secretary of state for filing an application:
(1) Setting forth its name, or its name with any addition
required by section 10-1005, the state or country and date of its
organization and a brief description of the nature of the
business in which it is engaged; and
(2) Accompanied by a certificate of existence, or a record
of similar import, from the state or country of organization.
(c) A foreign limited liability company whose registration
is effective may renew it for successive years by delivering for
filing in the office of the secretary of state a renewal
application complying with subsection (b) of this section between
the first day of October and the thirty-first day of December of
the preceding year. The renewal application renews the
registration for the following calendar year.
(d) A foreign limited liability company whose registration
is effective may qualify as a foreign company under its name or
consent in writing to the use of its name by a limited liability
company later organized under this chapter or by another foreign company later authorized to transact business in this state. The
registered name terminates when the limited liability company is
organized or the foreign company qualifies or consents to the
qualification of another foreign company under the registered
name.
§31B-1-108. Designated office and agent for service of process.
(a) A limited liability company and a foreign limited
liability company authorized to do business in this state shall
designate and continuously maintain in this state:
(1) An office, which need not be a place of its business in
this state; and
(2) An agent and street address of the agent for service of
process on the company.
(b) An agent must be an individual resident of this state,
a domestic corporation, another limited liability company or a
foreign corporation or foreign company authorized to do business
in this state.
§31B-1-109. Change of designated office or agent for service of
process.
A limited liability company may change its designated office
or agent for service of process by delivering to the secretary of
state for filing a statement of change which sets forth:
(1) The name of the company;
(2) The street address of its current designated office;
(3) If the current designated office is to be changed, the
street address of the new designated office;
(4) The name and address of its current agent for service of
process; and
(5) If the current agent for service of process or street
address of that agent is to be changed, the new address or the
name and street address of the new agent for service of process.
§31B-1-110. Resignation of agent for service of process.
(a) An agent for service of process of a limited liability
company may resign by delivering to the secretary of state for
filing a record of the statement of resignation.
(b) After filing a statement of resignation, the secretary
of state shall mail a copy to the designated office and another
copy to the limited liability company at its principal office.
(c) An agency is terminated on the thirty-first day after
the statement is filed in the office of the secretary of state.
§31B-1-111. Service of process.
(a) An agent for service of process appointed by a limited
liability company or a foreign limited liability company is an
agent of the company for service of any process, notice or demand
required or permitted by law to be served upon the company.
(b) If a limited liability company or foreign limited liability company fails to appoint or maintain an agent for
service of process in this state or the agent for service of
process cannot with reasonable diligence be found at the agent's
address, the secretary of state is an agent of the company upon
whom process, notice or demand may be served.
(c) Service of any process, notice or demand on the
secretary of state may be made by delivering to and leaving with
the secretary of state, the assistant secretary of state or clerk
having charge of the limited liability company department of the
secretary of state, duplicate copies of the process, notice or
demand, along with a fee of ten dollars. If the process, notice
or demand is served on the secretary of state, the secretary of
state shall forward one of the copies by registered or certified
mail, return receipt requested, to the company at its designated
office. Service is effected under this subsection at the
earliest of:
(1) The date the company receives the process, notice or
demand;
(2) The date shown on the return receipt, if signed on
behalf of the company; or
(3) Five days after its deposit in the mail, if mailed
postpaid and correctly addressed.
(d) The secretary of state shall keep a record of all
processes, notices and demands served pursuant to this section
and record the time of and the action taken regarding the
service.
(e) This section does not affect the right to serve
process, notice or demand in any manner otherwise provided by
law.
§31B-1-112. Nature of business and powers.
(a) A limited liability company may be organized under this
chapter for any lawful purpose, subject to any law of this state
governing or regulating business.
(b) Unless its articles of organization provide otherwise,
a limited liability company has the same powers as an individual
to do all things necessary or convenient to carry on its business
or affairs, including power to:
(1) Sue and be sued, and defend in its name;
(2) Purchase, receive, lease, or otherwise acquire, and own,
hold, improve, use and otherwise deal with real or personal
property, or any legal or equitable interest in property,
wherever located;
(3) Sell, convey, mortgage, grant a security interest in,
lease, exchange and otherwise encumber or dispose of all or any
part of its property;
(4) Purchase, receive, subscribe for or otherwise acquire,
own, hold, vote, use, sell, mortgage, lend, grant a security
interest in or otherwise dispose of and deal in and with, shares
or other interests in or obligations of any other entity;
(5) Make contracts and guarantees, incur liabilities, borrow
money, issue its notes, bonds and other obligations, which may be
convertible into or include the option to purchase other
securities of the limited liability company, and secure any of
its obligations by a mortgage on or a security interest in any of
its property, franchises or income;
(6) Lend money, invest and reinvest its funds and receive
and hold real and personal property as security for repayment;
(7) Be a promoter, partner, member, associate or manager of
any partnership, joint venture, trust or other entity;
(8) Conduct its business, locate offices and exercise the
powers granted by this chapter within or without this state;
(9) Elect managers and appoint officers, employees and
agents of the limited liability company, define their duties, fix
their compensation and lend them money and credit;
(10) Pay pensions and establish pension plans, pension
trusts, profit sharing plans, bonus plans, option plans and
benefit or incentive plans for any or all of its current or former members, managers, officers, employees and agents;
(11) Make donations for the public welfare or for
charitable, scientific or educational purposes; and
(12) Make payments or donations, or do any other act, not
inconsistent with law, that furthers the business of the limited
liability company.
ARTICLE 2. ORGANIZATION.
§31B-2-201. Limited liability company as legal entity.
A limited liability company is a legal entity distinct from
its members.
§31B-2-202. Organization.
(a) One or more persons may organize a limited liability
company, consisting of one or more members, by delivering
articles of organization to the office of the secretary of state
for filing, together with a fee in the amount of ten dollars.
(b) Unless a delayed effective date is specified, the
existence of a limited liability company begins when the articles
of organization are filed.
(c) The filing of the articles of organization by the
secretary of state is conclusive proof that the organizers
satisfied all conditions precedent to the creation of a limited
liability company.
§31B-2-203. Articles of organization.
(a) Articles of organization of a limited liability company
must set forth:
(1) The name of the company;
(2) The address of the initial designated office;
(3) The name and street address of the initial agent for
service of process;
(4) The name and address of each organizer;
(5) Whether the company is to be a term company and, if so,
the term specified;
(6) Whether the company is to be manager-managed, and, if
so, the name and address of each initial manager; and
(7) Whether one or more of the members of the company are to
be liable for its debts and obligations under section 3-303(c).
(b) Articles of organization of a limited liability company
may set forth:
(1) Provisions permitted to be set forth in an operating
agreement; or
(2) Other matters not inconsistent with law.
(c) Articles of organization of a limited liability company
may not vary the nonwaivable provisions of section 1-103(b). As
to all other matters, if any provision of an operating agreement
is inconsistent with the articles of organization:
(1) The operating agreement controls as to managers, members
and members' transferees; and
(2) The articles of organization control as to persons other
than managers, members and their transferees who reasonably rely
on the articles to their detriment.
§31B-2-204. Amendment or restatement of articles of
organization.
(a) Articles of organization of a limited liability company
may be amended at any time by delivering articles of amendment to
the secretary of state for filing. The articles of amendment
must set forth the:
(1) Name of the limited liability company;
(2) Date of filing of the articles of organization; and
(3) Amendment to the articles.
(b) A limited liability company may restate its articles of
organization at any time. Restated articles of organization must
be signed and filed in the same manner as articles of amendment.
Restated articles of organization must be designated as such in
the heading and state in the heading or in an introductory
paragraph the limited liability company's present name and, if it
has been changed, all of its former names and the date of the
filing of its initial articles of organization.
§31B-2-205. Signing of records.
(a) Except as otherwise provided in this chapter, a record
to be filed by or on behalf of a limited liability company in the
office of the secretary of state must be signed in the name of
the company by a:
(1) Manager of a manager-managed company;
(2) Member of a member-managed company;
(3) Person organizing the company, if the company has not
been formed; or
(4) Fiduciary, if the company is in the hands of a receiver,
trustee or other court-appointed fiduciary.
(b) A record signed under subsection (a) of this section
must state adjacent to the signature the name and capacity of the
signer.
(c) Any person may sign a record to be filed under
subsection (a) of this section by an attorney-in-fact. Powers of
attorney relating to the signing of records to be filed under
subsection (a) of this section by an attorney-in-fact need not be
filed in the office of the secretary of state as evidence of
authority by the person filing but must be retained by the
company.
§31B-2-206. Filing in office of secretary of state.
(a) Articles of organization or any other record authorized
to be filed under this chapter must be in a medium permitted by the secretary of state and must be delivered to the office of the
secretary of state. Unless the secretary of state determines
that a record fails to comply as to form with the filing
requirements of this chapter, and if all filing fees have been
paid, the secretary of state shall file the record and send a
receipt for the record and the fees to the limited liability
company or its representative.
(b) Upon request and payment of a fee, the secretary of
state shall send to the requester a certified copy of the
requested record.
(c) Except as otherwise provided in subsection (d) of this
section and section 2-207(c), a record accepted for filing by the
secretary of state is effective:
(1) At the time of filing on the date it is filed, as
evidenced by the secretary of state's date and time endorsement
on the original record; or
(2) At the time specified in the record as its effective
time on the date it is filed.
(d) A record may specify a delayed effective time and date,
and if it does so the record becomes effective at the time and
date specified. If a delayed effective date but no time is
specified, the record is effective at the close of business on that date. If a delayed effective date is later than the
ninetieth day after the record is filed, the record is effective
on the ninetieth day.
§31B-2-207. Correcting filed record.
(a) A limited liability company or foreign limited
liability company may correct a record filed by the secretary of
state if the record contains a false or erroneous statement or
was defectively signed.
