PA 16-97—sHB 5259

Judiciary Committee

Appropriations Committee

AN ACT CONCERNING ADOPTION OF THE CONNECTICUT UNIFORM LIMITED LIABILITY COMPANY ACT

SUMMARY: This act makes many changes to the laws governing limited liability companies (LLCs). It includes provisions that apply to domestic LLCs, which are formed under Connecticut law, and foreign LLCs, which are formed under another jurisdiction's law and registered to do business in Connecticut. Its rules generally apply when an LLC's operating agreement does not cover a particular matter, except for certain items that the act does not allow in an agreement or that an agreement cannot change.

Among its major provisions, the act:

1. adds more detailed provisions on fiduciary duties and charging orders against members (i. e. , court orders to collect a debt);

2. changes when a member can bind the LLC as an agent;

3. adds provisions on derivative actions by a member, which allow for an action on behalf of the LLC to enforce a right;

4. makes changes to the provisions governing mergers between LLCs, including mergers with foreign LLCs, and adds provisions governing interest exchanges; and

5. allows an LLC's operating agreement to include certain aspects of its governance, such as designating whether it is managed by its members or a manager.

The act also modifies terminology, changing the name of an LLC's founding document from “articles of organization” to “certificate of organization. ” For LLCs formed before the act takes effect, their articles of organization are deemed certificates of organization and any language in them determining the LLC's management structure is considered to be in the operating agreement for purposes of the act's requirements ( 10).

The act's provisions govern all LLCs beginning July 1, 2017 ( 10). The act's repeal of prior law governing LLCs does not affect (1) the operation of statutes or actions taken under them before their repeal; (2) any ratification, right, remedy, privilege, obligation, or liability acquired, accrued, or incurred under the statute before its repeal; (3) any violation of a statute, penalty, forfeiture, or punishment incurred before its repeal; or (4) any proceeding, reorganization, or dissolution begun under a statute before its repeal that may be completed in accordance with the statute as if it had not been repealed ( 24).

The act requires the secretary of the state to make any changes to the CONCORD commercial records database that are required to satisfy the act's provisions within available appropriations. This includes any database reprogramming or upgrading and additional or upgraded software purchases. The database, among other things, compiles records that business entities file with the secretary ( 109).

The below analysis describes the act's significant changes and new provisions. The act also makes many other minor changes.

EFFECTIVE DATE: July 1, 2017

2 & 5-7 — OPERATING AGREEMENTS

Previously, an LLC's operating agreement could cover the regulation and management of the LLC's affairs, including appointment or designation of officers, as allowed by its articles of organization and the law. For a manager-managed LLC, the operating agreement could establish the number; qualifications; and selection, removal, and replacement method of managers.

The act eliminates these specific provisions and instead has general provisions allowing an operating agreement to govern:

1. relations among the members and between the members and the LLC,

2. a manager's rights and duties,

3. the LLC's activities and affairs and their conduct, and

4. procedures for amending the operating agreement.

Previously, an operating agreement could be in writing or oral. The act allows it to be in a record, oral, implied, or any combination of these ( 2).

All provisions of the act may be varied by the operating agreement except for the 14 items listed below (see Prohibited Contents). The act's provisions govern the matters described above if they are not covered by the operating agreement.

Prohibited Contents

The act prohibits an operating agreement from:

1. applying another state's law to govern a domestic LLC;

2. changing an LLC's capacity to sue and be sued in its own name;

3. changing the act's provisions on registered agents or the secretary of the state, including provisions on delivering records to the secretary for filing;

4. varying the provisions that allow a person to ask a court to order someone to sign or deliver a document to the secretary or the secretary to file it (see 28);

5. altering or eliminating the duties of loyalty or care, except as provided below;

6. eliminating the implied contractual obligation of good faith and fair dealing under the act (but the operating agreement may prescribe the standards, if not manifestly unreasonable, used to measure performance of the obligation);

7. relieving or exonerating a person from liability for conduct involving bad faith, willful or intentional misconduct, or a knowing violation of law;

8. unreasonably restricting the duties and rights regarding access to LLC information (see 48) (but the operating agreement may impose reasonable restrictions on the information's availability and use and may define appropriate remedies, including liquidated damages, for a breach of any reasonable use restriction);

9. varying certain causes of dissolution (when the LLC's activities are unlawful, it is not reasonably practicable to continue the LLC's activities, or managers or members are acting illegally or oppressively);

10. varying certain requirements regarding winding up the LLC;

11. unreasonably restricting the right of a member to maintain a direct or derivative action against the LLC;

12. varying the provisions on special litigation committees regarding derivative suits (but the operating agreement may prohibit having such a committee);

13. varying the required contents of a plan of merger or interest exchange; or

14. restricting the rights under the act of someone who is not a member or manager, with some exceptions.

Varying Members' Duties ( 5)

Under the act, an operating agreement may:

1. specify how a specific act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified by disinterested persons after full disclosure of all material facts and

2. alter the act's rule on making distributions, but only if it still requires the LLC's total assets to at least equal the sum of its total liabilities (see 43).

To the extent the operating agreement of a member-managed LLC expressly relieves a member of a responsibility that the member otherwise would have under the act's provisions and imposes the responsibility on one or more other members, the operating agreement may correspondingly eliminate or limit that member's fiduciary duty related to the responsibility.

Also, if not manifestly unreasonable, the act allows an operating agreement to:

1. alter or eliminate a member's or manager's duty of loyalty (see 47);

2. identify specific types or categories of activities that do not violate the duty of loyalty;

3. alter the duty of care, but not authorize conduct involving bad faith, willful or intentional misconduct, or a knowing violation of law; and

4. alter or eliminate any other fiduciary duty.

Under the act, a court must determine whether a term is manifestly unreasonable as of the time the term became part of the operating agreement and consider only the circumstances existing at that time. It may invalidate the term only if, in light of the LLC's purposes and affairs, it is readily apparent that the (1) term's objective is unreasonable or (2) term is an unreasonable means to achieve its objective.

Binding Authority of Operating Agreement and Amendments ( 6 & 7)

Under the act, an LLC is bound by and can enforce the operating agreement whether or not the company assented to it. Someone who becomes a member is deemed to assent to the agreement. Two or more people who are becoming the LLC's initial members can make an agreement that becomes the operating agreement when the LLC is formed. One person may do so as well.

The act allows an operating agreement to specify that amending it requires the (1) approval of a person that is not a party to the agreement or (2) satisfaction of a condition.

The act provides that the operating agreement governs the LLC's and its members' obligations to a person who is a transferee or who dissociated as a member. Under the act, an operating agreement amendment (subject only to a court order to collect a distribution under a charging order) made after a person becomes a transferee or dissociates is:

1. effective as to an LLC or member debt, obligation, or liability to the transferee or dissociated member and

2. ineffective to the extent it imposes a new debt, obligation, or liability on the transferee or dissociated member.

