HB 1414: Limited liability companies; permit creation of protected series and registered series

House Bill 1414

By: Representatives Reeves of the 99th, Efstration of the 104th, Hong of the 103rd, Holcomb of the 101st, Evans of the 57th, and others

A BILL TO BE ENTITLED

AN ACT

To amend Chapter 11 of Title 14 of the Official Code of Georgia Annotated, relating to limited liability companies, so as to permit the creation of protected series and registered series of a limited liability company; to provide for procedures for creation of such series; to provide for the records of such series; to provide for the assets property owned by such series; to provide for the debts, obligations, liabilities of such series; to provide for members and managers of such series; to provide for the powers of members and managers; to provide for interests in such series; to provide for distributions; to provide for termination and winding up of such series; to provide for certain filings with the Secretary of State; to provide for conversion of a protected series to a registered series and of a registered series to a protected series; to provide for consolidation of series; to provide for merger of registered series; to provide for definitions; to provide for related matters; to repeal conflicting laws; and for other purposes.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:

SECTION 1.

Chapter 11 of Title 14 of the Official Code of Georgia Annotated, relating to limited liability companies, is amended by adding a new article to read as follows: "ARTICLE 12

14-11-1200.

As used in this article, the term:

(1) 'Protected series' means a designated series of members, managers, limited liability company interests or assets created through the operating agreement of a limited liability company and meeting the conditions of Code Section 14-11-1203.

(2) 'Registered series' means a designated series of members, managers, limited liability company interests, or assets created through filing a certificate of registered series with the Secretary of State pursuant to Code Section 14-11-1204.

(3) 'Series' means a protected series, a registered series, or a designated series of members, managers, limited liability company interests, or assets that is neither a protected series nor a registered series.

14-11-1201.

(a) An operating agreement may establish or provide for the establishment of one or more protected series or registered series.

(b) A series may have separate rights, powers, or duties with respect to specified property or obligations of the limited liability company or profits and losses associated with specified property or obligations, and may have a separate business purpose or investment objective.

(c) This article shall not be construed to limit the principle of freedom of contract to a series that is not a protected series or a registered series.

(d) No series may merge, convert, or consolidate except pursuant to this article. 14-11–1202.

(a) This Code section applies to any protected or registered series. For purposes of this article, records that reasonably identify the assets of a series by any objectively determinable method shall be deemed to account for such assets separately from the assets of the limited liability company or any other series.

(b) A series may carry on any lawful business purpose, or activity, whether or not for profit, except business pursuant to Title 7. Unless provided for in the operating agreement, a series shall have the power and capacity to, in its own name:

(1) Contract;

(2) Hold title to real, personal, and intangible property;

(3) Grant liens and security interests; and

(4) Sue and be sued.

(c) No member of a series shall be obligated personally for any debt, obligation, or liability of such series, whether arising in contract, tort, or through other means, solely by reason of being a member or manager of such series; provided, however, that a member or manager may agree to be personally obligated under the operating agreement of the limited liability company.

(d)(1) An operating agreement may:

(A) Provide for classes or groups of members or managers associated with a series having such relative rights, powers, and duties as the operating agreement may provide, including the creation of additional classes;

(B) Provide for the taking of an action without the approval of any member or manager, including an action to create a series;

(C) Provide that any member or class of member associated with a series shall have no voting rights; and

(D) Grant members or managers the right to vote on any matter separately or with any class.

(2) Unless provided in the operating agreement, management of a series shall be vested in its members in proportion to their interests in the profits of the series. The decision of a majority of all members shall be binding.

(3) If an operating agreement provides for management by a manager, the manager shall be chosen and hold office as provided in the operating agreement. A series may have more than one manager. A manager ceasing to be manager of a series shall not cease to be a manager of the limited liability company or any other series of such company. (e)(1) Notwithstanding Code Section 14-11-407, a limited liability company may make a distribution with respect to a series.