(b) A record is corrected:
(1) By preparing articles of correction that:
(i) Describe the record, including its filing date, or
attach a copy of it to the articles of correction;
(ii) Specify the incorrect statement and the reason it is
incorrect or the manner in which the signing was defective; and
(iii) Correct the incorrect statement or defective signing;
and
(2) By delivering the corrected record to the secretary of
state for filing.
(c) Articles of correction are effective retroactively on
the effective date of the record they correct except as to
persons relying on the uncorrected record and adversely affected
by the correction. As to those persons, articles of correction
are effective when filed.
§31B-2-208. Certificate of existence or authorization.
(a) A person may request the secretary of state to furnish
a certificate of existence for a limited liability company or a
certificate of authorization for a foreign limited liability
company.
(b) A certificate of existence for a limited liability
company must set forth:
(1) The company's name;
(2) That it is duly organized under the laws of this state,
the date of organization, whether its duration is at-will or for
a specified term, and, if the latter, the period specified;
(3) If payment is reflected in the records of the secretary
of state and if nonpayment affects the existence of the company,
that all fees, taxes and penalties owed to this state have been
paid;
(4) Whether its most recent annual report required by
section 2-211 has been filed with the secretary of state;
(5) That articles of termination have not been filed; and
(6) Other facts of record in the office of the secretary of
state which may be requested by the applicant.
(c) A certificate of authorization for a foreign limited
liability company must set forth:
(1) The company's name used in this state;
(2) That it is authorized to transact business in this
state;
(3) If payment is reflected in the records of the secretary
of state and nonpayment affects the authorization of the company,
that all fees, taxes and penalties owed to this state have been
paid;
(4) Whether its most recent annual report required by
section 2-211 has been filed with the secretary of state;
(5) That a certificate of cancellation has not been filed;
and
(6) Other facts of record in the office of the secretary of
state which may be requested by the applicant.
(d) Subject to any qualification stated in the certificate,
a certificate of existence or authorization issued by the
secretary of state may be relied upon as conclusive evidence that
the domestic or foreign limited liability company is in existence
or is authorized to transact business in this state.
§31B-2-209. Liability for false statement in filed record.
If a record authorized or required to be filed under this
chapter contains a false statement, one who suffers loss by
reliance on the statement may recover damages for the loss from
a person who signed the record or caused another to sign it on
the person's behalf and knew the statement to be false at the time the record was signed.
§31B-2-210. Filing by judicial act.
If a person required by section 2-205 to sign any record
fails or refuses to do so, any other person who is adversely
affected by the failure or refusal may petition the circuit court
to direct the signing of the record. If the court finds that it
is proper for the record to be signed and that a person so
designated has failed or refused to sign the record, it shall
order the secretary of state to sign and file an appropriate
record.
§31B-2-211. Annual report for secretary of state.
(a) A limited liability company, and a foreign limited
liability company authorized to transact business in this state,
shall deliver to the secretary of state for filing an annual
report that sets forth:
(1) The name of the company and the state or country under
whose law it is organized;
(2) The address of its designated office and the name and
address of its agent for service of process in this state;
(3) The address of its principal office; and
(4) The names and business addresses of any managers.
(b) Information in an annual report must be current as of
the date the annual report is signed on behalf of the limited liability company.
(c) The first annual report must be delivered to the
secretary of state between the first day of January and the first
day of April of the year following the calendar year in which a
limited liability company was organized or a foreign company was
authorized to transact business. Subsequent annual reports must
be delivered to the secretary of state between the first day of
January and the first day of April of the ensuing calendar years.
(d) If an annual report does not contain the information
required in subsection (a) of this section, the secretary of
state shall promptly notify the reporting limited liability
company or foreign limited liability company and return the
report to it for correction. If the report is corrected to
contain the information required in subsection (a) of this
section and delivered to the secretary of state within thirty
days after the effective date of the notice, it is timely filed.
ARTICLE 3. RELATIONS OF MEMBERS AND MANAGERS TO PERSONS DEALING
WITH LIMITED LIABILITY COMPANY.
§31B-3-301. Agency of members and managers.
(a) Subject to subsections (b) and (c) of this section:
(1) Each member is an agent of the limited liability company
for the purpose of its business and an act of a member, including
the signing of an instrument in the company's name, for apparently carrying on in the ordinary course the company's
business or business of the kind carried on by the company binds
the company, unless the member had no authority to act for the
company in the particular matter and the person with whom the
member was dealing knew or had notice that the member lacked
authority.
(2) An act of a member which is not apparently for carrying
on in the ordinary course the company's business or business of
the kind carried on by the company binds the company only if the
act was authorized by the other members.
(b) Subject to subsection (c) of this section, in a
manager-managed company:
(1) A member is not an agent of the company for the purpose
of its business solely by reason of being a member. Each manager
is an agent of the company for the purpose of its business and an
act of a manager, including the signing of an instrument in the
company's name, for apparently carrying on in the ordinary course
the company's business or business of the kind carried on by the
company binds the company, unless the manager had no authority to
act for the company in the particular matter and the person with
whom the manager was dealing knew or had notice that the manager
lacked authority.
(2) An act of a manager which is not apparently for carrying
on in the ordinary course the company's business or business of
the kind carried on by the company binds the company only if the
act was authorized under section 4-404.
(c) Unless the articles of organization limit their
authority, any member of a member-managed company or manager of
a manager-managed company may sign and deliver any instrument
transferring or affecting the company's interest in real
property. The instrument is conclusive in favor of a person who
gives value without knowledge of the lack of the authority of the
person signing and delivering the instrument.
§31B-3-302. Limited liability company liable for member's or
manager's actionable conduct.
A limited liability company is liable for loss or injury
caused to a person, or for a penalty incurred, as a result of a
wrongful act or omission, or other actionable conduct, of a
member or manager acting in the ordinary course of business of
the company or with authority of the company.
§31B-3-303. Liability of members and managers.
(a) Except as otherwise provided in subsection (c) of this
section, the debts, obligations and liabilities of a limited
liability company, whether arising in contract, tort or
otherwise, are solely the debts, obligations and liabilities of the company. A member or manager is not personally liable for a
debt, obligation or liability of the company solely by reason of
being or acting as a member or manager.
(b) The failure of a limited liability company to observe
the usual company formalities or requirements relating to the
exercise of its company powers or management of its business is
not a ground for imposing personal liability on the members or
managers for liabilities of the company.
(c) All or specified members of a limited liability company
are liable in their capacity as members for all or specified
debts, obligations or liabilities of the company if:
(1) A provision to that effect is contained in the articles
of organization; and
(2) A member so liable has consented in writing to the
adoption of the provision or to be bound by the provision.
ARTICLE 4. RELATIONS OF MEMBERS TO EACH OTHER AND TO LIMITED
LIABILITY COMPANY.
§31B-4-401. Form of contribution.
A contribution of a member of a limited liability company
may consist of tangible or intangible property or other benefit
to the company, including money, promissory notes, services
performed or other agreements to contribute cash or property, or
contracts for services to be performed.
§31B-4-402. Member's liability for contributions.
(a) A member's obligation to contribute money, property or
other benefit to, or to perform services for, a limited liability
company is not excused by the member's death, disability or other
inability to perform personally. If a member does not make the
required contribution of property or services, the member is
obligated at the option of the company to contribute money equal
to the value of that portion of the stated contribution which has
not been made.
(b) A creditor of a limited liability company who extends
credit or otherwise acts in reliance on an obligation described
in subsection (a) of this section, and without notice of any
compromise under section 4-404(c)(5), may enforce the original
obligation.
§31B-4-403. Member's and manager's rights to payments and
reimbursement.
(a) A limited liability company shall reimburse a member or
manager for payments made and indemnify a member or manager for
liabilities incurred by the member or manager in the ordinary
course of the business of the company or for the preservation of
its business or property.
(b) A limited liability company shall reimburse a member
for an advance to the company beyond the amount of contribution the member agreed to make.
(c) A payment or advance made by a member which gives rise
to an obligation of a limited liability company under subsection
(a) or (b) of this section constitutes a loan to the company upon
which interest accrues from the date of the payment or advance.
(d) A member is not entitled to remuneration for services
performed for a limited liability company, except for reasonable
compensation for services rendered in winding up the business of
the company.
§31B-4-404. Management of limited liability company.
(a) In a member-managed company:
(1) Each member has equal rights in the management and
conduct of the company's business; and
(2) Except as otherwise provided in subsection (c) of this
section or in section 8-801(b)(3)(i), any matter relating to the
business of the company may be decided by a majority of the
members.
(b) In a manager-managed company:
(1) Each manager has equal rights in the management and
conduct of the company's business;
(2) Except as otherwise provided in subsection (c) of this
section or in section 8-801(b)(3)(i), any matter relating to the
business of the company may be exclusively decided by the manager or, if there is more than one manager, by a majority of the
managers; and
(3) A manager:
(i) Must be designated, appointed, elected, removed or
replaced by a vote, approval or consent of a majority of the
members; and
(ii) Holds office until a successor has been elected and
qualified, unless the manager sooner resigns or is removed.
(c) The only matters of a member or manager-managed
company's business requiring the consent of all of the members
are:
(1) The amendment of the operating agreement under section
1-103;
(2) The authorization or ratification of acts or
transactions under section 1-103(b)(2)(ii) which would otherwise
violate the duty of loyalty;
(3) An amendment to the articles of organization under
section 2-204;
(4) The compromise of an obligation to make a contribution
under section 4-402(b);
(5) The compromise, as among members, of an obligation of a
member to make a contribution or return money or other property paid or distributed in violation of this chapter;
(6) The making of interim distributions under section 4-
405(a), including the redemption of an interest;
(7) The admission of a new member;
(8) The use of the company's property to redeem an interest
subject to a charging order;
(9) The consent to dissolve the company under section 8-
801(b)(2);
(10) A waiver of the right to have the company's business
wound up and the company terminated under section 8-802(b);
(11) The consent of members to merge with another entity
under section 9-904(c)(1); and
(12) The sale, lease, exchange or other disposal of all, or
substantially all, of the company's property with or without
goodwill.