The act makes an operating agreement provision in a record delivered by the LLC to the secretary ineffective if the act prohibits its inclusion in the operating agreement.

If a record delivered to the secretary becomes effective and conflicts with an operating agreement provision, the act provides that the agreement prevails as to members, dissociated members, transferees, and managers, but the record prevails as to others to the extent they reasonably rely on the record.

9 — PROFESSIONAL SERVICES LLC

Under the act, an LLC formed on or after July 1, 2017 to render professional services must include in its name "professional limited liability company," "P. L. L. C. ," or "PLLC. " "Limited" may be abbreviated as "Ltd. " and "company" as "Co. ".

By law, numerous professions can be part of a professional services LLC. The act adds physician assistants to the list of these professions ( 2).

12-14 — LLC NAMES

The law requires the name of an LLC to be distinguishable on the secretary's records. The act specifies that:

1. a person can consent in a record to allow another to use its name if the person granting consent changes its name in a distinguishable way on the secretary's records;

2. the secretary cannot consider certain words, phrases, or abbreviations when determining if a name is distinguishable, such as "corporation," "corp. ," "incorporated," "Inc. ," "professional corporation," "P. C. ," "PC," "Limited," "Ltd. ," "limited partnership," "professional limited liability company," "P. L. L. C. ," "PLLC," "limited liability partnership," "L. L. P. ," or "LLP";

3. a person may consent in a record to the use of a name that is not distinguishable from its name, other than a word, phrase, or abbreviation as described above, and the person need not change its name; and

4. an LLC's name cannot contain language stating or implying that it is organized for a purpose not allowed under the act.

Reserving Names ( 13 & 14)

By law, a person can reserve an LLC name for 120 days. The act eliminates (1) the ability to renew the reservation for successive 120-day periods and (2) a provision allowing someone who has reserved a name to cancel the reservation.

Similarly, under prior law, a foreign LLC intending to register in Connecticut could reserve a name with the secretary for 120 days, with the option to renew it for successive 120-day periods. The act instead allows a foreign LLC to register a name for one year, with the option to renew it for successive one-year periods by filing within 90 days of the registration's expiration.

15-19 — REGISTERED AGENTS

By law, LLCs must designate someone to receive legal process in Connecticut on their behalf. The act changes the term for this person from “statutory agent for service” to “registered agent. ” Among the minor changes the act makes regarding these agents, the act specifies that by designating the agent the LLC affirms that the agent consents to serving in this role.

It also specifies that the agent's only duties under the act are to:

1. forward to the domestic or foreign LLC, at the address most recently supplied to the agent, any process, notice, or demand served on or received by the agent;

2. notify the domestic or foreign LLC, if he or she resigns, at the address most recently supplied to the agent; and

3. provide notice if he or she changes his or her name or address.

Prior law required an LLC to inform the secretary “forthwith” when the agent changed its address. The act instead requires the agent to inform the secretary within 30 days of the address change and similarly inform the secretary within 30 days of a name change. The act also requires the agent, within 30 days of filing with the secretary, to notify the LLC of the change ( 18).

The act also makes a number of changes to how an LLC is served when it does not have an agent, such as:

1. removing required service on the secretary and

2. requiring the papers to be mailed to the LLC's principal office address found in the LLC's most recent annual report ( 19).

Resignation ( 17)

By law, an agent can resign its position. The act specifies that:

1. when a certificate of resignation takes effect, the agent ceases its responsibilities for any matter later given to it as agent;

2. resignation does not affect any contractual rights between the LLC and the agent; and

3. the agent may resign whether or not the LLC is in good standing.

Service on Others ( 19(d))

The act also eliminates a provision allowing service of legal papers on any LLC manager or a member acting as a manager (1) in person, (2) by leaving it at the member's usual place of abode in Connecticut, or (3) at the manager's usual place of abode in Connecticut if the manager is an individual.

The act instead allows service on an individual in charge of any regular place of business of the LLC, if the individual is not a plaintiff, when service cannot be made on the agent or secretary as appointed agent for a foreign LLC.

22 — FEES

The act adds fees for filing the following documents with the secretary:

1. certificate of interest exchange, $60;

2. certificate of abandonment, $50;

3. statement of withdrawal of foreign LLC, $120;

4. registration of name or a removal of registration of name, $60;

5. statement of correction, $100; and

6. transfer of registration, $60 plus the qualification fee.

25 — FORMING AN LLC

The act renames the LLC's founding document filed with the secretary the “certificate of organization,” instead of the “articles of organization.

The act eliminates requirements that the:

1. LLC's organizers prepare a written document to be held with the LLC's records with the names and addresses of initial members and, if manager-managed, managers and

2. LLC maintain a record of members and managers.

Prior law required the articles of organization to state whether the LLC is manager-managed. The act instead requires that the operating agreement state if the LLC will be manager-managed. It specifies that the certificate of organization can contain other matters, but not provisions prohibited from being in an operating agreement.

The act no longer requires that the certificate of organization state the nature of the LLC's business or purposes or that it will engage in any lawful activity. It requires the certificate to state a member's or manager's name and business and residential address, but the secretary can allow only a business address if there is good cause, such as exposing the person's personal security to significant risk (prior law required this information in a separate record).

The act makes several other minor changes to these documents.

26 — INACCURACIES IN A CERTIFICATE OF ORGANIZATION

The act requires a member of a member-managed LLC or manager of a manager-managed LLC who knows that information in a filed certificate of organization is inaccurate to (1) have the certificate amended or (2) if appropriate, deliver to the secretary a statement of change of agent or statement of correction (see 33). It also makes minor changes to amendment procedures.

27 & 28 — SIGNING DOCUMENTS

Prior law required a document filed with the secretary to be signed by:

1. an organizer, if the LLC had not been formed;

2. a member, if the LLC was member-managed, or a manager if the LLC was manager-managed;

3. a fiduciary, if the LLC was in the hands of a receiver, trustee, or court-appointed fiduciary; or

4. a person on behalf of another person, if authorized by a power of attorney.

The act instead requires:

1. an organizer to sign the initial certificate of organization,

2. a person authorized by the LLC to sign other documents,

3. a person winding up the LLC's affairs to sign on behalf of a dissolved corporation, and

4. a person to sign any records delivered on behalf of that person.

It allows an agent to sign any record and the legal representative of a deceased or incompetent person to sign a record if the act requires that person's signature.

The act specifies that (1) an agent's or legal representative's signature affirms the person's authority to sign, (2) the secretary is not required to verify a signature's authenticity or the signer's authority to commit the LLC, and (3) accepting a document does not validate the signature or person signing.

