UNIFORM LIMITED LIABILITY COMPANY ACT (1996)
Drafted by the
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
and by it
APPROVED AND RECOMMENDED FOR ENACTMENT
IN ALL THE STATES
at its
ANNUAL CONFERENCE
MEETING IN ITS ONE-HUNDRED-AND-FIFTH YEAR
SAN ANTONIO, TEXAS
JULY 12 - JULY 19, 1996
WITH PREFATORY NOTE AND COMMENTS
COPYRIGHT 1996
By
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
UNIFORM LIMITED LIABILITY COMPANY ACT (1996)
The Committee that acted for the National Conference of Commissioners on Uniform State Laws in preparing the Uniform Limited Liability Company Act (1996) was as follows:
EDWARD I. CUTLER, P.O. Box 3239, Tampa, FL 33601, Chair
RICHARD E. FORD, 203 West Randolph Street, Lewisburg, WV 24901
HARRY J. HAYNSWORTH, IV, William Mitchell College of Law, 875 Summit Avenue, St. Paul, MN 55105
CHARLES G. KEPLER, P.O. Box 490, 1135 14th Street, Cody, WY 82414
WAYNE C. KREUSCHER, 1313 Merchants Bank Building, 11 South Meridian Street, Indianapolis, IN 46204
REED L. MARTINEAU, P.O. Box 45000, 10 Exchange Place, Salt Lake City, UT 84145
RICHARD F. MUTZEBAUGH, State Capitol Building, 200 East Colfax Avenue, Denver, CO 80203
GLEE S. SMITH, P.O. Box 360, 111 East 8th, Larned, KS 67550
HOWARD J. SWIBEL, Suite 1200, 120 South Riverside Plaza, Chicago, IL 60606
CARTER G. BISHOP, Suffolk University Law School, 41 Temple Street, Boston, MA 02114, Reporter
EX OFFICIO
RICHARD C. HITE, 200 West Douglas Avenue, Suite 600, Wichita, KS 67202, President
JOHN P. BURTON, P.O. Box 1357, Suite 101, 123 East Marcy Street, Santa Fe, NM 87501, Chair, Division E
EXECUTIVE DIRECTOR
FRED H. MILLER, University of Oklahoma, College of Law, 300 Timberdell Road, Norman, OK 73019, Executive Director
WILLIAM J. PIERCE, 1505 Roxbury Road, Ann Arbor, MI 48104, Executive Director Emeritus
REVIEW COMMITTEE
JAMES M. BUSH, Suite 2200, Two North Central Avenue, Phoenix, AZ 85004, Chair
FRANCIS J. PAVETTI, P.O. Box 829, Court House Square Building, New London, CT 06320
DONALD JOE WILLIS, Suites 1600-1950, Pacwest Center, 1211 S.W. 5th Avenue, Portland, OR 97204
ADVISORS
ROBERT R. KEATINGE, American Bar Association
STEVEN G. FROST, American Bar Association, Section of Taxation
THOMAS EARL GEU, American Bar Association, Section of Real Property, Probate and
Trust Law, Probate and Trust Division
JAMES W. REYNOLDS, American Bar Association, Section of Business Law
SANFORD J. LIEBSCHUTZ, American Bar Association, Section of Real Property, Probate
and Trust Law, Real Property Division
Copies of this Act may be obtained from:
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
676 North St. Clair Street, Suite 1700
Chicago, Illinois 60611
312/915-0195
UNIFORM LIMITED LIABILITY COMPANY ACT (1996)
TABLE OF CONTENTS
PREFATORY NOTE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1. GENERAL PROVISIONS
SECTION 101. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 102. KNOWLEDGE AND NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 103. EFFECT OF OPERATING AGREEMENT; NONWAIVABLE PROVISIONS. .10
SECTION 104. SUPPLEMENTAL PRINCIPLES OF LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 105. NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 106. RESERVED NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 107. REGISTERED NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
SECTION 108. DESIGNATED OFFICE AND AGENT FOR SERVICE OF PROCESS. . . . . . . .16
SECTION 109. CHANGE OF DESIGNATED OFFICE OR AGENT FOR SERVICE OF
PROCESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 110. RESIGNATION OF AGENT FOR SERVICE OF PROCESS. . . . . . . . . . . . . . . . 18
SECTION 111. SERVICE OF PROCESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
SECTION 112. NATURE OF BUSINESS AND POWERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE 2. ORGANIZATION
SECTION 201. LIMITED LIABILITY COMPANY AS LEGAL ENTITY. . . . . . . . . . . . . . . . . . 23
SECTION 202. ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 203. ARTICLES OF ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 204. AMENDMENT OR RESTATEMENT OF ARTICLES OF ORGANIZATION. . 27