(d) Action requiring the consent of members or managers
under this chapter may be taken or without a meeting.
(e) A member or manager may appoint a proxy to vote or
otherwise act for the member or manager by signing an appointment
instrument, either personally or by the member's or manager's
attorney-in-fact.
§31B-4-405. Sharing of and right to distributions.
(a) Any distributions made by a limited liability company before its dissolution and winding up must be in equal shares.
(b) A member has no right to receive, and may not be
required to accept, a distribution in kind.
(c) If a member becomes entitled to receive a distribution,
the member has the status of, and is entitled to all remedies
available to, a creditor of the limited liability company with
respect to the distribution.
§31B-4-406. Limitations on distributions.
(a) A distribution may not be made if:
(1) The limited liability company would not be able to pay
its debts as they become due in the ordinary course of business;
or
(2) The company's total assets would be less than the sum of
its total liabilities plus the amount that would be needed, if
the company were to be dissolved, wound up and terminated at the
time of the distribution, to satisfy the preferential rights upon
dissolution, winding up and termination of members whose
preferential rights are superior to those receiving the
distribution.
(b) A limited liability company may base a determination
that a distribution is not prohibited under subsection (a) of
this section on financial statements prepared on the basis of
accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is
reasonable in the circumstances.
(c) Except as otherwise provided in subsection (e) of this
section, the effect of a distribution under subsection (a) of
this section is measured:
(1) In the case of distribution by purchase, redemption or
other acquisition of a distributional interest in a limited
liability company, as of the date money or other property is
transferred or debt incurred by the company; and
(2) In all other cases, as of the date the:
(i) Distribution is authorized if the payment occurs within
one hundred twenty days after the date of authorization; or
(ii) Payment is made if it occurs more than one hundred
twenty days after the date of authorization.
(d) A limited liability company's indebtedness to a member
incurred by reason of a distribution made in accordance with this
section is at parity with the company's indebtedness to its
general, unsecured creditors.
(e) Indebtedness of a limited liability company, including
indebtedness issued in connection with or as part of a
distribution, is not considered a liability for purposes of
determinations under subsection (a) of this section if its terms provide that payment of principal and interest are made only if
and to the extent that payment of a distribution to members could
then be made under this section. If the indebtedness is issued
as a distribution, each payment of principal or interest on the
indebtedness is treated as a distribution, the effect of which is
measured on the date the payment is made.
§31B-4-407. Liability for unlawful distributions.
(a) A member of a member-managed company or a member or
manager of a manager-managed company who votes for or assents to
a distribution made in violation of section 4-406, the articles
of organization, or the operating agreement is personally liable
to the company for the amount of the distribution which exceeds
the amount that could have been distributed without violating
section 4-406, the articles of organization, or the operating
agreement if it is established that the member or manager did not
perform the member's or manager's duties in compliance with
section 4-409.
(b) A member of a manager-managed limited liability company
who knew a distribution was made in violation of section 4-406,
the articles of organization, or the operating agreement is
personally liable to the company, but only to the extent that the
distribution received by the member exceeded the amount that
could properly have been paid under section 4-406.
(c) A member or manager against whom an action is brought
under this section may implead in the action all:
(1) Other members or managers who voted for or assented to
the distribution in violation of subsection (a) of this section
and may compel contribution from them; and
(2) Members who received a distribution in violation of
subsection (b) of this section and may compel contribution from
the member in the amount received in violation of subsection (b)
of this section.
(d) A proceeding under this section is barred unless it is
commenced within two years after the distribution.
§31B-4-408. Member's right to information.
(a) A limited liability company shall provide members and
their agents and attorneys access to its records, if any, at the
company's principal office or other reasonable locations
specified in the operating agreement. The company shall provide
former members and their agents and attorneys access for proper
purposes to records pertaining to the period during which they
were members. The right of access provides the opportunity to
inspect and copy records during ordinary business hours. The
company may impose a reasonable charge, limited to the costs of
labor and material, for copies of records furnished.
(b) A limited liability company shall furnish to a member, and to the legal representative of a deceased member or member
under legal disability:
(1) Without demand, information concerning the company's
business or affairs reasonably required for the proper exercise
of the member's rights and performance of the member's duties
under the operating agreement or this chapter; and
(2) On demand, other information concerning the company's
business or affairs, except to the extent the demand or the
information demanded is unreasonable or otherwise improper under
the circumstances.
(c) A member has the right upon written demand given to the
limited liability company to obtain at the company's expense a
copy of any written operating agreement.
§31B-4-409. General standards of member's and manager's conduct.
(a) The only fiduciary duties a member owes to a member-
managed company and its other members are the duty of loyalty and
the duty of care imposed by subsections (b) and (c) of this
section.
(b) A member's duty of loyalty to a member-managed company
and its other members is limited to the following:
(1) To account to the company and to hold as trustee for it
any property, profit or benefit derived by the member in the
conduct or winding up of the company's business or derived from a use by the member of the company's property, including the
appropriation of a company's opportunity;
(2) To refrain from dealing with the company in the conduct
or winding up of the company's business as or on behalf of a
party having an interest adverse to the company; and
(3) To refrain from competing with the company in the
conduct of the company's business before the dissolution of the
company.
(c) A member's duty of care to a member-managed company and
its other members in the conduct of and winding up of the
company's business is limited to refraining from engaging in
grossly negligent or reckless conduct, intentional misconduct or
a knowing violation of law.
(d) A member shall discharge the duties to a member-managed
company and its other members under this chapter or under the
operating agreement and exercise any rights consistently with the
obligation of good faith and fair dealing.
(e) A member of a member-managed company does not violate
a duty or obligation under this chapter or under the operating
agreement merely because the member's conduct furthers the
member's own interest.
(f) A member of a member-managed company may lend money to and transact other business with the company. As to each loan or
transaction, the rights and obligations of the member are the
same as those of a person who is not a member, subject to other
applicable law.
(g) This section applies to a person winding up the limited
liability company's business as the personal or legal
representative of the last surviving member as if the person were
a member.
(h) In a manager-managed company:
(1) A member who is not also a manager owes no duties to the
company or to the other members solely by reason of being a
member;
(2) A manager is held to the same standards of conduct
prescribed for members in subsections (b) through (f) of this
section;
(3) A member who pursuant to the operating agreement
exercises some or all of the rights of a manager in the
management and conduct of the company's business is held to the
standards of conduct in subsections (b) through (f) of this
section to the extent that the member exercises the managerial
authority vested in a manager by this chapter; and
(4) A manager is relieved of liability imposed by law for violation of the standards prescribed by subsections (b) through
(f) of this section to the extent of the managerial authority
delegated to the members by the operating agreement.
§31B-4-410. Actions by members.
(a) A member may maintain an action against a limited
liability company or another member for legal or equitable
relief, with or without an accounting as to the company's
business, to enforce:
(1) The member's rights under the operating agreement;
(2) The member's rights under this chapter; and
(3) The rights and otherwise protect the interests of the
member, including rights and interests arising independently of
the member's relationship to the company.
(b) The accrual, and any time limited for the assertion, of
a right of action for a remedy under this section is governed by
other law. A right to an accounting upon a dissolution and
winding up does not revive a claim barred by law.
§31B-4-411. Continuation of term company after expiration of
specified term.
(a) If a term company is continued after the expiration of
the specified term, the rights and duties of the members and
managers remain the same as they were at the expiration of the
term except to the extent inconsistent with rights and duties of members and managers of an at-will company.
(b) If the members in a member-managed company or the
managers in a manager-managed company continue the business
without any winding up of the business of the company, it
continues as an at-will company.
ARTICLE 5. TRANSFEREES AND CREDITORS OF MEMBER.
§31B-5-501. Member's distributional interest.
(a) A member is not a coowner of, and has no transferable
interest in, property of a limited liability company.
(b) A distributional interest in a limited liability
company is personal property and, subject to sections 5-502 and
5-503, may be transferred, in whole or in part.
(c) An operating agreement may provide that a
distributional interest may be evidenced by a certificate of the
interest issued by the limited liability company and, subject to
section 5-503, may also provide for the transfer of any interest
represented by the certificate.
§31B-5-502. Transfer of distributional interest.
A transfer of a distributional interest does not entitle the
transferee to become or to exercise any rights of a member. A
transfer entitles the transferee to receive, to the extent
transferred, only the distributions to which the transferor would
be entitled.
§31B-5-503. Rights of transferee.
(a) A transferee of a distributional interest may become a
member of a limited liability company if and to the extent that
the transferor gives the transferee the right in accordance with
authority described in the operating agreement or all other
members consent.
(b) A transferee who has become a member, to the extent
transferred, has the rights and powers, and is subject to the
restrictions and liabilities, of a member under the operating
agreement of a limited liability company and this chapter. A
transferee who becomes a member also is liable for the transferor
member's obligations to make contributions under section 4-402
and for obligations under section 4-407 to return unlawful
distributions, but the transferee is not obligated for the
transferor member's liabilities unknown to the transferee at the
time the transferee becomes a member.
(c) Whether or not a transferee of a distributional
interest becomes a member under subsection (a) of this section,
the transferor is not released from liability to the limited
liability company under the operating agreement or this chapter.
(d) A transferee who does not become a member is not
entitled to participate in the management or conduct of the
limited liability company's business, require access to information concerning the company's transactions or inspect or
copy any of the company's records.
(e) A transferee who does not become a member is entitled
to:
(1) Receive, in accordance with the transfer, distributions
to which the transferor would otherwise be entitled;
(2) Receive, upon dissolution and winding up of the limited
liability company's business:
(i) In accordance with the transfer, the net amount
otherwise distributable to the transferor;
(ii) A statement of account only from the date of the latest
statement of account agreed to by all the members;
(3) Seek under section 8-801(b)(6) a judicial determination
that it is equitable to dissolve and wind up the company's
business.