Action to Force Signing or Filing ( 28)

If a person required to sign or deliver a record to the secretary under the act does not do so, the act allows an aggrieved person to ask the Superior Court to order the (1) person to sign or deliver the record or (2) secretary to file the record unsigned. If the person seeking the court order is not the LLC that is the subject of the record, the LLC must be a party to the action.

29 — HARM CAUSED BY INACCURATE RECORDS

Under the act, a person who suffers a loss by relying on inaccurate information in a record filed by the secretary may recover damages from the following two sources. First, the person who suffers a loss may collect from a person who (1) signed the record or caused another to sign it on the person's behalf and (2) knew the information was inaccurate at the time of signing.

Second, he or she may collect from a member of a member-managed LLC or manager of a manager-managed LLC if both of the following conditions are met:

1. the record was delivered for filing on the LLC's behalf and

2. the member or manager had notice of the inaccuracy for a reasonably sufficient time before the information was relied on, so that the member or manager could have taken appropriate action to correct the information.

But an operating agreement of a member-managed LLC may expressly relieve a member of responsibility for maintaining the accuracy of information in records filed with the secretary and impose this responsibility on another member or members.

30-32 — FILING DOCUMENTS WITH THE SECRETARY

The act makes (1) a certificate of organization or foreign registration statement effective when filed by the secretary and (2) other records effective when filed by the secretary or at a later date or time specified in the record, up to 90 days after filing.

The act allows an authorized person to file a statement of withdrawal in order to withdraw a record delivered to the secretary if the record has not taken effect. The statement must (1) identify the record being withdrawn and (2) be signed by those who signed the original record or state that all parties agreed to withdrawal or it is done as the operating agreement allows.

The act also makes minor changes to the filing requirements for documents.

33 — CORRECTION STATEMENT

The act allows a person on whose behalf a record was delivered to the secretary to correct the record if it was (1) inaccurate when filed or (2) defectively signed or electronically transmitted. The person must file a signed statement of correction identifying the record and identifying and correcting the record's inaccuracy or defect. The correction statement cannot (1) have a delayed effective date, (2) be effective before the original record's filing date, or (3) take effect more than 90 days after the original record's filing date.

A correction statement is effective as of the effective date of the originally filed record. But it is effective on the date it is filed as to (1) anyone who relied on the original record and was adversely affected by the correction and (2) certain others it the statement relates to a dissolution or entity transaction.

34 — FILING BY SECRETARY

The act specifies that the secretary must file a record delivered for filing and this duty is ministerial. The record is considered filed at the time it was delivered and the secretary must send an acknowledgement of the filing time to the person who submitted the record.

If the secretary refuses to file a record, she must, within 15 business days of the record's delivery, (1) return it or notify the person who submitted it of the refusal and (2) briefly explain the reason for refusal. The person who submitted the record may petition the Superior Court to compel its filing, attaching to the petition the record and the secretary's explanation. The court may decide the matter in a summary proceeding.

The filing of or refusal to file a record does not create a presumption about the accuracy of information in the record.

Except as required by other law or when serving legal papers as provided in the act, the secretary may deliver a record (1) in person to the person that submitted it; (2) to the person's principal office; or (3) to another address, including an email address, that the person provided the secretary for delivery.

35 — CERTIFICATE OF GOOD STANDING OR REGISTRATION

The act allows the secretary, on anyone's request, to issue a certificate of good standing for an LLC or certificate of registration for a registered foreign LLC. The certificate must state:

1. the LLC's name or registered foreign LLC's name used in Connecticut;

2. for a domestic LLC, that (a) no statement of dissolution, administrative dissolution, or termination has been filed; (b) the secretary's records do not reflect that the company has been dissolved or terminated; (c) the LLC has filed all annual reports due; and (d) no dissolution by forfeiture proceedings are pending (the secretary can begin these proceedings for failure to file an annual report or maintain an agent); and

3. for a registered foreign LLC, that it is registered to do business in Connecticut and has filed all annual reports due.

The act allows someone to rely on the certificate as conclusive evidence of the facts stated in it.

36 — ANNUAL REPORT

By law, domestic and foreign LLCs must file annual reports with the secretary. The act alters their due dates. It requires filing the reports between January 1 and April 1 each year (beginning with the calendar year after filing as an LLC or registering as a foreign LLC), instead of on the anniversary of filing the LLC's original documents as required under prior law.

The act makes a number of other changes, including eliminating provisions (1) requiring the secretary to notify each LLC that its annual report is due and (2) prohibiting the secretary from accepting an LLC's annual report until it submits overdue reports.

By law, the secretary may return an incomplete report to the LLC for correction.

37 — MEMBERS AS AGENTS OF AN LLC

Under the act, a member is not an agent of an LLC solely because he or she is a member. Status as a member does not prohibit other laws from imposing liability on an LLC because of the person's conduct.

This replaces prior law, which (1) made every member an agent of the LLC for the purpose of its affairs and bound the LLC by each member's acts carrying on the LLC's usual affairs (unless the member actually had no authority to act and the person with whom the member was dealing knew it) but (2) in a manager-managed LLC, provided that members were not agents solely because they were members.

The act eliminates specific provisions about a member's or manager's admissions or representations about the LLC's affairs being used as evidence against the LLC.

38 — LIABILITY OF MEMBERS

By law, LLC members and managers are not liable for LLC debts or other obligations solely because they are members or managers. The act specifies that the LLC's failure to observe formalities in exercising its powers or managing its activities and affairs is not a ground for imposing liability on a member or manager.

The act eliminates a specific provision that a member or manager is not a proper party to a proceeding by or against an LLC solely because he or she is a member or manager, except when the proceeding is to enforce a member's or manager's right against or liability to the LLC or as otherwise provided in an operating agreement.

39 — ADMITTING MEMBERS

The act changes the rules for admitting members. Under prior law, someone became an LLC member by:

1. acquiring an LLC interest from the LLC under the operating agreement or by consent of a majority in interest of members or

2. becoming an assignee of an LLC interest if (a) the assignor validly gave the assignee that right under the operating agreement or (b) a majority in interest of members, excluding the assignor, consented, unless the operating agreement provided otherwise.

Under the act, a person becomes a member after formation (1) as provided in the operating agreement, (2) as the result of a transaction under the Entity Transaction Act (which involves transactions such as mergers of different types of entities), (3) with the unanimous consent of the members, or (4) with the consent of transferees who have the right to receive the majority of distributions when the LLC has no members.

Under the act, members owning more than 50% of the LLC's transferable interests, excluding those not owned by the members, constitute a majority in interest of the members for this and other provisions. If it is not possible to make this determination based on the operating agreement, the majority in interest of the members means:

1. the members who would receive more than 50% of the distributions with respect to the dissolution of the LLC at the time of the vote if there would be distributions or

2. if there would not be distributions, the members who at the time of the vote contributed more than 50% of the unreturned capital contributions made to the LLC since its formation ( 2).