SECTION 205. SIGNING OF RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 206. FILING IN OFFICE OF [SECRETARY OF STATE]. . . . . . . . . . . . . . . . . . . . . . 29
SECTION 207. CORRECTING FILED RECORD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 208. CERTIFICATE OF EXISTENCE OR AUTHORIZATION. . . . . . . . . . . . . . . . . .31
SECTION 209. LIABILITY FOR FALSE STATEMENT IN FILED RECORD. . . . . . . . . . . . . . .32
SECTION 210. FILING BY JUDICIAL ACT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
SECTION 211. ANNUAL REPORT FOR [SECRETARY OF STATE]. . . . . . . . . . . . . . . . . . . . .33
ARTICLE 3. RELATIONS OF MEMBERS AND MANAGERS TO
PERSONS DEALING WITH LIMITED LIABILITY COMPANY
SECTION 301. AGENCY OF MEMBERS AND MANAGERS . . . . . . . . . . . . . . . . . . . . . . . . . . .35
SECTION 302. LIMITED LIABILITY COMPANY LIABLE FOR MEMBER'S OR
MANAGER'S ACTIONABLE CONDUCT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
SECTION 303. LIABILITY OF MEMBERS AND MANAGERS. . . . . . . . . . . . . . . . . . . . . . . . . .37
ARTICLE 4. RELATIONS OF MEMBERS TO EACH
OTHER AND TO LIMITED LIABILITY COMPANY
SECTION 401. FORM OF CONTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
SECTION 402. MEMBER'S LIABILITY FOR CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . .41
SECTION 403. MEMBER'S AND MANAGER'S RIGHTS TO PAYMENTS AND
REIMBURSEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
SECTION 404. MANAGEMENT OF LIMITED LIABILITY COMPANY. . . . . . . . . . . . . . . . . . 42
SECTION 405. SHARING OF AND RIGHT TO DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . .45
SECTION 406. LIMITATIONS ON DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 407. LIABILITY FOR UNLAWFUL DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . .48
SECTION 408. MEMBER'S RIGHT TO INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
SECTION 409. GENERAL STANDARDS OF MEMBER'S AND MANAGER'S CONDUCT. . .52
SECTION 410. ACTIONS BY MEMBERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
SECTION 411. CONTINUATION OF TERM COMPANY AFTER EXPIRATION OF
SPECIFIED TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
ARTICLE 5. TRANSFEREES AND CREDITORS OF MEMBER
SECTION 501. MEMBER'S DISTRIBUTIONAL INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . .58
SECTION 502. TRANSFER OF DISTRIBUTIONAL INTEREST. . . . . . . . . . . . . . . . . . . . . . . . .59
SECTION 503. RIGHTS OF TRANSFEREE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
SECTION 504. RIGHTS OF CREDITOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE 6. MEMBER’S DISSOCIATION
SECTION 601. EVENTS CAUSING MEMBER'S DISSOCIATION. . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 602. MEMBER'S POWER TO DISSOCIATE; WRONGFUL DISSOCIATION. . . . . 68
SECTION 603. EFFECT OF MEMBER'S DISSOCIATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
ARTICLE 7. MEMBER’S DISSOCIATION
WHEN BUSINESS NOT WOUND UP
SECTION 701. COMPANY PURCHASE OF DISTRIBUTIONAL INTEREST. . . . . . . . . . . . . . 72
SECTION 702. COURT ACTION TO DETERMINE FAIR VALUE OF
DISTRIBUTIONAL INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 703. DISSOCIATED MEMBER'S POWER TO BIND LIMITED LIABILITY
COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 704. STATEMENT OF DISSOCIATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
ARTICLE 8. WINDING UP COMPANY’S BUSINESS
SECTION 801. EVENTS CAUSING DISSOLUTION AND WINDING UP OF
COMPANY'S BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
SECTION 802. LIMITED LIABILITY COMPANY CONTINUES AFTER DISSOLUTION. . . .83
SECTION 803. RIGHT TO WIND UP LIMITED LIABILITY COMPANY'S BUSINESS. . . . . .84
SECTION 804. MEMBER'S OR MANAGER'S POWER AND LIABILITY AS AGENT
AFTER DISSOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
SECTION 805. ARTICLES OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 806. DISTRIBUTION OF ASSETS IN WINDING UP LIMITED LIABILITY
COMPANY'S BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