(f) A limited liability company need not give effect to a
transfer until it has notice of the transfer.
§31B-5-504. Rights of creditor.
(a) On application by a judgment creditor of a member of a
limited liability company or of a member's transferee, a court
having jurisdiction may charge the distributional interest of the
judgment debtor to satisfy the judgment. The court may appoint a
receiver of the share of the distributions due or to become due to the judgment debtor and make all other orders, directions,
accounts and inquiries the judgment debtor might have made or
which the circumstances may require to give effect to the
charging order.
(b) A charging order constitutes a lien on the judgment
debtor's distributional interest. The court may order a
foreclosure of a lien on a distributional interest subject to the
charging order at any time. A purchaser at the foreclosure sale
has the rights of a transferee.
(c) At any time before foreclosure, a distributional
interest in a limited liability company which is charged may be
redeemed:
(1) By the judgment debtor;
(2) With property other than the company's property, by one
or more of the other members; or
(3) With the company's property, but only if permitted by
the operating agreement.
(d) This chapter does not affect a member's right under
exemption laws with respect to the member's distributional
interest in a limited liability company.
(e) This section provides the exclusive remedy by which a
judgment creditor of a member or a transferee may satisfy a judgment out of the judgment debtor's distributional interest in
a limited liability company.
ARTICLE 6. MEMBER'S DISSOCIATION.
§31B-6-601. Events causing member's dissociation.
A member is dissociated from a limited liability company
upon the occurrence of any of the following events:
(1) The company's having notice of the member's express will
to withdraw upon the date of notice or on a later date specified
by the member;
(2) An event agreed to in the operating agreement as causing
the member's dissociation;
(3) Upon transfer of all of a member's distributional
interest, other than a transfer for security purposes or a court
order charging the member's distributional interest which has not
been foreclosed;
(4) The member's expulsion pursuant to the operating
agreement;
(5) The member's expulsion by unanimous vote of the other
members if:
(i) It is unlawful to carry on the company's business with
the member;
(ii) There has been a transfer of substantially all of the
member's distributional interest, other than a transfer for security purposes, or a court order charging the member's
distributional interest, which has not been foreclosed;
(iii) Within ninety days after the company notifies a
corporate member that it will be expelled because it has filed a
certificate of dissolution or the equivalent, its charter has
been revoked, or its right to conduct business has been suspended
by the jurisdiction of its incorporation, the member fails to
obtain a revocation of the certificate of dissolution or a
reinstatement of its charter or its right to conduct business; or
(iv) A partnership or a limited liability company that is a
member has been dissolved and its business is being wound up;
(6) On application by the company or another member, the
member's expulsion by judicial determination because the member:
(i) Engaged in wrongful conduct that adversely and
materially affected the company's business;
(ii) Willfully or persistently committed a material breach
of the operating agreement or of a duty owed to the company or
the other members under section 4-409; or
(iii) Engaged in conduct relating to the company's business
which makes it not reasonably practicable to carry on the
business with the member;
(7) The member's:
(i) Becoming a debtor in bankruptcy;
(ii) Executing an assignment for the benefit of creditors;
(iii) Seeking, consenting to, or acquiescing in the
appointment of a trustee, receiver or liquidator of the member or
of all or substantially all of the member's property; or
(iv) Failing, within ninety days after the appointment, to
have vacated or stayed the appointment of a trustee, receiver or
liquidator of the member or of all or substantially all of the
member's property obtained without the member's consent or
acquiescence, or failing within ninety days after the expiration
of a stay to have the appointment vacated;
(8) In the case of a member who is an individual:
(i) The member's death;
(ii) The appointment of a guardian or general conservator
for the member; or
(iii) A judicial determination that the member has otherwise
become incapable of performing the member's duties under the
operating agreement;
(9) In the case of a member that is a trust or is acting as
a member by virtue of being a trustee of a trust, distribution of
the trust's entire rights to receive distributions from the
company, but not merely by reason of the substitution of a successor trustee;
(10) In the case of a member that is an estate or is acting
as a member by virtue of being a personal representative of an
estate, distribution of the estate's entire rights to receive
distributions from the company, but not merely the substitution
of a successor personal representative; or
(11) Termination of the existence of a member if the member
is not an individual, estate or trust other than a business
trust.
§31B-6-602. Member's power to dissociate; wrongful dissociation.
(a) Unless otherwise provided in the operating agreement, a
member has the power to dissociate from a limited liability
company at any time, rightfully or wrongfully, by express will
pursuant to section 6-601(1).
(b) If the operating agreement has not eliminated a member's
power to dissociate, the member's dissociation from a limited
liability company is wrongful only if:
(1) It is in breach of an express provision of the
agreement; or
(2) Before the expiration of the specified term of a term
company:
(i) The member withdraws by express will;
(ii) The member is expelled by judicial determination under section 6-601(6);
(iii) The member is dissociated by becoming a debtor in
bankruptcy; or
(iv) In the case of a member who is not an individual, trust
other than a business trust, or estate, the member is expelled or
otherwise dissociated because it willfully dissolved or
terminated its existence.
(c) A member who wrongfully dissociates from a limited
liability company is liable to the company and to the other
members for damages caused by the dissociation. The liability is
in addition to any other obligation of the member to the company
or to the other members.
(d) If a limited liability company does not dissolve and
wind up its business as a result of a member's wrongful
dissociation under subsection (b) of this section, damages
sustained by the company for the wrongful dissociation must be
offset against distributions otherwise due the member after the
dissociation.
§31B-6-603. Effect of member's dissociation.
(a) If under section 8-801 a member's dissociation from a
limited liability company results in a dissolution and winding up
of the company's business, article eight of this chapter applies.
If a member's dissociation from the company does not result in a dissolution and winding up of the company's business under
section 8-801:
(1) In an at-will company, the company must cause the
dissociated member's distributional interest to be purchased
under article seven of this chapter; and
(2) In a term company:
(i) If the company dissolves and winds up its business on or
before the expiration of its specified term, article eight of
this chapter applies to determine the dissociated member's rights
to distributions; and
(ii) If the company does not dissolve and wind up its
business on or before the expiration of its specified term, the
company must cause the dissociated member's distributional
interest to be purchased under article seven of this chapter on
the date of the expiration of the term specified at the time of
the member's dissociation.
(b) Upon a member's dissociation from a limited liability
company:
(1) The member's right to participate in the management and
conduct of the company's business terminates, except as otherwise
provided in section 8-803, and the member ceases to be a member
and is treated the same as a transferee of a member;
(2) The member's duty of loyalty under section 4-409(b)(3)
terminates; and
(3) The member's duty of loyalty under section 4-409(b)(1)
and (2) and duty of care under section 4-409(c) continue only
with regard to matters arising and events occurring before the
member's dissociation, unless the member participates in winding
up the company's business pursuant to section 8-803.
ARTICLE 7. MEMBER'S DISSOCIATION WHEN BUSINESS NOT WOUND UP.
§31B-7-701. Company purchase of distributional interest.
(a) A limited liability company shall purchase a
distributional interest of a:
(1) Member of an at-will company for its fair value
determined as of the date of the member's dissociation if the
member's dissociation does not result in a dissolution and
winding up of the company's business under section 8-801; or
(2) Member of a term company for its fair value determined
as of the date of the expiration of the specified term that
existed on the date of the member's dissociation if the
expiration of the specified term does not result in a dissolution
and winding up of the company's business under section 8-801.
(b) A limited liability company must deliver a purchase
offer to the dissociated member whose distributional interest is
entitled to be purchased not later than thirty days after the date determined under subsection (a) of this section. The
purchase offer must be accompanied by:
(1) A statement of the company's assets and liabilities as
of the date determined under subsection (a) of this section;
(2) The latest available balance sheet and income statement,
if any; and
(3) An explanation of how the estimated amount of the
payment was calculated.
(c) If the price and other terms of a purchase of a
distributional interest are fixed or are to be determined by the
operating agreement, the price and terms so fixed or determined
govern the purchase unless the purchaser defaults. If a default
occurs, the dissociated member is entitled to commence a
proceeding to have the company dissolved under section 8-
801(b)(5)(iv).
(d) If an agreement to purchase the distributional interest
is not made within one hundred twenty days after the date
determined under subsection (a) of this section, the dissociated
member, within another one hundred twenty days, may commence a
proceeding against the limited liability company to enforce the
purchase. The company at its expense shall notify in writing all
of the remaining members, and any other person the court directs, of the commencement of the proceeding. The jurisdiction of the
court in which the proceeding is commenced under this subsection
is plenary and exclusive.
(e) The court shall determine the fair value of the
distributional interest in accordance with the standards set
forth in section 7-702 together with the terms for the purchase.
Upon making these determinations, the court shall order the
limited liability company to purchase or cause the purchase of
the interest.
(f) Damages for wrongful dissociation under section 6-
602(b), and all other amounts owing, whether or not currently
due, from the dissociated member to a limited liability company,
must be offset against the purchase price.
§31B-7-702. Court action to determine fair value of
distributional interest.
(a) In an action brought to determine the fair value of a
distributional interest in a limited liability company, the court
shall:
(1) Determine the fair value of the interest, considering
among other relevant evidence the going concern value of the
company, any agreement among some or all of the members fixing
the price or specifying a formula for determining value of
distributional interests for any purpose, the recommendations of any appraiser appointed by the court, and any legal constraints
on the company's ability to purchase the interest;
(2) Specify the terms of the purchase, including, if
appropriate, terms for installment payments, subordination of the
purchase obligation to the rights of the company's other
creditors, security for a deferred purchase price and a covenant
not to compete or other restriction on a dissociated member; and
(3) Require the dissociated member to deliver an assignment
of the interest to the purchaser upon receipt of the purchase
price or the first installment of the purchase price.
