HB1414: HB1414 Limited liability companies; permit creation of protected series and registered series

26 LC 62 0358 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 to1 limited liability companies, so as to permit the creation of pr otected series and registered2 series of a limited liability company; to provide for procedures for creation of such series;3 to provide for the records of such series; to provide for the a ssets property owned by such4 series; to provide for the debts, obligations, liabilities of such series; to provide for members5 and managers of such series; to provide for the powers of members and managers; to provide6 for interests in such series; to provide for distributions; to provide for termination and7 winding up of such series; to provide for certain filings with the Secretary of State; to provide8 for conversion of a protected series to a registered series and of a registered series to a9 protected series; to provide for consolidation of series; to pr ovide for merger of registered10 series; to provide for definitions; to provide for related matters; to repeal conflicting laws;11 and for other purposes.12 BE IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:13 SECTION 1.14 Chapter 11 of Title 14 of the Official Code of Georgia Annotated, relating to limited liability15 companies, is amended by adding a new article to read as follows:16 H. B. 1414 - 1 - 26 LC 62 0358 "ARTICLE 1217 14-11-1200.18 As used in this article, the term:19 (1) 'Protected series' means a designated series of members, managers, limited liability20 company interests or assets created through the operating agreement of a limited liability21 company and meeting the conditions of Code Section 14-11-1203.22 (2) 'Registered series' means a designated series of members, managers, limited liability23 company interests, or assets created through filing a certificate of registered series with24 the Secretary of State pursuant to Code Section 14-11-1204.25 (3) 'Series' means a protected series, a registered series, or a d e s i g n a t e d s e r i e s o f26 members, managers, limited liability company interests, or asse ts that is neither a27 protected series nor a registered series.28 14-11-1201.29 (a) An operating agreement may establish or provide for the establishment of one or more30 protected series or registered series.31 (b) A series may have separate rights, powers, or duties with respect to specified property32 or obligations of the limited liability company or profits and losses associated with33 specified property or obligations, and may have a separate business purpose or investment34 objective.35 (c) This article shall not be construed to limit the principle of freedom of contract to a36 series that is not a protected series or a registered series.37 (d) No series may merge, convert, or consolidate except pursuant to this article.38 14-11–1202.39 (a) This Code section applies to any protected or registered s eries. For purposes of this40 article, records that reasonably identify the assets of a serie s by any objectively41 H. B. 1414 - 2 - 26 LC 62 0358 determinable method shall be deemed to account for such assets separately from the assets42 of the limited liability company or any other series.43 (b) A series may carry on any lawful business purpose, or acti vity, whether or not for44 profit, except business pursuant to Title 7. Unless provided for in the operating agreement,45 a series shall have the power and capacity to, in its own name:46 (1) Contract;47 (2) Hold title to real, personal, and intangible property;48 (3) Grant liens and security interests; and49 (4) Sue and be sued.50 (c) No member of a series shall be obligated personally for any debt, obligation, or liability51 of such series, whether arising in contract, tort, or through other means, solely by reason52 of being a member or manager of such series; provided, however, that a member or53 manager may agree to be personally obligated under the operating agreement of the limited54 liability company.55 (d)(1) An operating agreement may:56 (A) Provide for classes or groups of members or managers assoc iated with a series57 having such relative rights, powers, and duties as the operating agreement may provide,58 including the creation of additional classes;59 (B) Provide for the taking of an action without the approval o f any member or60 manager, including an action to create a series;61 (C) Provide that any member or class of member associated with a series shall have no62 voting rights; and63 (D) Grant members or managers the right to vote on any matter separately or with any64 class.65 (2) Unless provided in the operating agreement, management of a series shall be vested66 in its members in proportion to their interests in the profits of the series. The decision of67 a majority of all members shall be binding.68 H. B. 1414 - 3 - 26 LC 62 0358 (3) If an operating agreement provides for management by a manager, the manager shall69 be chosen and hold office as provided in the operating agreemen t. A series may have70 more than one manager. A manager ceasing to be manager of a series shall not cease to71 be a manager of the limited liability company or any other series of such company.72 (e)(1) Notwithstanding Code Section 14-11-407, a limited liability company may make73 a distribution with respect to a series.74 (2) A limited liability company shall not make a distribution to a member if all liabilities75 of the series, other than liabilities to members on account of their interests and liabilities76 for specified property, exceed the fair value of the series's assets; provided, however, that77 property subject to limited-recourse liability shall be included only to the extent its