The act specifies that a person may become a member without acquiring a transferable interest or making or being obligated to make a contribution to the LLC.

41 — MEMBER CONTRIBUTIONS

The act eliminates a provision in prior law that required a member's promise to contribute to the LLC to be written in order to be enforceable.

The act adds that if an LLC's creditor extends credit or acts in reliance on a member's obligation to contribute and does not have notice that the LLC compromised the obligation, the creditor may enforce the obligation.

42-44 — DISTRIBUTIONS

The act defines a "distribution" as a transfer of money or other property from an LLC to a person on account of a transferable interest or status as a member. It includes (1) an LLC's purchase of a transferable interest and (2) a transfer to a member in return for the member relinquishing the right to participate as a member in the LLC's management, activities, and affairs or to have access to the LLC's records or information. It does not include reasonable compensation for present or past service or payments made in the ordinary course of business under a bona fide retirement or benefits program ( 2).

As under existing law, a member or other person entitled to a distribution becomes a creditor. The act specifies that the LLC's obligation to make the distribution can be offset by the amount the distribution's recipient owes the LLC. It eliminates specific provisions on distributions when a member dissociates.

Restrictions on Making Distributions ( 43)

The act prohibits an LLC from making a distribution if, after the distribution, the:

1. LLC would be unable to pay its debts as they become due in the ordinary course of its activities and affairs or

2. LLC's total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the LLC dissolved and was wound up at the time of the distribution, to satisfy the preferential rights of members and transferees whose preferential rights are superior to those of persons receiving the distribution.

The act allows an LLC to base a decision that a distribution is proper on (1) financial statements prepared using reasonable accounting practices and principles or (2) a fair valuation or other reasonable method.

The act measures a distribution's effect on the date the:

1. distribution is authorized, if the payment occurs within 120 days of authorization;

2. payment is made, if it is more than 120 days since authorization; or

3. money or other property is transferred or debt is incurred, if the distribution is connected to an LLC's purchase of a transferable interest or a transfer to a member in return for the member relinquishing the right to participate as a member.

The act provides that an LLC's debt to a member or transferee for a distribution is at parity with its debts to general, unsecured creditors. An LLC's debts, including those issued as a distribution, are not liabilities when determining whether a distribution is appropriate if the debt's terms provide that payment of principal and interest is made only if and to the extent that payment of a distribution could then be made under this provision. If the debt is issued as a distribution, then each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is made.

In measuring a distribution's effect when an LLC is winding up its affairs, the dissolved LLC's liabilities do not include claims disposed of under the provisions governing its winding up (see 59-61).

Liability for Distributions that Violate the Act's Provisions ( 44)

The act makes a member of a member-managed LLC or manager of a manager-managed LLC personally liable to the LLC if he or she consents to a distribution that violates the above provisions and violates the duty of loyalty or care. The liability is for the amount the distribution exceeds the amount that could be properly paid under the act.

But, if the operating agreement of a member-managed LLC expressly relieves a member of the authority and responsibility to consent to distributions and imposes that authority and responsibility on one or more other members, then only those members with authority can be liable.

The act also makes a person who receives a distribution knowing that it violates the act's provisions personally liable to the LLC to the extent the distribution exceeded the amount that could be properly paid under the act.

A person subject to an action under these provisions may make part of the lawsuit anyone who (1) is also liable for consenting to the distribution and seek to enforce a right of contribution from the person or (2) received a distribution knowing it violated the act's provisions and seek to enforce a right of contribution from the person in the amount the person received in violation of the act.

An action under these provisions must be brought within two years of the distribution.

45 — VOTING REQUIREMENTS

As under prior law (except as provided in organizational documents, the operating agreement, or law), decisions regarding the LLC generally require approval by a majority in interest of members of a member-managed LLC or more than one-half of the managers in a manager-managed LLC. But under prior law:

1. a majority in interest of members had to approve an amendment to the articles of organization, unless the documents provided otherwise, and

2. two-thirds in interest of members, unless the articles or operating agreement required otherwise, had to approve (a) amendments to the written operating agreement or (b) authorizing someone to act for the LLC in a way that contradicted the written operating agreement.

Unless the operating agreement provides otherwise, the act requires (1) unanimous member approval for amendments to the certificate of organization or operating agreement and (2) two-thirds in interest of members to approve any act outside the LLC's ordinary course of activities and affairs or a transaction under the Entity Transaction Act.

In a manager-managed LLC, the act specifies that each manager has equal rights in managing and conducting the LLC's activities.

The act allows members to vote without a meeting, and a member may appoint a proxy or agent to vote or act by signing an appointing record personally or through an agent.

Under the act, the LLC's dissolution does not affect these provisions, but a person who wrongfully causes the dissolution loses the right to participate as a member and manager.

45 — MANAGERS

As under prior law, the operating agreement may set many of the requirements for choosing managers. The act specifies a number of rules regarding managers, including the following: (1) dissociation of a member who is a manager removes the person as manager, but a member who ceases to be a manager is not dissociated because of it, and (2) ceasing to be a manager does not discharge debts, obligations, or liabilities to the LLC that the person incurred as a manager.

45 — MEMBER ADVANCES AND SERVICES

The act requires an LLC to reimburse a member for an advance to the LLC beyond the capital the member agreed to contribute. It considers such a payment and other payments by a member to the LLC a loan.

Under the act, unless it is stated in the operating agreement, a member is not entitled to remuneration for services performed for a member-managed LLC except for reasonable compensation for services in winding up the LLC's activities.

46 — MEMBER, MANAGER, AND OFFICER LIABILITY PROTECTION

The act requires an LLC to reimburse a member of a member-managed LLC or manager of a manager-managed LLC for any payment made by them or in the course of their activities on behalf of the LLC, if they complied with the act's provisions on voting and duty of loyalty.

Prior law allowed an operating agreement to eliminate or limit a member's or manager's personal liability for monetary damages for a breach of duty to the LLC and indemnify a member or manager for judgments, settlements, penalties, fines, or expenses incurred in a proceeding due to their status as a party because of being a member or manager.

The act similarly allows an LLC to indemnify and hold harmless someone for acting as a member or manager as long as liability is not based on breaching duties regarding distributions, voting, or the duty of care or loyalty. It extends these provisions to officers.

The act requires an LLC to indemnify and hold harmless a person who was wholly successful in defending a proceeding with respect to a claim or demand based on the person's capacity as a member, manager, or officer. This applies to reasonable expenses, including attorney's fees and other costs. It applies to any threatened, pending, or completed action, arbitration, investigation, suit, or proceeding, whether civil, criminal, or administrative, and whether formal or informal.

The act also allows an LLC to advance reasonable expenses for these purposes as long as the person promises to repay them if he or she is not ultimately entitled to indemnification.