SECTION 807. KNOWN CLAIMS AGAINST DISSOLVED LIMITED LIABILITY
COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
SECTION 808. OTHER CLAIMS AGAINST DISSOLVED LIMITED LIABILITY
COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
SECTION 809. GROUNDS FOR ADMINISTRATIVE DISSOLUTION. . . . . . . . . . . . . . . . . . . .90
SECTION 810. PROCEDURE FOR AND EFFECT OF ADMINISTRATIVE DISSOLUTION. . 90
SECTION 811. REINSTATEMENT FOLLOWING ADMINISTRATIVE DISSOLUTION. . . . .91
SECTION 812. APPEAL FROM DENIAL OF REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . . . 92
ARTICLE 9. CONVERSIONS AND MERGERS
SECTION 901. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94
SECTION 902. CONVERSION OF PARTNERSHIP OR LIMITED PARTNERSHIP TO
LIMITED LIABILITY COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
SECTION 903. EFFECT OF CONVERSION; ENTITY UNCHANGED. . . . . . . . . . . . . . . . . . . . 97
SECTION 904. MERGER OF ENTITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 905. ARTICLES OF MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
SECTION 906. EFFECT OF MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 907. [ARTICLE] NOT EXCLUSIVE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
ARTICLE 10. FOREIGN LIMITED LIABILITY COMPANIES
SECTION 1001. LAW GOVERNING FOREIGN LIMITED LIABILITY COMPANIES. . . . . .104
SECTION 1002. APPLICATION FOR CERTIFICATE OF AUTHORITY. . . . . . . . . . . . . . . . . 105
SECTION 1003. ACTIVITIES NOT CONSTITUTING TRANSACTING BUSINESS. . . . . . . .106
SECTION 1004. ISSUANCE OF CERTIFICATE OF AUTHORITY. . . . . . . . . . . . . . . . . . . . . .107
SECTION 1005. NAME OF FOREIGN LIMITED LIABILITY COMPANY. . . . . . . . . . . . . . . .108
SECTION 1006. REVOCATION OF CERTIFICATE OF AUTHORITY. . . . . . . . . . . . . . . . . . .110
SECTION 1007. CANCELLATION OF AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
SECTION 1008. EFFECT OF FAILURE TO OBTAIN CERTIFICATE OF AUTHORITY. . . . 111
SECTION 1009. ACTION BY [ATTORNEY GENERAL]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
ARTICLE 11. DERIVATIVE ACTIONS
SECTION 1101. RIGHT OF ACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113
SECTION 1102. PROPER PLAINTIFF.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113
SECTION 1103. PLEADING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
SECTION 1104. EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
ARTICLE 12. MISCELLANEOUS PROVISIONS
SECTION 1201. UNIFORMITY OF APPLICATION AND CONSTRUCTION. . . . . . . . . . . . . 115
SECTION 1202. SHORT TITLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
SECTION 1203. SEVERABILITY CLAUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115
SECTION 1204. EFFECTIVE DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116
SECTION 1205. TRANSITIONAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SECTION 1206. SAVINGS CLAUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
UNIFORM LIMITED LIABILITY COMPANY ACT (1996)
Borrowing from abroad, Wyoming initiated a national movement in 1977 by enacting this country's first limited liability company act. The movement started slowly as the Internal Revenue Service took more than ten years to announce finally that a Wyoming limited liability company would be taxed like a partnership. Since that time, 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.
The allure of the limited liability company is its unique ability to bring together in a single business organization the best features of all other business forms -- properly structured, its owners obtain both a corporate-styled liability shield and the pass-through tax benefits of a partnership. General and limited partnerships do not offer their partners a corporate-styled liability shield. Corporations, including those having made a Subchapter Selection, do not offer their shareholders all the pass-through tax benefits of a partnership. All state limited liability company acts contain provisions for a liability shield and partnership tax status.