(b) After the dissociated member delivers the assignment,
the dissociated member has no further claim against the company,
its members, officers or managers, if any, other than a claim to
any unpaid balance of the purchase price and a claim under any
agreement with the company or the remaining members that is not
terminated by the court.
(c) If the purchase is not completed in accordance with the
specified terms, the company is to be dissolved upon application
under section 8-801(b)(5)(iv). If a limited liability company is
so dissolved, the dissociated member has the same rights and
priorities in the company's assets as if the sale had not been
ordered.
(d) If the court finds that a party to the proceeding acted
arbitrarily, vexatiously or not in good faith, it may award one
or more other parties their reasonable expenses, including
attorney's fees and the expenses of appraisers or other experts,
incurred in the proceeding. The finding may be based on the
company's failure to make an offer to pay or to comply with
section 7-701(b).
(e) Interest must be paid on the amount awarded from the
fair market value determined under section 7-701(a) to the date
of payment.
§31B-7-703. Dissociated member's power to bind limited liability
company.
For two years after a member dissociates without the
dissociation resulting in a dissolution and winding up of a
limited liability company's business, the company, including a
surviving company under article nine of this chapter, is bound by
an act of the dissociated member which would have bound the
company under section 3-301 before dissociation only if at the
time of entering into the transaction the other party:
(1) Reasonably believed that the dissociated member was then
a member;
(2) Did not have notice of the member's dissociation; and
(3) Is not deemed to have had notice under section 7-704.
§31B-7-704. Statement of dissociation.
(a) A dissociated member or a limited liability company may
file in the office of the secretary of state a statement of
dissociation stating the name of the company and that the member
is dissociated from the company.
(b) For the purposes of sections 3-301 and 7-703, a person
not a member is deemed to have notice of the dissociation ninety
days after the statement of dissociation is filed.
ARTICLE 8. WINDING UP COMPANY'S BUSINESS.
§31B-8-801. Events causing dissolution and winding up of
company's business.
(a) In this section, "future distributions" means the total
distributions that, as of the date of dissociation, are
reasonably estimated to be made to the remaining members if the
company were continued until the projected date of its
termination, reduced by the amount of distributions that would
have been made to the remaining members if the business of the
company were dissolved and wound up on the date of dissociation.
(b) A limited liability company is dissolved, and its
business must be wound up, upon the occurrence of any of the
following events:
(1) An event specified in the operating agreement;
(2) Consent of the number or percentage of members specified in the operating agreement;
(3) Dissociation of a member who is also a manager or, if
none, a member of an at-will company, and dissociation of a
member who is also a manager or, if none, a member of a term
company but only if the dissociation was for a reason provided in
section 6-601(7) through (11) and occurred before the expiration
of the specified term, but the company is not dissolved and
required to be wound up by reason of the dissociation if:
(i) Within ninety days after the dissociation, the business
of the company is continued by the agreement of:
(A) The remaining members that would be entitled to receive
a majority of any distributions that would be made to them
assuming the business of the company were dissolved and wound up
on the date of the dissociation; and
(B) The remaining members that would be entitled to receive
a majority of any future distributions that would be made to them
assuming the business of the company were continued after the
date of the dissociation; or
(ii) The business of the company is continued under a right
to continue stated in the operating agreement;
(4) An event that makes it unlawful for all or substantially
all of the business of the company to be continued, but any cure of illegality within ninety days after notice to the company of
the event is effective retroactively to the date of the event for
purposes of this section;
(5) On application by a member or a dissociated member, upon
entry of a judicial decree that:
(i) The economic purpose of the company is likely to be
unreasonably frustrated;
(ii) Another member has engaged in conduct relating to the
company's business that makes it not reasonably practicable to
carry on the company's business with that member;
(iii) It is not otherwise reasonably practicable to carry on
the company's business in conformity with the articles of
organization and the operating agreement;
(iv) The company failed to purchase the petitioner's
distributional interest as required by section 7-701; or
(v) The managers or members in control of the company have
acted, are acting or will act in a manner that is illegal,
oppressive, fraudulent or unfairly prejudicial to the petitioner;
(6) On application by a transferee of a member's interest,
a judicial determination that it is equitable to wind up the
company's business:
(i) After the expiration of the specified term, if the company was for a specified term at the time the applicant became
a transferee by member dissociation, transfer or entry of a
charging order that gave rise to the transfer; or
(ii) At any time, if the company was at will at the time the
applicant became a transferee by member dissociation, transfer or
entry of a charging order that gave rise to the transfer.
§31B-8-802. Limited liability company continues after
dissolution.
(a) Subject to subsection (b) of this section, a limited
liability company continues after dissolution only for the
purpose of winding up its business.
(b) At any time after the dissolution of a limited
liability company and before the winding up of its business is
completed, the members, including a dissociated member whose
dissociation caused the dissolution, may unanimously waive the
right to have the company's business wound up and the company
terminated. In that case:
(1) The limited liability company resumes carrying on its
business as if dissolution had never occurred and any liability
incurred by the company or a member after the dissolution and
before the waiver is determined as if the dissolution had never
occurred; and
(2) The rights of a third party accruing under section 8-804(a) or arising out of conduct in reliance on the dissolution
before the third party knew or received a notification of the
waiver are not adversely affected.
§31B-8-803. Right to wind up limited liability company's
business.
(a) After dissolution, a member who has not wrongfully
dissociated may participate in winding up a limited liability
company's business, but on application of any member, member's
legal representative or transferee, the circuit court, for good
cause shown, may order judicial supervision of the winding up.
(b) A legal representative of the last surviving member may
wind up a limited liability company's business.
(c) A person winding up a limited liability company's
business may preserve the company's business or property as a
going concern for a reasonable time, prosecute and defend actions
and proceedings, whether civil, criminal or administrative,
settle and close the company's business, dispose of and transfer
the company's property, discharge the company's liabilities,
distribute the assets of the company pursuant to section 8-806,
settle disputes by mediation or arbitration and perform other
necessary acts.
§31B-8-804. Member's or manager's power and liability as agent
after dissolution.
(a) A limited liability company is bound by a member's or
manager's act after dissolution that:
(1) Is appropriate for winding up the company's business; or
(2) Would have bound the company under section 3-301 before
dissolution, if the other party to the transaction did not have
notice of the dissolution.
(b) A member or manager who, with knowledge of the
dissolution, subjects a limited liability company to liability by
an act that is not appropriate for winding up the company's
business is liable to the company for any damage caused to the
company arising from the liability.
§31B-8-805. Articles of termination.
(a) At any time after dissolution and winding up, a limited
liability company may terminate its existence by filing with the
secretary of state articles of termination stating:
(1) The name of the company;
(2) The date of the dissolution; and
(3) That the company's business has been wound up and the
legal existence of the company has been terminated.
(b) The existence of a limited liability company is
terminated upon the filing of the articles of termination, or
upon a later effective date, if specified in the articles of
termination.
§31B-8-806. Distribution of assets in winding up limited
liability company's business.
(a) In winding up a limited liability company's business,
the assets of the company must be applied to discharge its
obligations to creditors, including members who are creditors.
Any surplus must be applied to pay in money the net amount
distributable to members in accordance with their right to
distributions under subsection (b) of this section.
(b) Each member is entitled to a distribution upon the
winding up of the limited liability company's business consisting
of a return of all contributions which have not previously been
returned and a distribution of any remainder in equal shares.
§31B-8-807. Known claims against dissolved limited liability
company.
(a) A dissolved limited liability company may dispose of
the known claims against it by following the procedure described
in this section.
(b) A dissolved limited liability company shall notify its
known claimants in writing of the dissolution. The notice must:
(1) Specify the information required to be included in a
claim;
(2) Provide a mailing address where the claim is to be sent;
(3) State the deadline for receipt of the claim, which may not be less than one hundred twenty days after the date the
written notice is received by the claimant; and
(4) State that the claim will be barred if not received by
the deadline.
(c) A claim against a dissolved limited liability company
is barred if the requirements of subsection (b) of this section
are met, and:
(1) The claim is not received by the specified deadline; or
(2) In the case of a claim that is timely received but
rejected by the dissolved company, the claimant does not commence
a proceeding to enforce the claim within ninety days after the
receipt of the notice of the rejection.
(d) For purposes of this section, "claim" does not include
a contingent liability or a claim based on an event occurring
after the effective date of dissolution.
§31B-8-808. Other claims against dissolved limited liability
company.
(a) A dissolved limited liability company may publish
notice of its dissolution and request persons having claims
against the company to present them in accordance with the
notice.
(b) The notice must:
(1) Be published at least once in a newspaper of general circulation in the county in which the dissolved limited
liability company's principal office is located or, if none in
this state, in which its designated office is or was last
located;
(2) Describe the information required to be contained in a
claim and provide a mailing address where the claim is to be
sent; and
(3) State that a claim against the limited liability company
is barred unless a proceeding to enforce the claim is commenced
within five years after publication of the notice.
(c) If a dissolved limited liability company publishes a
notice in accordance with subsection (b) of this section, the
claim of each of the following claimants is barred unless the
claimant commences a proceeding to enforce the claim against the
dissolved company within five years after the publication date of
the notice:
(1) A claimant who did not receive written notice under
section 8-807;
(2) A claimant whose claim was timely sent to the dissolved
company but not acted on; and
(3) A claimant whose claim is contingent or based on an
event occurring after the effective date of dissolution.
(d) A claim not barred under this section may be enforced:
(1) Against the dissolved limited liability company, to the
extent of its undistributed assets; or
(2) If the assets have been distributed in liquidation,
against a member of the dissolved company to the extent of the
member's proportionate share of the claim or the company's assets
distributed to the member in liquidation, whichever is less, but
a member's total liability for all claims under this section may
not exceed the total amount of assets distributed to the member.
§31B-8-809. Grounds for administrative dissolution.