fair78 value exceeds that liability.79 (3) A distribution shall not include reasonable compensation f or services or payments80 in the ordinary course pursuant to a retirement or benefits program.81 (4) A member who knowingly receives a distribution in violation of this subsection shall82 be liable to the series for the amount of the distribution. A member who unknowingly83 receives such distribution shall not be liable.84 (5) This subsection shall not affect any obligation of a membe r under an operating85 agreement or other applicable law.86 (f) When a member is entitled to a distribution from a series, the member shall have the87 status and remedies of a creditor of the series. An operating agreement may establish a88 record date for allocations and distributions.89 (g) Unless otherwise provided in the operating agreement:90 (1) A member shall cease to be associated with a series upon assignment of all of such91 member's interest in the series; and92 (2) An event causing a member to cease to be associated with a series shall not cause the93 member to cease to be associated with any other series or termi nate the member's94 membership in the limited liability company or cause the termination of the series.95 H. B. 1414 - 4 - 26 LC 62 0358 (h) A series is an association for all purposes of the laws of this state, regardless of the96 number of its member or managers.97 (i)(1) Subject to Article 6 of this title, and except as provided in the operating agreement,98 a series may be terminated and its affairs wound up without dis solving the limited99 liability company. Termination shall not affect the limitation of liability provided by this100 article.101 (2) A series is terminated and its affairs shall be wound up upon the dissolution of the102 limited liability company or upon the first to occur of:103 (A) The time specified in the operating agreement;104 (B) The occurrence of an event specified in the operating agreement;105 (C) The vote or consent of members owning more than two-thirds of the interests in106 the profits of the series, except otherwise provided in the operating agreement; or107 (D) Judicial termination pursuant to paragraph (4) of this subsection.108 (3) Unless otherwise provided in the operating agreement, a ma nager who has not109 wrongfully terminated the series, or if none, the members or a person approved by them110 may wind up the affairs of the series. The superior court of the county of the registered111 agent may wind up upon application by any member, manager, personal representative,112 or assignee, and may appoint a liquidating trustee. Those wind ing up such series may113 take all permitted actions in the name of the limited liability company and series and shall114 provide for claims and distribution of assets pursuant to Code Section 14-11-605. 115 Actions in accordance with this paragraph shall not impose liab ility on a liquidating116 trustee.117 (4) Upon application by or for a member or manager, a superior court may decree118 termination whenever it is not reasonably practicable to conduct the business of the series119 in conformity with the operating agreement.120 (j)(1) If an operating agreement provides a manner for revoking termination, it may be121 revoked accordingly.122 H. B. 1414 - 5 - 26 LC 62 0358 (2) Unless the limited liability company has dissolved without revocation or the123 operating agreement prohibits revocation, termination may be re voked prior to124 completion of winding up:125 (A) In case of termination by vote or consent, pursuant to such vote or consent; or126 (B) In the case of termination by event or time, pursuant to the vote or consent required127 to amend the operating agreement provision causing termination.128 (k) A foreign limited liability company registering in this state whose operating agreement129 establishes or provides for the establishment of a protected series or registered series shall130 state such provision on its application and shall disclose:131 (1) Whether the debts, liabilities, and obligations of a series are enforceable only against132 such series's assets and not against the assets of the foreign limited liability company or133 other series; and134 (2) Whether the debts, liab ilities, and obligations of the lim ited liability company135 generally or of any other series are enforceable against the assets of a series.136 14-11-1203.137 (a) A protected series is established when the operating agree ment provides for its138 creation, the records maintained for the series account for its assets separately from the139 assets of the limited liability company and any other series, and notice of the limitation of140 liabilities of a series is set forth in the articles of organization.141 (b) When the conditions of subsection (a) are met, the debts, liabilities, obligations, and142 expenses of the protected series shall be enforceable against such series's assets only, and143 not against the assets of the limited liability company or any other series.144 (c) Unless otherwise provided in the operating agreement, none of the debts, liabilities,145 obligations, or expenses of the limited liability company or an y other series shall be146 enforceable against the assets of a protected series.147 (d) This article shall not restrict:148 H. B. 1414 - 6 - 26 LC 62 0358 (1) A protected series from agreeing that debts of the limited liability company or any149 other series shall be enforceable against such protected series's assets; or150 (2) A limited liability company from agreeing that debts of a protected series shall be151 enforceable against its general assets.152 (e) Assets of a protected series may be held in the name of the series, the limited liability153 company, a nominee, or as