The act authorizes an LLC to have insurance on behalf of a member, manager, or officer against liability asserted against or incurred by the member, manager, or officer in that capacity or arising from that status even if the operating agreement could not eliminate or limit the person's liability to the LLC for the conduct.

47 — DUTY OF CARE AND LOYALTY TO AN LLC

As under existing law, a member or manager must discharge his or her duties in good faith with the care an ordinarily prudent person would use in similar circumstances and in the LLC's best interests. The act requires that members in a member-managed LLC and managers in a manager-managed LLC have a duty of loyalty, including:

1. accounting to the LLC and holding as trustee property, profit, or benefit from (a) conducting or winding up the LLC's affairs; (b) a member's use of the LLC's property; or (c) appropriating an LLC opportunity;

2. refraining from dealing with the LLC in conducting or winding up its affairs as, or on behalf of, a person with an adverse interest (but it provides a defense for a violation of this duty if the transaction was fair to the LLC and also provides that if the transaction is ratified, the member's rights and obligations as to the transaction are the same as those of a non-member); and

3. refraining from competing with the LLC in conducting its affairs.

The act requires members and managers to discharge their duties and obligations under the act's provisions or the operating agreement and exercise rights consistent with the implied contractual obligation of good faith and fair dealing. A member who is not acting as a manager does not violate these obligations solely because of conduct that furthers his or her own interest.

Prior law allowed a vote of at least half of disinterested managers or a majority in interest of disinterested members to approve a violation related to the duty to account to the LLC and hold property as trustee. The act allows a majority in interest of disinterested members, but not a majority of managers, to approve such a violation but expands their authority to allow the members to approve any violation of the duty of loyalty after full disclosure of all material facts.

48 — ACCESS TO LLC INFORMATION

The act replaces prior law on access to LLC information with more detailed provisions. It eliminates prior law, which (1) required an LLC to keep specific information at its principal place of business or a location stated in the operating agreement; (2) allowed members access to records during ordinary business hours; and (3) required members or managers, to the extent it was just and reasonable, to provide other members with true and full information of all things affecting them.

Member-Managed LLC Access Rules

The act imposes the below rules on a member-managed LLC.

1. On reasonable notice, a member may inspect and copy during regular business hours, at a reasonable location specified by the company, any record the LLC maintains about its activities, affairs, financial condition, and other circumstances to the extent the information is material to the member's rights and duties under the operating agreement or law.

2. An LLC must give each member (a) without demand, information about the LLC that it knows and that is material to the proper exercise of the member's rights and duties under the operating agreement or law, except if the LLC can establish that it reasonably believes the member already knows the information and (b) on demand, other information concerning the LLC, except if it is unreasonable or improper.

3. The duty to provide the above information also applies to each member if he or she knows any of the information.

Manager-Managed LLC Access Rules

The act imposes the below rules on a manager-managed LLC.

1. The right to information and duty to furnish information described above applies to the managers, but not members.

2. During regular business hours and at a reasonable location specified by the LLC, a member may inspect and copy information on the LLC's activities, affairs, financial condition, and other circumstances as is just and reasonable if the (a) member seeks the information for a purpose reasonably related to his or her interest as a member, (b) member makes a demand in a record received by the LLC that describes with reasonable particularity the information sought and the purpose for seeking it, and (c) information is directly connected to the member's purpose.

3. Within 10 days of receiving a member's demand, the LLC must inform the member in a record of the (a) information the LLC will provide and when and where it will be available and (b) LLC's reasons for declining to provide any of the demanded information.

4. When the act or operating agreement provides for a member to give or withhold consent to a matter, the LLC must, without demand, provide the member with all information that it knows and that is material to the member's decision before the member makes a decision.

Dissociated Member

If an LLC receives a demand from a dissociated member in the form of a record, the act requires the LLC to allow the dissociated member to access information he or she was entitled to as a member if the (1) information pertains to the period during which the person was a member, (2) information is sought in good faith, and (3) person satisfies the requirements imposed on a member described above.

The LLC must respond within 10 days that it will provide the information or with the reason for its denial.

Other Provisions

The act allows a member or dissociated member to exercise his or her rights to access information through an agent or, in the case of an individual under legal disability, a legal representative. These rights do not extend to a transferee, and a legal representative has certain rights on behalf of a member who dies.

In addition to a restriction or condition in the operating agreement, the act allows an LLC to impose reasonable restrictions and conditions on access to and use of information. This can include designating confidential information and imposing nondisclosure and safeguarding obligations on the recipient. The LLC must prove that a restriction is reasonable if there is a dispute.

The act allows an LLC to charge reasonable copying costs, limited to labor and material.

50 — TRANSFERABLE INTERESTS

The act adds provisions on transfers of interests, but it treats them similarly to prior provisions on assignments of interests, which the act repeals. Among its provisions, the act provides that (1) a transferee is not entitled to access LLC records except for an account of a dissolving LLC's transactions since the date of dissolution and (2) an LLC need not give effect to a transferee's rights until it knows or has notice of the transfer.

51 — CHARGING ORDERS

As under existing law, a judgment creditor of a member can ask a court to enter a charging order against the member's transferable interest for the unsatisfied amount of the judgment. The act applies this to any transferee as well.

The act adds a number of provisions related to charging orders.

1. A charging order is a lien on the transferable interest and requires the LLC to pay the creditor any distribution that otherwise would be paid to the member or transferee.

2. If necessary to collect distributions, the court may appoint a receiver and make other necessary orders.

3. The member or transferee may extinguish the charging order by satisfying the judgment and filing a certified copy of the satisfaction with the court.

4. The LLC or one or more members whose transferable interests are not subject to the charging order may pay the amount due under the judgment and succeed to the rights of the judgment creditor, including the charging order.

5. A charging order is the exclusive remedy to satisfy a judgment against a transferable interest.

53 — WRONGFUL DISSOCIATION

Under existing law, when a member's withdrawal breaches the operating agreement or occurs because of the member's wrongful conduct, the LLC can recover damages from the member.

The act also makes the withdrawing member liable to a member who brings a direct action against the person. And it also provides that a member's dissociation is wrongful if it occurs before completing the LLC's winding up and the member:

1. withdraws by express will;

2. is expelled by judicial order (see below);

3. is a trust that becomes dissociated because it distributes its entire transferable interest; or

4. is expelled or otherwise dissociated as a member because of a willful dissolution or termination, in the case of a person that is not a trust other than a business trust, an estate, or an individual.

54 — MEMBER WITHDRAWAL OR EXPULSION

Under prior law, a member could voluntarily withdraw, unless the operating agreement provided otherwise, by giving 30 days' written notice to the other members or other notice as the operating agreement allows. Unless the operating agreement states that a member cannot withdraw, the act allows a member to withdraw on the date of notice to the LLC or a later date the member specifies.