The secretary of state may commence a proceeding to dissolve
a limited liability company administratively if the company does
not:
(1) Pay any fees, taxes or penalties imposed by this chapter
or other law within sixty days after they are due;
(2) Deliver its annual report to the secretary of state
within sixty days after it is due.
§31B-8-810. Procedure for and effect of administrative
dissolution.
(a) If the secretary of state determines that a ground
exists for administratively dissolving a limited liability
company, the secretary of state shall enter a record of the
determination and serve the company with a copy of the record.
(b) If the company does not correct each ground for
dissolution or demonstrate to the reasonable satisfaction of the
secretary of state that each ground determined by the secretary
of state does not exist within sixty days after service of the
notice, the secretary of state shall administratively dissolve
the company by signing a certification of the dissolution that
recites the ground for dissolution and its effective date. The
secretary of state shall file the original of the certificate and
serve the company with a copy of the certificate.
(c) A company administratively dissolved continues its
existence but may carry on only business necessary to wind up and
liquidate its business and affairs under section 8-802 and to
notify claimants under sections 8-807 and 8-808.
(d) The administrative dissolution of a company does not
terminate the authority of its agent for service of process.
§31B-8-811. Reinstatement following administrative dissolution.
(a) A limited liability company administratively dissolved
may apply to the secretary of state for reinstatement within two
years after the effective date of dissolution. The application
must:
(1) Recite the name of the company and the effective date of
its administrative dissolution;
(2) State that the ground for dissolution either did not exist or have been eliminated;
(3) State that the company's name satisfies the requirements
of section 1-105; and
(4) Contain a certificate from the tax commissioner reciting
that all taxes owed by the company have been paid.
(b) If the secretary of state determines that the
application contains the information required by subsection (a)
of this section and that the information is correct, the
secretary of state shall cancel the certificate of dissolution
and prepare a certificate of reinstatement that recites this
determination and the effective date of reinstatement, file the
original of the certificate, and serve the company with a copy of
the certificate.
(c) When reinstatement is effective, it relates back to and
takes effect as of the effective date of the administrative
dissolution and the company may resume its business as if the
administrative dissolution had never occurred.
§31B-8-812. Appeal from denial of reinstatement.
(a) If the secretary of state denies a limited liability
company's application for reinstatement following administrative
dissolution, the secretary of state shall serve the company with
a record that explains the reason or reasons for denial.
(b) The company may appeal the denial of reinstatement to the circuit court within thirty days after service of the notice
of denial is perfected. The company appeals by petitioning the
court to set aside the dissolution and attaching to the petition
copies of the secretary of state's certificate of dissolution,
the company's application for reinstatement and the secretary of
state's notice of denial.
(c) The court may summarily order the secretary of state to
reinstate the dissolved company or may take other action the
court considers appropriate.
(d) The court's final decision may be appealed as in other
civil proceedings.
ARTICLE 9. CONVERSIONS AND MERGERS.
§31B-9-901. Definitions.
In this article:
(1) "Corporation" means a corporation under chapter thirty-
one of this code, a predecessor law, or comparable law of another
jurisdiction.
(2) "General partner" means a partner in a partnership and
a general partner in a limited partnership.
(3) "Limited partner" means a limited partner in a limited
partnership.
(4) "Limited partnership" means a limited partnership
created under article nine, chapter forty-seven of this code, a predecessor law, or comparable law of another jurisdiction.
(5) "Partner" includes a general partner and a limited
partner.
(6) "Partnership" means a general partnership under chapter
forty-seven-b of this code, a predecessor law, or comparable law
of another jurisdiction.
(7) "Partnership agreement" means an agreement among the
partners concerning the partnership or limited partnership.
(8) "Shareholder" means a shareholder in a corporation.
§31B-9-902. Conversion of partnership or limited partnership to
limited liability company.
(a) A partnership or limited partnership may be converted
to a limited liability company pursuant to this section.
(b) The terms and conditions of a conversion of a
partnership or limited partnership to a limited liability company
must be approved by all of the partners or by a number or
percentage of the partners required for conversion in the
partnership agreement.
(c) An agreement of conversion must set forth the terms and
conditions of the conversion of the interests of partners of a
partnership or of a limited partnership, as the case may be, into
interests in the converted limited liability company or the cash
or other consideration to be paid or delivered as a result of the conversion of the interests of the partners, or a combination
thereof.
(d) After a conversion is approved under subsection (b) of
this section, the partnership or limited partnership shall file
articles of organization in the office of the secretary of state
which satisfy the requirements of section 2-203 and contain:
(1) A statement that the partnership or limited partnership
was converted to a limited liability company from a partnership
or limited partnership, as the case may be;
(2) Its former name;
(3) A statement of the number of votes cast by the partners
entitled to vote for and against the conversion and, if the vote
is less than unanimous, the number or percentage required to
approve the conversion under subsection (b) of this section; and
(4) In the case of a limited partnership, a statement that
the certificate of limited partnership is to be canceled as of
the date the conversion took effect.
(e) In the case of a limited partnership, the filing of
articles of organization under subsection (d) of this section
cancels its certificate of limited partnership as of the date the
conversion took effect.
(f) A conversion takes effect when the articles of organization are filed in the office of the secretary of state or
at any later date specified in the articles of organization.
(g) A general partner who becomes a member of a limited
liability company as a result of a conversion remains liable as
a partner for an obligation incurred by the partnership or
limited partnership before the conversion takes effect.
(h) A general partner's liability for all obligations of
the limited liability company incurred after the conversion takes
effect is that of a member of the company. A limited partner who
becomes a member as a result of a conversion remains liable only
to the extent the limited partner was liable for an obligation
incurred by the limited partnership before the conversion takes
effect.
§31B-9-903. Effect of conversion; entity unchanged.
(a) A partnership or limited partnership that has been
converted pursuant to this article is for all purposes the same
entity that existed before the conversion.
(b) When a conversion takes effect:
(1) All property owned by the converting partnership or
limited partnership vests in the limited liability company;
(2) All debts, liabilities and other obligations of the
converting partnership or limited partnership continue as
obligations of the limited liability company;
(3) An action or proceeding pending by or against the
converting partnership or limited partnership may be continued as
if the conversion had not occurred;
(4) Except as prohibited by other law, all of the rights,
privileges, immunities, powers and purposes of the converting
partnership or limited partnership vest in the limited liability
company; and
(5) Except as otherwise provided in the agreement of
conversion under section 9-902(c), all of the partners of the
converting partnership continue as members of the limited
liability company.
§31B-9-904. Merger of entities; confirmation of title to real
estate required.
(a) Pursuant to a plan of merger approved under subsection
(c) of this section, a limited liability company may be merged
with or into one or more limited liability companies, foreign
limited liability companies, corporations, foreign corporations,
partnerships, foreign partnerships, limited partnerships, foreign
limited partnerships or other domestic or foreign entities.
(b) A plan of merger must set forth:
(1) The name of each entity that is a party to the merger;
(2) The name of the surviving entity into which the other
entities will merge;
(3) The type of organization of the surviving entity;
(4) The terms and conditions of the merger;
(5) The manner and basis for converting the interests of
each party to the merger into interests or obligations of the
surviving entity, or into money or other property, in whole or in
part; and
(6) The street address of the surviving entity's principal
place of business.
(c) A plan of merger must be approved:
(1) In the case of a limited liability company that is a
party to the merger, by all of the members or by a number or
percentage of members specified in the operating agreement;
(2) In the case of a foreign limited liability company that
is a party to the merger, by the vote required for approval of a
merger by the law of the state or foreign jurisdiction in which
the foreign limited liability company is organized;
(3) In the case of a partnership or domestic limited
partnership that is a party to the merger, by the vote required
for approval of a conversion under section 9-902(b); and
(4) In the case of any other entities that are parties to
the merger, by the vote required for approval of a merger by the
law of this state or of the state or foreign jurisdiction in which the entity is organized and, in the absence of such a
requirement, by all the owners of interests in the entity.
(d) After a plan of merger is approved and before the
merger takes effect, the plan may be amended or abandoned as
provided in the plan.
(e) The merger is effective upon the filing of the articles
of merger with the secretary of state, or at such later date as
the articles may provide.
(f) Irrespective of whether the surviving limited liability
company is to be governed by the laws of this state or by the
laws of any other state, any constituent limited liability
company thereof owning or holding real estate in this state shall
further evidence title thereto in the surviving limited liability
company by executing and acknowledging for record a confirmatory
deed or deeds to the respective parcels of real estate, which
deed or deeds shall be recorded in the office of the clerk of the
county commission of the respective counties in which such real
estate is situate; and such deed or deeds shall recite as the
consideration therefor the said merger and shall be deemed
confirmatory of the title of such real estate in the surviving
limited liability company.
§31B-9-905. Articles of merger.
(a) After approval of the plan of merger under section 9-904(c), unless the merger is abandoned under section 9-904(d),
articles of merger must be signed on behalf of each limited
liability company and other entity that is a party to the merger
and delivered to the secretary of state for filing. The articles
must set forth:
(1) The name and jurisdiction of formation or organization
of each of the limited liability companies and other entities
that are parties to the merger;
(2) For each limited liability company that is to merge, the
date its articles of organization were filed with the secretary
of state;
(3) That a plan of merger has been approved and signed by
each limited liability company and other entity that is to merge;
(4) The name and address of the surviving limited liability
company or other surviving entity;
(5) The effective date of the merger;
(6) If a limited liability company is the surviving entity,
such changes in its articles of organization as are necessary by
reason of the merger;
(7) If a party to a merger is a foreign limited liability
company, the jurisdiction and date of filing of its initial
articles of organization and the date when its application for authority was filed by the secretary of state or, if an
application has not been filed, a statement to that effect; and
(8) If the surviving entity is not a limited liability
company, an agreement that the surviving entity may be served
with process in this state and is subject to liability in any
action or proceeding for the enforcement of any liability or
obligation of any limited liability company previously subject to
suit in this state which is to merge, and for the enforcement, as
provided in this chapter, of the right of members of any limited
liability company to receive payment for their interest against
the surviving entity.