Despite these two common themes, state limited liability company acts display a dazzling array of diversity. Multistate activities of businesses are widespread. Recognition of out-of-state limited liability companies varies. Unfortunately, this lack of uniformity manifests itself in basic but fundamentally important questions, such as: may a company be formed and operated by only one owner; may it be formed for purposes other than to make a profit; whether owners have the power and right to withdraw from a company and receive a distribution of the fair value of their interests; whether a member's dissociation threatens a dissolution of the company; who has the apparent authority to bind the company and the limits of that authority; what are the fiduciary duties of owners and managers to a company and each other; how are the rights to manage a company allocated among its owners and managers; do the owners have the right to sue a company and its other owners in their own right as well as derivatively 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 and other business organizations; what is the law governing foreign limited liability companies; and are any or all of these and other rules simply default rules that may be modified by agreement or are they nonwaivable.
Practitioners and entrepreneurs struggle to understand the law governing limited liability companies organized in their own State and to understand the burgeoning law of other States. Simple questions concerning where to organize are increasingly complex. Since most state limited liability company acts are in their infancy, little if any interpretative case law exists. Even when case law develops, it will have limited precedential value because of the diversity of the state acts.
Accordingly, uniform legislation in this area of the law appeared to have become urgent.
After a Study Committee appointed by the National Conference of Commissioners in late 1991 recommended that a comprehensive project be undertaken, the Conference appointed a Drafting Committee which worked on a Uniform Limited Liability Company Act (ULLCA) from early 1992 until its adoption by the Conference at its Annual Meeting in August 1994. The Drafting Committee was assisted by a blue ribbon panel of national experts and other interested and affected parties and organizations. Many, if not all, of those assisting the Committee brought substantial experience from drafting limited liability company legislation in their own States. Many are also authors of leading treatises and articles in the field. Those represented in the drafting process included an American Bar Association (ABA) liaison, four advisors representing the three separate ABA Sections of Business Law, Taxation, and Real Property, Trust and Probate, the United States Treasury Department, the Internal Revenue Service, and many observers representing several other organizations, including the California Bar Association, the New York City Bar Association, the American College of Real Estate Lawyers, the National Association of Certified Public Accountants, the National Association of Secretaries of State, the Chicago and Lawyers Title Companies, the American Land Title Association, and several university law and business school faculty members.
The Committee met nine times and engaged in numerous national telephonic conferences to discuss policies, review over fifteen drafts, evaluate legal developments and consider comments by our many knowledgeable advisers and observers, as well as an ABA subcommittee's earlier work on a prototype. In examining virtually every aspect of each state limited liability company act, the Committee maintained a single policy vision -- to draft a flexible act with a comprehensive set of default rules designed to substitute as the essence of the bargain for small entrepreneurs and others.
This Act is flexible in the sense that the vast majority of its provisions may be modified by the owners in a private agreement. Only limited and specific fundamental matters may not be altered by private agreement. To simplify, those nonwaivable provisions are set forth in a single subsection. Helped thereby, sophisticated parties will negotiate their own deal with the benefit of counsel.
The Committee also recognized that small entrepreneurs without the benefit of counsel should also have access to the Act. To that end, the great bulk of the Act sets forth default rules designed to operate a limited liability company without sophisticated agreements and to recognize that members may also modify the default rules by oral agreements defined in part by their own conduct. Uniquely, the Act combines two simple default structures which depend upon the presence of designations in the articles of organization. All default rules under the Act flow from these two designations.
First, unless the articles reflect that a limited liability company is a term company and the duration of that term, the company will be an at-will company. Generally, the owners of an at-will company may demand a payment of the fair value of their interests at any time. Owners of a term company must generally wait until the expiration of the term to obtain the value of their interests. Secondly, unless the articles reflect that a company will be managed by managers, the company will be managed by its members. This designation controls whether the members or managers have apparent agency authority, management authority, and the nature of fiduciary duties in the company.
In January of 1995 the Executive Committee of the Conference adopted an amendment to harmonize the Act with new and important Internal Revenue Service announcements, and the amendment was ratified by the National Conference at its Annual Meeting in August of 1995. Those Internal Revenue Service announcements generally provide that a limited liability company will not be taxed like a corporation regardless of its organizational structure. Freed from the old tax classification restraints, the amendment modifies the Act's dissolution provision by eliminating member dissociation as a dissolution event. This important amendment significantly increases the stability of a limited liability company and places greater emphasis on a limited liability company's required purchase of a dissociated member's interest.