otherwise determined by the operating agreement.154 (f) The notice required by subsection (a) of this Code section need not reference any155 specific series or use the term 'protected' or cite this Code section, and is sufficient whether156 or not any series has been established when included in the articles of organization.157 14-11-1204.158 (a)(1) A registered series is formed by filing a certificate o f registered series with the159 Secretary of State.160 (2) A certificate of registered series shall include the names of the limited liability161 company and the registered series and may include other information deemed appropriate162 by the Secretary of State.163 (3) A certificate of registered series shall be effective upon filing unless a later date is164 specified. Such certificate shall not amend the articles of organization.165 (4) A certificate of registered series may be amended by filin g a certificate of166 amendment with the Secretary of State stating the name of the limited liability company,167 the name of the registered series, and the amendment.168 (5) A manager, or if none, any member, who becomes aware of false or changed material169 information shall promptly amend the certificate of registered series.170 (6) A certificate of registered series may be amended at any time for any purpose.171 (7) An amendment to a certificate of registered series is effe ctive when filed unless a172 later date is specified.173 (8) A certificate of registered series shall be canceled upon:174 H. B. 1414 - 7 - 26 LC 62 0358 (A) Cancellation of the articles of organization of the limited liability company named175 in the certificate of registered series;176 (B) Filing or future effective date of a certificate of cancellation;177 (C) Filing or future e ffective date of a certificate of merger or consolidation if the178 series is not the surviving or resulting registered series; or179 (D) Filing or future effective date of a certificate of conversion to a protected series.180 (9) A certificate of cancellation may be filed upon the termin ation and completion of181 winding up and shall state the names of the limited liability c ompany and registered182 series, the date of the original certificate, the future effective date, if applicable, and any183 other information deemed necessary by the Secretary of State.184 (10) An erroneously filed certificate of cancellation may be c orrected by filing a185 certificate of correction.186 (11) The Secretary of State shall not issue a certificate of good standing for a registered187 series if its certificate is canceled or the limited liability company is not in good standing.188 (b)(1) The name of a registered series shall:189 (A) Begin with the name of the limited liability company;190 (B) Be distinguishable in the records of the Secretary of Stat e from any other191 corporation, partnership, limited partnership, statutory trust, limited liability company,192 or registered series; provided, however, that registration unde r a nondistinguishable193 name is permitted with written consent filed with the Secretary of State; and194 (C) Not contain the term 'bank' except in a context clearly no t referring to a Title 7195 business.196 (2) The name of a registered series may contain the name of a member or a manager.197 (c) When the records of a registered series account for such r egistered series's assets198 separately from those of the limited liability company and other series, the debts, liabilities,199 obligations, and expenses of the registered series shall be enf orceable against such200 registered series's assets only and not against the assets of the limited liability company or201 H. B. 1414 - 8 - 26 LC 62 0358 other series. None of the debts of the limited liability compa ny or other series shall be202 enforceable against the assets of a registered series unless pr ovided for in the operating203 agreement.204 (d) This article shall not restrict:205 (1) A registered series from agreeing that debts of the limited liability company or any206 other series shall be enforceable against its assets; or207 (2) A limited liability company from agreeing that debts of a registered series shall be208 enforceable against its general assets.209 (e) Assets of a registered series may be held in the name of t he registered series, the210 limited liability company, a nominee, or as otherwise provided in the operating agreement.211 (f) Notice in the articles of organization of the limitation of liabilities of a registered series212 is sufficient for all purposes whether or not any series has be en formed and need not213 reference any specific series or cite this article. Any reference to Code Section 14-11-1203214 in the articles of organization shall be deemed a reference to this Code section with respect215 to a registered series. The filing of the articles of organization containing such notice shall216 constitute notice of such limitation.217 (g)(1) In addition to the provisions provided in subsection (j ) of Code Section218 14-11-1202, if the operating agreement provides a manner for re voking termination of219 a registered series, such termination may be revoked accordingly, and unless the limited220 liability company has dissolved without revocation or the operating agreement prohibits221 revocation, the registered series shall not be terminated prior to filing a certificate of222 cancellation.223 (2) A registered series is continued upon:224 (A) A vote or consent, in the case of termination by vote or consent; or225 (B) The vote or consent required to amend the provision of the operating agreement226 causing the termination in the case of termination under subparagraph (i)(2)(A) or (B)227 of Code Section 14-11-1202.228 H. B. 1414 - 9 - 