(b) If a foreign limited liability company is the surviving
entity of a merger, it may not do business in this state until an
application for that authority is filed with the secretary of
state.
(c) The surviving limited liability company or other entity
shall furnish a copy of the plan of merger, on request and
without cost, to any member of any limited liability company or
any person holding an interest in any other entity that is to
merge.
(d) Articles of merger operate as an amendment to the
limited liability company's articles of organization.
§31B-9-906. Effect of merger.
(a) When a merger takes effect:
(1) The separate existence of each limited liability company
and other entity that is a party to the merger, other than the
surviving entity, terminates;
(2) All property owned by each of the limited liability
companies and other entities that are party to the merger vests
in the surviving entity;
(3) All debts, liabilities and other obligations of each
limited liability company and other entity that is party to the
merger become the obligations of the surviving entity;
(4) An action or proceeding pending by or against a limited
liability company or other party to a merger may be continued as
if the merger had not occurred or the surviving entity may be
substituted as a party to the action or proceeding; and
(5) Except as prohibited by other law, all the rights,
privileges, immunities, powers and purposes of every limited
liability company and other entity that is a party to a merger
become vested in the surviving entity.
(b) The secretary of state is an agent for service of
process in an action or proceeding against the surviving foreign
entity to enforce an obligation of any party to a merger if the
surviving foreign entity fails to appoint or maintain an agent designated for service of process in this state or the agent for
service of process cannot with reasonable diligence be found at
the designated office. Upon receipt of process, the secretary of
state shall send a copy of the process by registered or certified
mail, return receipt requested, to the surviving entity at the
address set forth in the articles of merger. Service is effected
under this subsection at the earliest of:
(1) The date the company receives the process, notice or
demand;
(2) The date shown on the return receipt, if signed on
behalf of the company; or
(3) Five days after its deposit in the mail, if mailed
postpaid and correctly addressed.
(c) A member of the surviving limited liability company is
liable for all obligations of a party to the merger for which the
member was personally liable before the merger.
(d) Unless otherwise agreed, a merger of a limited
liability company that is not the surviving entity in the merger
does not require the limited liability company to wind up its
business under this chapter or pay its liabilities and distribute
its assets pursuant to this chapter.
(e) Articles of merger serve as articles of dissolution for a limited liability company that is not the surviving entity in
the merger.
§31B-9-907. Article not exclusive.
This article does not preclude an entity from being
converted or merged under other law.
ARTICLE 10. FOREIGN LIMITED LIABILITY COMPANIES.
§31B-10-1001. Law governing foreign limited liability companies.
(a) The laws of the state or other jurisdiction under which
a foreign limited liability company is organized govern its
organization and internal affairs and the liability of its
managers, members and their transferees.
(b) A foreign limited liability company may not be denied
a certificate of authority by reason of any difference between
the laws of another jurisdiction under which the foreign company
is organized and the laws of this state.
(c) A certificate of authority does not authorize a foreign
limited liability company to engage in any business or exercise
any power that a limited liability company may not engage in or
exercise in this state.
§31B-10-1002. Application for certificate of authority.
(a) A foreign limited liability company may apply for a
certificate of authority to transact business in this state by
delivering an application to the secretary of state for filing, together with a fee in the amount of ten dollars. The application
must set forth:
(1) The name of the foreign company or, if its name is
unavailable for use in this state, a name that satisfies the
requirements of section 10-1005;
(2) The name of the state or country under whose law it is
organized;
(3) The street address of its principal office;
(4) The address of its initial designated office in this
state;
(5) The name and street address of its initial agent for
service of process in this state;
(6) Whether the duration of the company is for a specified
term and, if so, the period specified;
(7) Whether the company is manager-managed, and, if so, the
name and address of each initial manager; and
(8) Whether the members of the company are to be liable for
its debts and obligations under a provision similar to section
3-303(c).
(b) A foreign limited liability company shall deliver with
the completed application a certificate of existence or a record
of similar import authenticated by the secretary of state or other official having custody of company records in the state or
country under whose law it is organized.
§31B-10-1003. Activities not constituting transacting business.
(a) Activities of a foreign limited liability company that
do not constitute transacting business in this state within the
meaning of this article include:
(1) Maintaining, defending or settling an action or
proceeding;
(2) Holding meetings of its members or managers or carrying
on any other activity concerning its internal affairs;
(3) Maintaining bank accounts;
(4) Maintaining offices or agencies for the transfer,
exchange and registration of the foreign company's own securities
or maintaining trustees or depositories with respect to those
securities;
(5) Selling through independent contractors;
(6) Soliciting or obtaining orders, whether by mail or
through employees or agents or otherwise, if the orders require
acceptance outside this state before they become contracts;
(7) Creating or acquiring indebtedness, mortgages or
security interests in real or personal property;
(8) Securing or collecting debts or enforcing mortgages or
other security interests in property securing the debts, and holding, protecting and maintaining property so acquired;
(9) Conducting an isolated transaction that is completed
within thirty days and is not one in the course of similar
transactions of a like manner; and
(10) Transacting business in interstate commerce.
(b) For purposes of this article, the ownership in this
state of income-producing real property or tangible personal
property, other than property excluded under subsection (a) of
this section, constitutes transacting business in this state.
(c) This section does not apply in determining the contacts
or activities that may subject a foreign limited liability
company to service of process, taxation or regulation under any
other law of this state.
§31B-10-1004. Issuance of certificate of authority.
Unless the secretary of state determines that an application
for a certificate of authority fails to comply as to form with
the filing requirements of this chapter, the secretary of state,
upon payment of all filing fees, shall file the application and
send a receipt for it and the fees to the limited liability
company or its representative.
§31B-10-1005. Name of foreign limited liability company.
(a) If the name of a foreign limited liability company does
not satisfy the requirements of section 1-105, the company, to obtain or maintain a certificate of authority to transact
business in this state, must use a fictitious name to transact
business in this state if its real name is unavailable and it
delivers to the secretary of state for filing a copy of the
resolution of its managers, in the case of a manager-managed
company, or of its members, in the case of a member-managed
company, adopting the fictitious name.
(b) Except as authorized by subsections (c) and (d) of this
section, the name, including a fictitious name to be used to
transact business in this state, of a foreign limited liability
company must be distinguishable upon the records of the secretary
of state from:
(1) The name of any corporation, limited partnership, or
company incorporated, organized or authorized to transact
business in this state;
(2) A name reserved or registered under section 1-106 or 1-
107; and
(3) The fictitious name of another foreign limited liability
company authorized to transact business in this state.
(c) A foreign limited liability company may apply to the
secretary of state for authority to use in this state a name that
is not distinguishable upon the records of the secretary of state from a name described in subsection (b) of this section. The
secretary of state shall authorize use of the name applied for
if:
(1) The present user, registrant or owner of a reserved name
consents to the use in a record and submits an undertaking in
form satisfactory to the secretary of state to change its name to
a name that is distinguishable upon the records of the secretary
of state from the name of the foreign applying limited liability
company; or
(2) The applicant delivers to the secretary of state a
certified copy of a final judgment of a court establishing the
applicant's right to use the name applied for in this state.
(d) A foreign limited liability company may use in this
state the name, including the fictitious name, of another
domestic or foreign entity that is used in this state if the
other entity is incorporated, organized or authorized to transact
business in this state and the foreign limited liability company:
(1) Has merged with the other entity;
(2) Has been formed by reorganization of the other entity;
or
(3) Has acquired all or substantially all of the assets,
including the name, of the other entity.
(e) If a foreign limited liability company authorized to
transact business in this state changes its name to one that does
not satisfy the requirements of section 1-105, it may not
transact business in this state under the name as changed until
it adopts a name satisfying the requirements of section 1-105 and
obtains an amended certificate of authority.
§31B-10-1006. Revocation of certificate of authority.
(a) A certificate of authority of a foreign limited
liability company to transact business in this state may be
revoked by the secretary of state in the manner provided in
subsection (b) of this section if:
(1) The company fails to:
(i) Pay any fees, taxes and penalties owed to this state;
(ii) Deliver its annual report required under section 2-211
to the secretary of state within sixty days after it is due;
(iii) Appoint and maintain an agent for service of process
as required by this article; or
(iv) File a statement of a change in the name or business
address of the agent as required by this article; or
(2) A misrepresentation has been made of any material matter
in any application, report, affidavit or other record submitted
by the company pursuant to this article.
(b) The secretary of state may not revoke a certificate of authority of a foreign limited liability company unless the
secretary of state sends the company notice of the revocation, at
least sixty days before its effective date, by a record addressed
to its agent for service of process in this state, or if the
company fails to appoint and maintain a proper agent in this
state, addressed to the office required to be maintained by
section 1-108. The notice must specify the cause for the
revocation of the certificate of authority. The authority of the
company to transact business in this state ceases on the
effective date of the revocation unless the foreign limited
liability company cures the failure before that date.
§31B-10-1007. Cancellation of authority.
A foreign limited liability company may cancel its authority
to transact business in this state by filing in the office of the
secretary of state a certificate of cancellation. Cancellation
does not terminate the authority of the secretary of state to
accept service of process on the company for claims for relief
arising out of the transactions of business in this state.
§31B-10-1008. Effect of failure to obtain certificate of
authority.
(a) A foreign limited liability company transacting
business in this state may not maintain an action or proceeding
in this state unless it has a certificate of authority to transact business in this state.
(b) The failure of a foreign limited liability company to
have a certificate of authority to transact business in this
state does not impair the validity of a contract or act of the
company or prevent the foreign limited liability company from
defending an action or proceeding in this state.
(c) Limitations on personal liability of managers, members
and their transferees are not waived solely by transacting
business in this state without a certificate of authority.