The adoption of ULLCA will provide much needed consistency among the States, with flexible default rules, and multistate recognition of limited liability on the part of company owners. It will also promote the development of precedential case law.
UNIFORM LIMITED LIABILITY COMPANY ACT (1996)
[ARTICLE] 1
GENERAL PROVISIONS
Section 101. Definitions.
Section 102. Knowledge and Notice.
Section 103. Effect of Operating Agreement; Nonwaivable Provisions.
Section 104. Supplemental Principles of Law.
Section 105. Name.
Section 106. Reserved Name.
Section 107. Registered Name.
Section 108. Designated Office and Agent for Service of Process.
Section 109. Change of Designated Office or Agent for Service
of Process.
Section 110. Resignation of Agent for Service of Process.
Section 111. Service of Process.
Section 112. Nature of Business and Powers.
SECTION 101. DEFINITIONS. In this [Act]:
(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 303 and is not required to obtain a certificate of authority to transact business under any law of this State other than this [Act].
(9) "Limited liability company" means a limited liability company organized under this [Act].
(10) "Manager" means a person, whether or not a member of a manager-managed company, who is vested with authority under Section 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 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.
Comment
Uniform Limited Liability Company Act ("ULLCA") definitions, like the rest of the Act, are a blend of terms and concepts derived from the Uniform Partnership Act ("UPA"), the Uniform Partnership Act (1994) ("UPA 1994", also previously known as the Revised Uniform Partnership Act or "RUPA"), the Revised Uniform Limited Partnership Act ("RULPA"), the Uniform Commercial Code ("UCC"), and the Model Business Corporation Act ("MBCA"), or their revisions from time to time; some are tailored specially for this Act.
"Business." A limited liability company may be organized to engage in an activity either for or not for profit. The extent to which contributions to a nonprofit company may be deductible for Federal income tax purposes is determined by federal law. Other state law determines the extent of exemptions from state and local income and property taxes.
"Debtor in bankruptcy." The filing of a voluntary petition operates immediately as an "order for relief." See Sections 601(7)(i) and 602(b)(2)(iii).
"Distribution." This term includes all sources of a member's distributions including the member's capital contributions, undistributed profits, and residual interest in the assets of the company after all claims, including those of third parties and debts to members, have been paid.
"Distributional interest." The term does not include a member's broader rights to participate in the management of the company. See Comments to Article 5.
"Foreign limited liability company." The term is not restricted to companies formed in the United States.
"Manager." The rules of agency apply to limited liability companies. Therefore, managers may designate agents with whatever titles, qualifications, and responsibilities they desire. For example, managers may designate an agent as "President."
"Manager-managed company." The term includes only a company designated as such in the articles of organization. In a manager-managed company agency authority is vested exclusively in one or more managers and not in the members. See Sections 101(10) (manager), 203(a)(6) (articles designation), and 301(b) (agency authority of members and managers).
"Member-managed limited liability company." The term includes every company not designated as "manager-managed" under Section 203(a)(6) in its articles of organization.
"Operating agreement." This agreement may be oral. Members may agree upon the extent to which their relationships are to be governed by writings.
"Principal office." The address of the principal office must be set forth in the annual report required under Section 211(a)(3).
"Record." This Act is the first Uniform Act promulgated with a definition of this term. The definition brings this Act in conformity with the present state of technology and accommodates prospective future technology in the communication and storage of information other than by human memory. Modern methods of communicating and storing information employed in commercial practices are no longer confined to physical documents.
The term includes any writing. A record need not be permanent or indestructible, but an oral or other unwritten communication must be stored or preserved on some medium to qualify as a record. Information that has not been retained other than through human memory does not qualify as a record. A record may be signed or may be created without the knowledge or intent of a particular person. Other law must be consulted to determine admissibility in evidence, the applicability of statute of frauds, and other questions regarding the use of records. Under Section 206(a), electronic filings may be permitted and even encouraged.
SECTION 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.
Comment
Knowledge requires cognitive awareness of a fact, whereas notice is based on a lesser degree of awareness. The Act imposes constructive knowledge under limited circumstances. See Comments to Sections 301(c), 703, and 704.
SECTION 103. EFFECT OF OPERATING AGREEMENT; NONWAIVABLE PROVISIONS.