The act contains provisions similar to those in prior law on other types of member dissociation. Generally, situations such as a member's death, bankruptcy, or an entity's dissolution or termination dissociate a member. The act adds that a member ceases to be a member when the LLC participates in certain transactions (such as a merger).

The act makes many minor changes and, in some circumstances, changes the default rules that apply if the operating agreement does not address a particular type of dissociation (such as the voting requirement for dissociating a member in a particular circumstance).

Judicial Expulsion of a Member

The act adds provisions that allow the LLC or a member to seek a judicial order to expel a member who:

1. engages in wrongful conduct that has or will adversely and materially affect the LLC,

2. materially breaches the operating agreement or his or her duty in a willful or persistent manner, or

3. engages in conduct in the LLC's affairs that makes it not reasonably practicable to carry on the LLC's affairs with the person as a member.

55 — EFFECT OF MEMBER'S DISSOCIATION

When a person dissociates as a member, the act specifies that:

1. the person's right to participate as a member in the LLC's management and conduct of its affairs terminates;

2. if the LLC is member-managed, the person's duties and obligations as a member end with regard to matters arising and events occurring after the dissociation;

3. subject to other provisions, any transferable interest owned by the person in his or her capacity as a member immediately before dissociation is owned by the person solely as a transferee; and

4. dissociation does not discharge the person from any debt, obligation, or liability to the LLC or its other members that the person incurred while a member.

56 — LLC DISSOLUTION

Previously, one way an LLC dissolved was when the articles of organization or operating agreement designated an event to trigger dissolution, and that event occurred. The act provides that the event is designated in the operating agreement alone.

Prior law allowed a member, legal representative, or assignee to apply to court to wind up an LLC when a member or manager engaged in wrongful conduct or for other cause shown. The act instead allows a member to apply for a court-ordered dissolution because the (1) conduct of substantially all of the LLC's affairs is unlawful or (2) managers or members in control (a) have acted, are acting, or will act in an illegal or fraudulent manner or (b) have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant. (The court can order remedies other than dissolution. )

The act adds a new circumstance when dissolution may occur. Specifically, it occurs when the LLC has no members for 90 consecutive days unless, during that period, transferees with the right to receive a majority of the LLC's distributions consent to admit at least one specific person as a member, and at least one person becomes a member accordingly.

57 — WINDING UP A DISSOLVED LLC

The act provides that if a dissolved LLC has no members, the legal representative of the last member may wind up the LLC's affairs. If the legal representative does not do so, transferees with a majority in interest may appoint a person to wind up the LLC.

The act also allows a member or transferee to apply to court for judicial supervision of an LLC's winding up, including appointing a person to perform this function. A member must show good cause for court supervision and a transferee may only apply if the LLC has no members, the legal representative described above does not wind up the LLC, and the transferees do not appoint someone as described above. Courts can also act in other circumstances (see 56).

58 — REINSTATEMENT

Existing law allows a dissolved LLC to be reinstated. Previously, filing a certificate of reinstatement with the secretary began the LLC's legal existence. The act instead allows a reinstated LLC to resume its activities as if dissolution had not occurred, but the rights of a third party that relied on the dissolution before knowing or having notice of the reinstatement cannot be adversely affected.

59-62 — DISSOLVED LLC

Notice to Claimants and Court Proceeding ( 59-61)

The act makes minor changes to the way a dissolved LLC gives notice to known and unknown claimants.

It also adds a provision that allows the dissolved LLC to file an application with the Superior Court in the judicial district where its principal office is located or, if the office is not located in this state, where the office of its registered agent is located to determine the amount and form of security to be provided for payment of claims that (1) are contingent, (2) have not been made known, or (3) are based on an event occurring after the dissolution's effective date but which, based on the facts known to the dissolved company, are reasonably expected to arise. Security is not required for any claim that is or is reasonably anticipated to be barred.

The act requires the dissolved LLC to give notice of the judicial proceeding to each claimant holding a known contingent claim within 10 days of filing in court. The court can appoint a guardian ad litem to represent claimants whose identities are unknown. The dissolved LLC pays the guardian's reasonable fees and expenses, including reasonable expert witness fees.

Under the act, a dissolved LLC that provides the security ordered by the court satisfies its obligations with respect to these claims, and they cannot be enforced against a member or transferee that received assets in liquidation.

Distributions from a Dissolved LLC ( 62)

By law, a dissolved LLC must first distribute its assets to its creditors. Previously, any surplus was then paid to members and former members (1) in the same way they were entitled to distributions and (2) for the return of their contributions to the LLC and in proportion to their share of distributions. The act instead pays:

1. members and former members, subject to any charging order, first for their contributions received by the LLC and not returned, and then in shares proportionate to their transferable interests or

2. those with transferable interests in proportion to the value of their unreturned contributions, if assets cannot pay for all unreturned contributions.

The act requires these distributions to members and former members to be made only in money unless the operating agreement provides otherwise.

64 — DIRECT ACTION BY A MEMBER

The act authorizes a member's direct action against another member, a manager, or the LLC to enforce the member's rights and protect the member's interests, including rights and interests under the operating agreement or the act or arising independently of the membership relationship. The member must plead and prove an actual or threatened injury that is not solely from an injury suffered or threatened to be suffered by the LLC.

65-69 — DERIVATIVE ACTION BY A MEMBER

Prior law did not specifically address derivative actions, which are actions brought on the LLC's behalf. The act allows a member to bring a derivative action to enforce a right of the LLC if (1) the member makes a demand on the other members in a member-managed LLC or the managers of a manager-managed LLC, requesting that they cause the LLC to bring an action to enforce the right, and they do not do so within 90 days or (2) such a demand would be futile.

The complaint must state the date and content of the demand and the response the member received or why a demand should be excused as futile.

To bring the derivative action, the member must be a member at the time of bringing the action and either (1) was a member when the conduct giving rise to the action occurred or (2) became a member by law or under the operating agreement from a person who was a member at the time of the conduct.

Special Litigation Committee

The act allows an LLC involved in a derivative proceeding to appoint a special litigation committee to investigate and determine whether the action is in the LLC's best interests. If the committee makes a motion in the LLC's name, the court must stay discovery for the time reasonably necessary for the committee's investigation except for good cause. But the court may still (1) enforce a person's right to information under the act (see 48) or (2) grant a temporary restraining order or preliminary injunction.

A special litigation committee must consist of one or more disinterested individuals who may be members or managers.

In a member-managed LLC, a committee can be appointed by a majority in interest of members not named as parties in the proceeding. If all members are parties, a majority in interest of the members named as defendants can appoint the committee. In a manager-managed LLC, a majority of the managers not named as parties can appoint the committee; but if all managers are parties, then a majority of the managers named as defendants can do so.

After appropriate investigation, a committee may determine that it is in the LLC's best interests that the proceeding (1) continue under the plaintiff's control, (2) continue under the committee's control, (3) be settled on terms approved by the committee, or (4) be dismissed.