(d) If a foreign limited liability company transacts
business in this state without a certificate of authority, it
appoints the secretary of state as its agent for service of
process for claims for relief arising out of the transaction of
business in this state.
§31B-10-1009. Action by attorney general.
The attorney general may maintain an action to restrain a
foreign limited liability company from transacting business in
this state in violation of this article.
ARTICLE 11. DERIVATIVE ACTIONS.
§31B-11-1101. Right of action.
A member of a limited liability company may maintain an
action in the right of the company if the members or managers
having authority to do so have refused to commence the action or an effort to cause those members or managers to commence the
action is not likely to succeed.
§31B-11-1102. Proper plaintiff.
In a derivative action for a limited liability company, the
plaintiff must be a member of the company when the action is
commenced; and:
(1) Must have been a member at the time of the transaction
of which the plaintiff complains; or
(2) The plaintiff's status as a member must have devolved
upon the plaintiff by operation of law or pursuant to the terms
of the operating agreement from a person who was a member at the
time of the transaction.
§31B-11-1103. Pleading.
In a derivative action for a limited liability company, the
complaint must set forth with particularity the effort of the
plaintiff to secure initiation of the action by a member or
manager or the reasons for not making the effort.
§31B-11-1104. Expenses.
If a derivative action for a limited liability company is
successful, in whole or in part, or if anything is received by
the plaintiff as a result of a judgment, compromise or settlement
of an action or claim, the court may award the plaintiff
reasonable expenses, including reasonable attorney's fees, and shall direct the plaintiff to remit to the limited liability
company the remainder of the proceeds received.
ARTICLE 12. MISCELLANEOUS PROVISIONS.
§31B-12-1201. Uniformity of application and construction.
This chapter shall be applied and construed to effectuate
its general purpose to make uniform the law with respect to the
subject of this chapter among states enacting it.
§31B-12-1202. Short title.
This chapter shall may be cited as the Uniform Limited
Liability Company Act.
§31B-12-1203. Severability clause.
If any provision of this article or its application to any
person or circumstance is held invalid, the invalidity does not
affect other provisions or applications of this article which can
be given effect without the invalid provision or application, and
to this end, the provisions of this article are severable.
§31B-12-1204. Effective date.
This article takes effect on the first day of July, one
thousand nine hundred ninety-six.
§31B-12-1205. Transitional provisions.
(a) Before the first day of July, one thousand nine hundred
ninety-six, this chapter governs only a limited liability company
organized:
(1) After the effective date of this chapter, unless the
company is continuing the business of a dissolved limited
liability company under the provisions of the former West
Virginia limited liability company act; and
(2) Before the effective date of this chapter, which elects,
as provided by subsection (c) of this section, to be governed by
this chapter.
(b) On and after the first day of July, one thousand nine
hundred ninety-six, this chapter governs all limited liability
companies.
(c) Before the first day of July, one thousand nine hundred
ninety-six, a limited liability company voluntarily may elect, in
the manner provided in its operating agreement or by law for
amending the operating agreement, to be governed by this chapter.
§31B-12-1206. Savings clause.
This chapter does not affect an action or proceeding
commenced or right accrued before the effective date of this
chapter.
ARTICLE 13. PROFESSIONAL LIMITED LIABILITY COMPANIES.
§31b-13-1301. Definitions.
As used in this article:
(1) "Licensing board" means the governing body or agency
established under chapter thirty of this code which is responsible for the licensing and regulation of the practice of
the profession which the professional limited liability company
is organized to provide;
(2) "Professional limited liability company" means a limited
liability company organized under this chapter for the purpose of
rendering a professional service; and
(3) "Professional service" means the services rendered by
the following professions: Attorneys-at-law under article two,
physicians and podiatrists under article three, dentists under
article four, optometrists under article eight, accountants under
article nine, veterinarians under article ten, architects under
article twelve, engineers under article thirteen, osteopathic
physicians and surgeons under article fourteen and chiropractors
under article sixteen, all of chapter thirty of this code.
§31B-13-1302. Who may become a member; professional limited
liability companies authorized.
(a) Two or more persons duly licensed or otherwise legally
authorized to render the same professional services or to
practice together within this state may become members of a
professional limited liability company under the provisions of
this chapter for the purpose of rendering the same professional
services. Notwithstanding any provision of this code to the
contrary, including any limitation or restriction set forth in any licensing provision of chapter thirty of this code, a
professional limited liability company may be formed to provide
any of the professional services as defined in section 13-1301(3)
of this article.
(b) No professional limited liability company organized
under this article shall have as a member anyone other than a
person who is duly licensed or otherwise legally authorized to
render the professional services for which the professional
limited liability company was organized.
§31B-13-1303. Name.
The name of a professional limited liability company shall
contain the words "professional limited liability company" or the
abbreviation "P.L.L.C." or "Professional L.L.C.".
§31B-13-1304. Duty of licensing board.
The licensing board for each of the professions authorized
to form professional limited liability companies under this
article shall propose legislative rules for promulgation, in
accordance with the provisions of article three, chapter twenty-
nine-a of this code, providing for the implementation of this
article and the procedures for the formation and approval of
professional limited liability companies for the particular
profession under the jurisdiction of such licensing board.
§31B-13-1305. Professional relationships not affected; liability for debts, etc., of limited liability company, its members,
managers, employees and agents; individual liability.
(a) The provisions of this article shall not be construed to
alter or affect the professional relationship between an
individual furnishing professional services and a person
receiving that service either with respect to liability arising
out that professional service or any confidential relationship
between the individual rendering and the individual receiving the
professional services, and all confidential relationships enjoyed
under the laws of this state, whether now in existence, or
hereafter enacted, shall remain inviolate.
(b) A member, manager, agent or employee of a professional
limited liability company shall not, by reason of being a member,
manager, agent or employee of a professional limited liability
company, be personally liable for any debts or claims against, or
the acts or omissions of the professional limited liability
company or of another member, manager, agent or employee of the
professional limited liability company.
(c) The professional limited liability company shall be
liable for the acts or omissions of its members, managers, agents
and employees to the same extent to which any other limited
liability company would be liable for the acts or omissions of
its members, managers, agents and employees while they are engaged in carrying on the professional limited liability company
business.
(d) Notwithstanding any provision of this article to the
contrary, any individual who renders a professional service as a
member, manager, agent or employee of a professional limited
liability company is liable for a negligent or wrongful act or
omission in which the individual personally participated to the
same extent as if the individual rendered the professional
service as a sole practitioner.
(e) A professional limited liability company organized under
this article shall carry at all times at least one million
dollars of professional liability insurance which shall insure
the limited liability company and its members against liability
imposed upon the company or any of its members arising out of the
performance of professional services to patients or clients of
the company by any of the members or professional or
nonprofessional managers or employees of the limited liability
company.
(f) If, in any proceeding, compliance by a professional
limited liability company with the requirements of subsection (e)
of this section is disputed, that issue shall be determined by
the court, and the burden of proof of compliance shall be on the person who claims the limitation of liability set forth in
subsection (b) of this section.
(g) If a professional limited liability company is in
compliance with the requirements of subsection (e) of this
section, the requirements of this section shall not be admissible
or in any way be made known to a jury in determining an issue of
liability for or extent of the obligation or damages in question.
(h) A professional limited liability company is considered
to be in compliance with subsection (e) of this section if it
provides one million dollars of funds specifically designated and
segregated for the satisfaction of judgments against the limited
liability company, its members or any of its professional or
nonprofessional managers or employees resulting from any of the
types of claims covered by subsection (e) of this section, by:
(1) Deposit in trust or in bank escrow of cash, bank
certificates of deposit or United States treasury obligation; or
(2) A bank letter of credit or insurance company bond.
§31B-13-1306. Application of article.
Except as otherwise specifically provided in this article,
all provisions of this chapter governing limited liability
companies shall be applicable to professional limited liability
companies.
NOTE: This bill was recommended for introduction and
passage this session by Subcommittee B of the Joint Committee on
the Judiciary. The purpose of this bill is to adopt the Uniform
Limited Liability Company Act of 1996. Because these business
organizations offer the best features of all other business forms
-- corporate-style liability shield and pass-through tax benefits
of a partnership, every state has adopted or is considering its
own distinct limited liability company act, many of which have
already been amended one or more times. Unfortunately, this lack
of uniformity has manifested itself in fundamentally important
areas, such as recognition of out-of-state limited liability
companies; may a limited liability company be formed and operated
by only one person; may it be formed for purposes other than to
make a profit; do owners have the power and right to withdraw
from the company and receive a distribution of the fair market
value of their interests; who has authority to bind the company
and how is that authority limited; what are the fiduciary duties
of the owners and managers to the company and to each other; how
are management rights allocated among owners and managers; do the
owners have the right to sue the company and its other owners in
their own right as well as to bring a derivative action on behalf
of the company; may general and limited partnerships be converted
to limited liability companies and may limited liability
companies merge with other limited liability companies or other
business organizations; what law governs foreign limited
liability companies; and are any or all of these and other
questions governed by default rules that can be modified by
agreement or can they be waived.
This bill is intended to address these and other questions
and areas of uncertainty. The Act is flexible in that it allows
for most of its provisions to be modified by a company's owners
in a private agreement. Moreover, the Act's provisions are
accessible to business persons and entrepreneurs who will be able
to negotiate their own agreements without benefit of counsel
because the Act's default rules will govern in the absence of a
complex agreement between the parties. Members may modify the
default rules by oral agreement defined in part by their own
conduct and default rule structures may be designated in the
articles of organization. The articles of organization address
the most fundamental concerns, which are that unless the company
is to have a specified term or duration, it considered an at-will
company, which is generally more easily dissolved, and secondly,
whether the company will be managed by managers or by its members. This designation controls issues such as agency
authority, management authority, fiduciary duties and some
dissolution characteristics.
This chapter is new; therefore, strike-throughs and
underscoring have been omitted.
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