26 LC 62 0358 (3) If a registered series is terminated by the dissolution of the limited liability company,229 such termination shall be automatically revoked upon revocation of the limited liability230 company's dissolution unless a certificate of cancellation has been filed or the operating231 agreement prohibits the revocation.232 14-11-1205.233 (a) A protected series may convert to a registered series by f iling with the Secretary of234 State:235 (1) An executed certificate of conversion; and236 (2) An executed certificate of registered series.237 (b) The certificate of conversion and certificate of registere d series shall be filed238 simultaneously and, if not effective upon filing, shall provide for the same effective date.239 (c) An existing protected series may not become a registered series except pursuant to this240 subsection.241 (d) If the operating agreement specifies the manner of authorizing such conversion, it shall242 be authorized accordingly. Otherwise such conversion shall by authorized by a majority243 of all members of the protected series if not prohibited by the operating agreement.244 14-11-1206.245 (a) A registered series may convert to a protected series. A registered series shall not246 become a protected series except pursuant to this subsection.247 (b) If the operating agreement specifies the manner of authorizing such conversion, it shall248 be authorized accordingly. Otherwise such conversion shall be authorized by a majority249 of all members of the registered series if not prohibited by the operating agreement.250 (c) The registered series shall file an executed certificate of conversion with the Secretary251 of State.252 H. B. 1414 - 10 - 26 LC 62 0358 14-11-1207.253 (a) Unless provided in the operating agreement, a conversion agreement shall not require254 the series to wind up or distribute assets and shall not constitute a dissolution of the limited255 liability company or termination of the series. The converted series shall be the same series256 and a continuation of the converting series.257 (b) Interests in the converting series may be exchanged for or converted into cash,258 property, or interests in the converted series or any other entity, may remain outstanding,259 or may be canceled.260 (c) An executed certificate of conversion shall include:261 (1) The name of the limited liability company and, if changed, the original name;262 (2) The date of filing the original articles of organization;263 (3) The name of the converting series and, if changed, the original name;264 (4) The date the converting series was established or, if a registered series, the date its265 certificate of registered series was filed;266 (5) The name of the converted series;267 (6) The future effective date, if applicable; and268 (7) That the conversion has been authorized pursuant to this Code section.269 (d) All rights, privileges, powers, property, and debts of the converting series shall remain270 vested in the converted series. Title to real property shall not revert or be impaired.271 (e) All rights of creditors and liens shall be preserved unimp aired. All debts, liabilities,272 and duties shall remain attached and enforceable against the converted series.273 (f) Property, debts, and duties shall not be deemed transferred.274 (g) An operating agreement may prohibit conversion.275 H. B. 1414 - 11 - 26 LC 62 0358 14-11-1208.276 (a) Pursuant to a written agreement, one or more registered se ries of the same limited277 liability company may merge with one or more other registered s eries of such company,278 and such agreement shall be provided to the surviving series.279 (b) An agreement of merger shall be approved by each merging r egistered series by a280 majority of members unless otherwise provided in the operating agreement.281 (c) Interests in a merging registered series may be exchanged for or converted into cash,282 property, or interests in the surviving series or any other entity, may remain outstanding,283 or may be canceled.284 (d) The surviving series shall file a certificate of merger, which shall include:285 (1) The names of each merging registered series and the limited liability company;286 (2) That an agreement of merger has been approved and executed by each merging287 registered series;288 (3) The name of the surviving series;289 (4) Any amendments to the certificate of registered series of the surviving series;290 (5) The future effective date, if applicable;291 (6) The address where the agreement of merger is on file; and292 (7) That a copy shall be furnished upon request without cost.293 (e) A merger is effective upon filing with the Secretary of St ate unless a later date is294 specified.295 (f) A certificate of merger shall act as a certificate of cancellation for each nonsurviving296 series. A certificate setting forth amendments under paragraph (4) of subsection (d) of this297 Code section shall be deemed an amendment to the surviving series's certificate.298 (g) An agreement of merger may amend provisions of the operati ng agreement relating299 solely to the constituent series, effective upon merger.300 H. B. 1414 - 12 - 26 LC 62 0358 (h)(1) All rights, privileges, powers, property, and debts of each merging series shall301 remain vested in the surviving series. Title to real property shall not revert or be302 impaired.303 (2) All rights of creditors and liens shall be preserved unimpaired. All debts, liabilities,304 and duties shall remain attached and enforceable against the surviving series.305 (3) Property, debts, and duties shall not be deemed transferred.306 (i) An operating agreement may prohibit merger.307 SECTION 2.308 All laws and parts of laws in conflict with this Act are repealed.309 H. B. 1414 - 13 -