(a) Except as otherwise provided in subsection (b), 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 [Act] 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 408;
(2) eliminate the duty of loyalty under Section 409(b) or 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 409(c) or 603(b)(3);
(4) eliminate the obligation of good faith and fair dealing under Section 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 601(6);
(6) vary the requirement to wind up the limited liability company's business in a case specified in Section 801(3) or (4); or
(7) restrict rights of a person, other than a manager, member, and transferee of a member's distributional interest, under this [Act].
Comment
The operating agreement is the essential contract that governs the affairs of a limited liability company. Since it is binding on all members, amendments must be approved by all members unless otherwise provided in the agreement. Although many agreements will be in writing, the agreement and any amendments may be oral or may be in the form of a record. Course of dealing, course of performance and usage of trade are relevant to determine the meaning of the agreement unless the agreement provides that all amendments must be in writing.
This section makes clear that the only matters an operating agreement may not control are specified in subsection (b). Accordingly, an operating agreement may modify or eliminate any rule specified in any section of this Act except matters specified in subsection (b). To the extent not otherwise mentioned in subsection (b), every section of this Act is simply a default rule, regardless of whether the language of the section appears to be otherwise mandatory. This approach eliminates the necessity of repeating the phrase "unless otherwise agreed" in each section and its commentary.
Under subsection (b)(1), an operating agreement may not unreasonably restrict the right to information or access to any records under Section 408. This does not create an independent obligation beyond Section 408 to maintain any specific records. Under subsections (b)(2) to (4), an irreducible core of fiduciary responsibilities survive any contrary provision in the operating agreement. Subsection (b)(2)(i) authorizes an operating agreement to modify, but not eliminate, the three specific duties of loyalty set forth in Section 409(b)(1) to (3) provided the modification itself is not manifestly unreasonable, a question of fact. Subsection (b)(2)(ii) preserves the common law right of the members to authorize future or ratify past violations of the duty of loyalty provided there has been a full disclosure of all material facts. The authorization or ratification must be unanimous unless otherwise provided in an operating agreement, because the authorization or ratification itself constitutes an amendment to the agreement. The authorization or ratification of specific past or future conduct may sanction conduct that would have been manifestly unreasonable under subsection (b)(2)(i).
SECTION 104. SUPPLEMENTAL PRINCIPLES OF LAW.
(a) Unless displaced by particular provisions of this [Act], the principles of law and equity supplement this [Act].
(b) If an obligation to pay interest arises under this [Act] and the rate is not specified, the rate is that specified in [applicable statute].
Comment
Supplementary principles include, but are not limited to, the law of agency, estoppel, law merchant, and all other principles listed in UCC Section 1-103, including the law relative to the capacity to contract, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating and invalidating clauses. Other principles such as those mentioned in UCC Section 1-205 (Course of Dealing and Usage of Trade) apply as well as course of performance. As with UPA 1994 Section 104, upon which this provision is based, no substantive change from either the UPA or the UCC is intended. Section 104(b) establishes the applicable rate of interest in the absence of an agreement among the members.
(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), 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 106 or 107;
(3) a fictitious name approved under Section 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). 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.
(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 120-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.
Comment
A foreign limited liability company that is not presently authorized to transact business in the State may reserve a fictitious name for a nonrenewable 120-day period. When its actual name is available, a company will generally register that name under Section 107 because the registration is valid for a year and may be extended indefinitely.
(a) A foreign limited liability company may register its name subject to the requirements of Section 1005, if the name is distinguishable upon the records of the [Secretary of State] from names that are not available under Section 105(b).
(b) A foreign limited liability company registers its name, or its name with any addition required by Section 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 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) between October 1 and December 31 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 [Act] 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.
SECTION 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.
Comment
Limited liability companies organized under Section 202 or authorized to transact business under Section 1004 are required to designate and continuously maintain an office in the State. Although the designated office need not be a place of business, it most often will be the only place of business of the company. The company must also designate an agent for service of process within the State and the agent's street address. The agent's address need not be the same as the company's designated office address. The initial office and agent designations must be set forth in the articles of organization, including the address of the designated office. See Section 203(a)(2) to (3). The current office and agent designations must be set forth in the company's annual report. See Section 211(a)(2). See also Section 109 (procedure for changing the office or agent designations), Section 110 (procedure for an agent to resign), and Section 111(b) (the filing officer is the service agent for the company if it fails to maintain its own service agent).
SECTION 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.
SECTION 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 31st day after the statement is filed in the office of the [Secretary of State].