After making its determination, the committee must file with the court a statement and report supporting its determination and serve each party with a copy. The court must determine whether the (1) committee members were disinterested individuals and (2) committee conducted its investigation and made its recommendation in good faith, independently, and with reasonable care. The committee has the burden of proof. If the court makes these findings, it must enforce the committee's decision. Otherwise, the court dissolves the stay of discovery, and the action continues under the plaintiff's control.

Result of Derivative Action

Under the act, any benefits from the derivative action, including settlements, belong to the LLC, not the plaintiff, and a plaintiff must give the LLC any proceeds.

When the proceeding ends, the court may order:

1. the LLC to pay a plaintiff's expenses incurred in the proceeding if the proceeding's results substantially benefit the LLC;

2. the plaintiff to pay the defendant's expenses in defending the proceeding if the proceeding was commenced or maintained without reasonable cause or for an improper purpose; or

3. a party to pay an opposing party's expenses incurred because of filing a document in the case that was (a) not well grounded in fact after a reasonable inquiry or warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law and (b) used for an improper purpose, such as to harass, cause unnecessary delay, or needlessly increase litigation costs.

The act defines "expenses" as reasonable expenses incurred in connection with a matter, including reasonable attorney's fees.

The act prohibits voluntarily dismissing or settling a derivative action on behalf of an LLC without court approval.

70-79 — REGISTERED FOREIGN LLC

The act contains many of the same provisions as prior law requiring foreign LLCs to register with the secretary to do business in Connecticut.

It makes many minor changes and specifies that registration to transact business in Connecticut does not allow a foreign LLC to engage in activities or exercise powers in the state that a domestic LLC may not do ( 70).

Names ( 75)

Prior law required a foreign LLC registering in Connecticut to have a name that was distinguishable on the secretary's records or (1) add a distinguishing element to its name, (2) obtain permission from those who use or have reserved a similar name in Connecticut and agree to use a distinguishing element, or (3) use a name in Connecticut that is different from the one under which it is organized.

The act provides different rules if the foreign LLC's name is not distinguishable. It requires the foreign LLC to (1) adopt an alternate name, (2) use the LLC's name with the addition of its governing jurisdiction, or (3) use an assumed or fictitious name that complies with the law governing trade names.

Registration after Merger ( 76)

When a registered foreign LLC merges into a foreign entity that is not registered to transact business in Connecticut or converts to a foreign entity required to register with the secretary, the act requires the foreign entity to apply to the secretary for a registration transfer. The application must state:

1. the registered foreign LLC's name before the merger or conversion and that it was previously registered;

2. for the foreign entity the LLC is merging with or being converted into: its name and, if not distinguishable on the secretary's records, an alternate name that complies with the act's provisions; its entity type and governing jurisdiction; its principal office address and office address in its governing jurisdiction if that jurisdiction requires one; and its registered agent's name and address in Connecticut;

3. the name and business and residence addresses of a manager or a member of the foreign LLC (for good cause, the secretary may accept only a business address); and

4. the email address, if any, of the foreign LLC.

When an application for registration transfer takes effect, the registration of the foreign LLC to transact business in this state is transferred without interruption to the foreign entity into which the foreign LLC has merged or to which it is converted.

Service after Withdrawing Registration ( 78)

By law, a registered foreign LLC may withdraw its registration by filing with the secretary. Prior law required the foreign LLC to consent to the secretary accepting any service of process on the foreign LLC's behalf for causes of action arising in Connecticut during the time the foreign LLC was authorized to transact business in the state. The act instead requires it to designate an address to receive service by mail or commercial delivery service.

80-97 — LLC MERGERS AND INTEREST EXCHANGES

The act makes changes to the provisions governing mergers between LLCs, including mergers with foreign LLCs. It adds provisions about interest exchanges, which are transactions involving exchanging interests to merge businesses without merging the entities.

These changes generally make the merger and interest exchange provisions similar to those in the Entity Transaction Act, which governs mergers, interest exchanges, and other transactions between different types of business entities (e. g. , a merger between an LLC and a corporation) (CGS 34-600 to -646).

The act eliminates provisions on LLC consolidations, which prior law treated similarly to mergers.

General Provisions ( 81-86)

The act does the following:

1. requires a domestic or foreign LLC that must give notice to, or obtain the approval of, a Connecticut agency or officer for a merger to also do so for an interest exchange;

2. prohibits a domestic or foreign LLC that holds property for a charitable purpose under Connecticut law immediately before a merger's or interest exchange's effective date, from diverting the property from the objects for which it was donated, granted, or transferred (unless other law allows the LLC to notify the attorney general and obtain a court order specifying the disposition);

3. provides that a surviving LLC receives any bequest, devise, gift, grant, or promise in a will or other instrument of donation, subscription, or conveyance that (a) is made to the other LLC involved in the merger and (b) takes effect or remains payable after the merger ( 82);

4. makes a merger or interest exchange filing signed by an LLC part of the LLC's organizational documents ( 83);

5. provides that a merger or interest exchange transaction under the act's provisions that produces certain results does not prohibit accomplishing the same result in any other legally permitted manner ( 84);

6. does not prohibit an LLC's merger, conversion, or domestication under other laws ( 84);

7. allows a merger or interest exchange plan to refer to facts ascertainable outside the plan if the plan specifies how the facts will impact it ( 85); and

8. does not provide appraisal rights to members of LLCs involved in a merger or interest exchange except to the extent provided in the LLC's organizational documents or plan ( 86).

Professional Service LLCs ( 87)

Existing law allows a domestic LLC that provides professional services to merge with another domestic LLC that provides the same services. The act additionally (1) allows such a domestic LLC to merge with an LLC that renders two or more professional services, (2) allows mergers with foreign LLCs that render professional services under the same circumstances, and (3) applies these rules to interest exchanges.

Mergers ( 88-91)

Existing law allows LLCs to merge, whether they are domestic or foreign LLCs. For a merger to be effective, the act requires (1) each merging LLC's organic law (the law of the jurisdiction governing an LLC's internal affairs) to authorize the merger, (2) that the law governing each of the merging LLCs and federal law do not prohibit the merger, and (3) each of the merging LLCs to comply with its organic law in effecting the merger ( 88).

The act's requirements for the plan of merger are similar to those in prior law. It requires approval of a plan by a vote of two-thirds in interest of the members unless the certificate of organization or operating agreement requires otherwise. Previously, a plan could be abandoned after its approval by unanimous consent unless it provided another procedure or the operating agreement provided otherwise. The act allows a plan's amendment or abandonment (1) as provided in the plan or (2) except as prohibited in the plan, by a vote of two-thirds in interest of the members or as provided in the certificate of organization or operating agreement for plan approval ( 89).