(2) A limited liability company shall not make a distribution to a member if all liabilities of the series, other than liabilities to members on account of their interests and liabilities for specified property, exceed the fair value of the series's assets; provided, however, that property subject to limited-recourse liability shall be included only to the extent its fair value exceeds that liability.

(3) A distribution shall not include reasonable compensation for services or payments in the ordinary course pursuant to a retirement or benefits program.

(4) A member who knowingly receives a distribution in violation of this subsection shall be liable to the series for the amount of the distribution. A member who unknowingly receives such distribution shall not be liable.

(5) This subsection shall not affect any obligation of a member under an operating agreement or other applicable law.

(f) When a member is entitled to a distribution from a series, the member shall have the status and remedies of a creditor of the series. An operating agreement may establish a record date for allocations and distributions.

(g) Unless otherwise provided in the operating agreement:

(1) A member shall cease to be associated with a series upon assignment of all of such member's interest in the series; and

(2) An event causing a member to cease to be associated with a series shall not cause the member to cease to be associated with any other series or terminate the member's membership in the limited liability company or cause the termination of the series.

(h) A series is an association for all purposes of the laws of this state, regardless of the number of its member or managers.

(i)(1) Subject to Article 6 of this title, and except as provided in the operating agreement, a series may be terminated and its affairs wound up without dissolving the limited liability company. Termination shall not affect the limitation of liability provided by this article.

(2) A series is terminated and its affairs shall be wound up upon the dissolution of the limited liability company or upon the first to occur of:

(A) The time specified in the operating agreement;

(B) The occurrence of an event specified in the operating agreement;

(C) The vote or consent of members owning more than two-thirds of the interests in the profits of the series, except otherwise provided in the operating agreement; or

(D) Judicial termination pursuant to paragraph (4) of this subsection.

(3) Unless otherwise provided in the operating agreement, a manager who has not wrongfully terminated the series, or if none, the members or a person approved by them may wind up the affairs of the series. The superior court of the county of the registered agent may wind up upon application by any member, manager, personal representative, or assignee, and may appoint a liquidating trustee. Those winding up such series may take all permitted actions in the name of the limited liability company and series and shall provide for claims and distribution of assets pursuant to Code Section 14-11-605. Actions in accordance with this paragraph shall not impose liability on a liquidating trustee.

(4) Upon application by or for a member or manager, a superior court may decree termination whenever it is not reasonably practicable to conduct the business of the series in conformity with the operating agreement.

(j)(1) If an operating agreement provides a manner for revoking termination, it may be revoked accordingly.

(2) Unless the limited liability company has dissolved without revocation or the operating agreement prohibits revocation, termination may be revoked prior to completion of winding up:

(A) In case of termination by vote or consent, pursuant to such vote or consent; or

(B) In the case of termination by event or time, pursuant to the vote or consent required to amend the operating agreement provision causing termination.

(k) A foreign limited liability company registering in this state whose operating agreement establishes or provides for the establishment of a protected series or registered series shall state such provision on its application and shall disclose:

(1) Whether the debts, liabilities, and obligations of a series are enforceable only against such series's assets and not against the assets of the foreign limited liability company or other series; and

(2) Whether the debts, liabilities, and obligations of the limited liability company generally or of any other series are enforceable against the assets of a series.

14-11-1203.

(a) A protected series is established when the operating agreement provides for its creation, the records maintained for the series account for its assets separately from the assets of the limited liability company and any other series, and notice of the limitation of liabilities of a series is set forth in the articles of organization.

(b) When the conditions of subsection (a) are met, the debts, liabilities, obligations, and expenses of the protected series shall be enforceable against such series's assets only, and not against the assets of the limited liability company or any other series.

(c) Unless otherwise provided in the operating agreement, none of the debts, liabilities, obligations, or expenses of the limited liability company or any other series shall be enforceable against the assets of a protected series.

(d) This article shall not restrict:

(1) A protected series from agreeing that debts of the limited liability company or any other series shall be enforceable against such protected series's assets; or

(2) A limited liability company from agreeing that debts of a protected series shall be enforceable against its general assets.