The act renames the document that the LLCs must file with the secretary after approving a merger the “certificate of merger,” instead of “articles of merger. ” It requires this document to contain many of the same items as in prior law but (1) adds that it can include any information required under one of the merging LLC's organic law and that a surviving LLC that is a foreign LLC must list its office address and (2) eliminates a required statement that the merger plan be available at the surviving LLC's place of business and be available without cost to any person holding an interest in one of the merging LLCs ( 90).

The act makes numerous other minor changes to merger provisions.

Authorized Interest Exchanges ( 92)

The act allows an LLC to acquire all of one or more classes or series of transferable interests of a domestic or foreign LLC in exchange for interests, securities, obligations, money, other property, rights to acquire interests or securities, or any combination of them. Similarly, it allows an LLC's interests to be acquired by a domestic or foreign LLC. A foreign LLC can be involved in an interest exchange if the law of its governing jurisdiction allows it.

If a protected agreement has a provision that applies to a merger of a domestic LLC, but does not refer to an interest exchange, the act deems the provision to also apply to an interest exchange if the domestic LLC is the acquired entity until the protected agreement provision is amended. Under the act, a “protected agreement" is:

1. a record evidencing a debt and any related agreement in effect on or after July 1, 2017;

2. an agreement that is binding on a domestic or foreign LLC on or after July 1, 2017;

3. the organizational documents of an LLC in effect on or after July 1, 2017; or

4. an agreement that is binding on any of the domestic or foreign LLC's members or managers on or after July 1, 2017 ( 80).

Interest Exchange Plan ( 93)

The act allows an LLC to be acquired in an interest exchange if it approves an interest exchange plan in a record that contains:

1. the name of the acquired LLC;

2. the name and governing jurisdiction of the acquiring domestic or foreign LLC;

3. the manner of converting the transferable interests in the acquired LLC into interests, securities, obligations, money, other property, rights to acquire interests or securities, or any combination of them;

4. any proposed amendments to the certificate of organization or operating agreement that are, or are proposed to be, in a record of the acquired LLC;

5. the interest exchange's other terms and conditions; and

6. any other provision required by Connecticut law or the acquired LLC's organizational documents.

The plan may contain any other provisions not prohibited by law.

Interest Exchange Approval ( 94)

Unless the LLC's certificate of organization or operating agreement provides otherwise, the act requires approval of an interest exchange plan by two-thirds in interest of the members of an acquired LLC entitled to vote on any matter. An interest exchange involving a foreign LLC requires approval according to the law governing the foreign LLC. The members of the domestic or foreign acquiring LLC are not required to approve an interest exchange unless the LLC's governing law or organizational documents require it.

Interest Exchange Plan Amendment or Abandonment ( 95)

The act requires each party to an interest exchange plan to consent to its amendment unless the plan provides otherwise.

An acquired LLC can approve an amendment in the same way it approved the plan if the plan does not specify how it can be amended. The LLC's managers or members can also approve an amendment as provided in the plan but a member who was entitled to vote on or consent to approval of the interest exchange is entitled to vote on or consent to any amendment of the plan that will change:

1. the amount or type of property to be received by any members of the acquired LLC;

2. the certificate of organization or operating agreement of the acquired LLC that will be in effect immediately after the interest exchange becomes effective, except for changes that do not require approval of the members of the acquired LLC under the act's provisions or the operating agreement; or

3. any other plan term or condition if the change would adversely affect the member in a material way.

The act allows parties to abandon the plan, in a manner specified in the plan, any time after approval and before a certificate of interest exchange takes effect. Unless prohibited by the plan, an acquired LLC can abandon a plan in the same manner as it was approved.

An acquired LLC must deliver a signed certificate of abandonment to the secretary if a plan is abandoned after a certificate of interest exchange is delivered but before it is effective. A certificate of abandonment is effective on filing. It must state (1) the acquired LLC's name, (2) the date the certificate of interest exchange was delivered to the secretary, and (3) that the interest exchange is abandoned.

Certificate of Interest Exchange ( 96)

The act requires an acquired LLC to sign and deliver a certificate of interest exchange to the secretary for filing. The certificate must state:

1. the acquired LLC's name;

2. the name and governing jurisdiction of the acquiring domestic or foreign LLC;

3. that the acquired LLC approved the interest exchange plan;

4. when it takes effect, if the certificate of interest exchange is not effective upon filing; and

5. any amendments to the acquired LLC's certificate of organization approved as part of the plan.

The certificate may contain any other provision not prohibited by law.

An interest exchange plan signed by an acquired LLC that has the same information can be delivered to the secretary instead of a certificate.

An interest exchange is effective when the certificate is effective (either upon filing or on a specified date within 90 days of filing (see 31)).

Effect of Interest Exchange ( 97)

Under the act, when an interest exchange in which the acquired entity is an LLC becomes effective:

1. transferable interests in the LLC that are the subject of the interest exchange cease to exist, or are converted or exchanged, and the members holding those interests are entitled only to the rights provided to them under the interest exchange plan and the act's appraisal rights;

2. the acquiring domestic or foreign LLC becomes the holder of the transferable interests in the acquired LLC as set forth in the plan;

3. the acquired LLC's certificate of organization is amended as provided in the certificate of interest exchange; and

4. provisions of the acquired LLC's operating agreement must be in a record, if any are amended as provided for in the interest exchange plan.

Except as otherwise provided in the acquired LLC's operating agreement, the interest exchange does not give rise to any rights that a member, manager, or third party would otherwise have in a dissolution, liquidation, or winding up of the acquired LLC.

The act provides that the transferable interests in an LLC that are to be exchanged under the plan's terms are exchanged, and the former holders of them have the rights provided in the plan and any appraisal rights they have under the act and the acquired LLC's governing law.

OTHER PROVISIONS

The act does not impair existing contracts or affect any proceedings begun or rights accrued before it takes effect. This also applies to future amendments to the LLC laws ( 102).

The act makes a number of changes to provisions on notice and knowledge of facts ( 3).

It also eliminates a number of specific provisions, including those:

1. authorizing the secretary to submit interrogatories to and require answers from an LLC to ascertain compliance with the LLC law and for a fine of up to $500 for an LLC, member, or manager who fails to answer fully and truthfully;

2. on voting to allow a lawsuit on behalf of the LLC to be brought by (a) a manager of a manager-managed LLC or (b) a member or members, regardless of how the LLC is managed; and

3. authorizing an LLC to conduct any type of business during a time of war or national emergency at a government authority's direction.

Professional Services-Registered Limited Liability Partnership (LLP) ( 2 & 104)

By law, a registered LLP can consist of partners who render professional services, and it must maintain at least $250,000 of professional liability insurance. The act adds physician assistants to the list of services such an LLP can provide.

Names of LLPs and Statutory Trusts ( 105 & 106)

The act's changes on reserving entity names also apply to domestic and foreign registered LLPs and statutory trusts.

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