(e) Assets of a protected series may be held in the name of the series, the limited liability company, a nominee, or as otherwise determined by the operating agreement.

(f) The notice required by subsection (a) of this Code section need not reference any specific series or use the term 'protected' or cite this Code section, and is sufficient whether or not any series has been established when included in the articles of organization.

14-11-1204.

(a)(1) A registered series is formed by filing a certificate of registered series with the Secretary of State.

(2) A certificate of registered series shall include the names of the limited liability company and the registered series and may include other information deemed appropriate by the Secretary of State.

(3) A certificate of registered series shall be effective upon filing unless a later date is specified. Such certificate shall not amend the articles of organization.

(4) A certificate of registered series may be amended by filing a certificate of amendment with the Secretary of State stating the name of the limited liability company, the name of the registered series, and the amendment.

(5) A manager, or if none, any member, who becomes aware of false or changed material information shall promptly amend the certificate of registered series.

(6) A certificate of registered series may be amended at any time for any purpose.

(7) An amendment to a certificate of registered series is effective when filed unless a later date is specified.

(8) A certificate of registered series shall be canceled upon:

(A) Cancellation of the articles of organization of the limited liability company named in the certificate of registered series;

(B) Filing or future effective date of a certificate of cancellation;

(C) Filing or future effective date of a certificate of merger or consolidation if the series is not the surviving or resulting registered series; or

(D) Filing or future effective date of a certificate of conversion to a protected series.

(9) A certificate of cancellation may be filed upon the termination and completion of winding up and shall state the names of the limited liability company and registered series, the date of the original certificate, the future effective date, if applicable, and any other information deemed necessary by the Secretary of State.

(10) An erroneously filed certificate of cancellation may be corrected by filing a certificate of correction.

(11) The Secretary of State shall not issue a certificate of good standing for a registered series if its certificate is canceled or the limited liability company is not in good standing. (b)(1) The name of a registered series shall:

(A) Begin with the name of the limited liability company;

(B) Be distinguishable in the records of the Secretary of State from any other corporation, partnership, limited partnership, statutory trust, limited liability company, or registered series; provided, however, that registration under a nondistinguishable name is permitted with written consent filed with the Secretary of State; and

(C) Not contain the term 'bank' except in a context clearly not referring to a Title 7 business.

(2) The name of a registered series may contain the name of a member or a manager.

(c) When the records of a registered series account for such registered series's assets separately from those of the limited liability company and other series, the debts, liabilities, obligations, and expenses of the registered series shall be enforceable against such registered series's assets only and not against the assets of the limited liability company or other series. None of the debts of the limited liability company or other series shall be enforceable against the assets of a registered series unless provided for in the operating agreement.

(d) This article shall not restrict:

(1) A registered series from agreeing that debts of the limited liability company or any other series shall be enforceable against its assets; or

(2) A limited liability company from agreeing that debts of a registered series shall be enforceable against its general assets.

(e) Assets of a registered series may be held in the name of the registered series, the limited liability company, a nominee, or as otherwise provided in the operating agreement.

(f) Notice in the articles of organization of the limitation of liabilities of a registered series is sufficient for all purposes whether or not any series has been formed and need not reference any specific series or cite this article. Any reference to Code Section 14-11-1203 in the articles of organization shall be deemed a reference to this Code section with respect to a registered series. The filing of the articles of organization containing such notice shall constitute notice of such limitation.

(g)(1) In addition to the provisions provided in subsection (j) of Code Section 14-11-1202, if the operating agreement provides a manner for revoking termination of a registered series, such termination may be revoked accordingly, and unless the limited liability company has dissolved without revocation or the operating agreement prohibits revocation, the registered series shall not be terminated prior to filing a certificate of cancellation.

(2) A registered series is continued upon:

(A) A vote or consent, in the case of termination by vote or consent; or

(B) The vote or consent required to amend the provision of the operating agreement causing the termination in the case of termination under subparagraph (i)(2)(A) or (B) of Code Section 14-11-1202.

(3) If a registered series is terminated by the dissolution of the limited liability company, such termination shall be automatically revoked upon revocation of the limited liability company's dissolution unless a certificate of cancellation has been filed or the operating agreement prohibits the revocation.

14-11-1205.

(a) A protected series may convert to a registered series by filing with the Secretary of State:

(1) An executed certificate of conversion; and

(2) An executed certificate of registered series.

(b) The certificate of conversion and certificate of registered series shall be filed simultaneously and, if not effective upon filing, shall provide for the same effective date.

(c) An existing protected series may not become a registered series except pursuant to this subsection.

(d) If the operating agreement specifies the manner of authorizing such conversion, it shall be authorized accordingly. Otherwise such conversion shall by authorized by a majority of all members of the protected series if not prohibited by the operating agreement.

14-11-1206.

(a) A registered series may convert to a protected series. A registered series shall not become a protected series except pursuant to this subsection.

(b) If the operating agreement specifies the manner of authorizing such conversion, it shall be authorized accordingly. Otherwise such conversion shall be authorized by a majority of all members of the registered series if not prohibited by the operating agreement.

(c) The registered series shall file an executed certificate of conversion with the Secretary of State.

14-11-1207.

(a) Unless provided in the operating agreement, a conversion agreement shall not require the series to wind up or distribute assets and shall not constitute a dissolution of the limited liability company or termination of the series. The converted series shall be the same series and a continuation of the converting series.

(b) Interests in the converting series may be exchanged for or converted into cash, property, or interests in the converted series or any other entity, may remain outstanding, or may be canceled.

(c) An executed certificate of conversion shall include:

(1) The name of the limited liability company and, if changed, the original name;

(2) The date of filing the original articles of organization;

(3) The name of the converting series and, if changed, the original name;

(4) The date the converting series was established or, if a registered series, the date its certificate of registered series was filed;

(5) The name of the converted series;

(6) The future effective date, if applicable; and

(7) That the conversion has been authorized pursuant to this Code section.

(d) All rights, privileges, powers, property, and debts of the converting series shall remain vested in the converted series. Title to real property shall not revert or be impaired.

(e) All rights of creditors and liens shall be preserved unimpaired. All debts, liabilities, and duties shall remain attached and enforceable against the converted series.

(f) Property, debts, and duties shall not be deemed transferred.

(g) An operating agreement may prohibit conversion.

14-11-1208.

(a) Pursuant to a written agreement, one or more registered series of the same limited liability company may merge with one or more other registered series of such company, and such agreement shall be provided to the surviving series.

(b) An agreement of merger shall be approved by each merging registered series by a majority of members unless otherwise provided in the operating agreement.

(c) Interests in a merging registered series may be exchanged for or converted into cash, property, or interests in the surviving series or any other entity, may remain outstanding, or may be canceled.

(d) The surviving series shall file a certificate of merger, which shall include:

(1) The names of each merging registered series and the limited liability company;

(2) That an agreement of merger has been approved and executed by each merging registered series;

(3) The name of the surviving series;

(4) Any amendments to the certificate of registered series of the surviving series;

(5) The future effective date, if applicable;

(6) The address where the agreement of merger is on file; and

(7) That a copy shall be furnished upon request without cost.

(e) A merger is effective upon filing with the Secretary of State unless a later date is specified.

(f) A certificate of merger shall act as a certificate of cancellation for each nonsurviving series. A certificate setting forth amendments under paragraph (4) of subsection (d) of this Code section shall be deemed an amendment to the surviving series's certificate.

(g) An agreement of merger may amend provisions of the operating agreement relating solely to the constituent series, effective upon merger.

(h)(1) All rights, privileges, powers, property, and debts of each merging series shall remain vested in the surviving series. Title to real property shall not revert or be impaired.

(2) All rights of creditors and liens shall be preserved unimpaired. All debts, liabilities, and duties shall remain attached and enforceable against the surviving series.

(3) Property, debts, and duties shall not be deemed transferred.

(i) An operating agreement may prohibit merger.

SECTION 2.

All laws and parts of laws in conflict with this Act are repealed.