Bill Text: AZ HB2166 | 2013 | Fifty-first Legislature 1st Regular | Engrossed

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Bill Title: Limited liability companies; series

Spectrum: Partisan Bill (Republican 4-0)

Status: (Failed) 2013-03-13 - Senate CEM Committee action: Held [HB2166 Detail]

Download: Arizona-2013-HB2166-Engrossed.html

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House Engrossed

 

 

 

State of Arizona

House of Representatives

Fifty-first Legislature

First Regular Session

2013

 

 

HOUSE BILL 2166

 

 

 

AN ACT

 

Amending sections 29‑601, 29‑632 and 29‑635, Arizona Revised Statutes; amending title 29, chapter 4, article 3, Arizona Revised Statutes, by adding section 29‑658; amending sections 29‑681, 29‑706, 29‑781 and 29‑785, Arizona Revised Statutes; relating to limited liability companies.

 

 

(TEXT OF BILL BEGINS ON NEXT PAGE)

 

Be it enacted by the Legislature of the State of Arizona:

Section 1.  Section 29-601, Arizona Revised Statutes, is amended to read:

START_STATUTE29-601.  Definitions

In this chapter, unless the context otherwise requires:

1.  "Articles of organization" means the initial articles of organization as amended or restated from time to time.

2.  "Assignee" means any person who acquires in any manner the ownership of an interest in a limited liability company and who has not been admitted as a member.

3.  "Capital contribution" means cash, other property, the use of property, services rendered or any other valuable consideration transferred to a limited liability company as consideration for issuing an interest in a limited liability company.

4.  "Commission" means the corporation commission.

5.  "Court" includes any court and judge with jurisdiction in the case.

6.  "Domestic limited liability company" or "limited liability company" means a limited liability company organized and existing under this chapter.

7.  "Event of withdrawal" means an event that causes a person to cease to be a member as provided in section 29‑733.

8.  "Executed" means executed by manual or facsimile signature on behalf of the limited liability company by a duly authorized member if management of the limited liability company is reserved to the members or manager if management of the limited liability company is vested in a manager, or if the limited liability company is in the hands of a receiver or trustee, by the receiver or trustee.

9.  "Filing" means the commission completing the following procedure with respect to any document delivered for that purpose:

(a)  Determining that the filing fee requirements of this chapter have been satisfied.

(b)  Determining that the document appears in all respects to conform to the requirements of this chapter.

(c)  On making the determinations required by this paragraph, endorsement of the word "filed" with the applicable date on or attached to the document and the return of copies to the person who delivered the document or the person's representative.

10.  "Foreign limited liability company" means either:

(a)  An unincorporated entity or association that is owned by one or more persons that have limited liability for the debts of the business, other than a partnership or trust, and that is formed under the laws of a jurisdiction other than this state for any lawful purpose, including the rendering of professional services as defined in that jurisdiction.

(b)  An entity or unincorporated association that is formed under the laws of a jurisdiction other than this state for any lawful purpose, including the rendering of professional services as defined in that jurisdiction, and that is characterized as a limited liability company by those laws.

11.  "Initial articles of organization" means the articles of organization filed with the commission at the time a limited liability company is formed, including articles of organization that are corrected to conform to the filing provisions of this chapter pursuant to section 29‑634, subsection C, paragraph 2.

12.  "Member" means a person who is admitted as a member in a limited liability company pursuant to this chapter until an event of withdrawal occurs with respect to the person and, if reference is made to members, that reference means a member in the case of a limited liability company that has a single member.  A member includes a noneconomic member of a limited liability company who:

(a)  Does not own a member's interest in the company.

(b)  Does not have an obligation to contribute capital to the company.

(c)  Does not have a right to participate in or receive distributions of profits of the company or an obligation to contribute to the losses of the company.

(d)  May have voting rights and other rights and privileges as prescribed by the articles of organization or operating agreement.

13.  "Member's interest", "interest in a limited liability company" or "interest in the limited liability company" means a member's share of the profits and losses of a limited liability company and the right to receive distributions of limited liability company assets.

14.  "Operating agreement" means either:

(a)  Any written or oral agreements among all members concerning the affairs of a limited liability company or the conduct of its business.

(b)  In the case of a limited liability company that has a single member, any written or oral statement of the member made in good faith purporting to govern the affairs of a limited liability company or the conduct of its business as of the effective time of the statement.

15.  "Person" includes any individual, general partnership, limited partnership, domestic or foreign limited liability company, corporation, trust, business trust, real estate investment trust, estate and other association.

16.  "Real property" includes land, any interest, leasehold or estate in land and any improvements on it.

17.  "Series" and "series of members" means a series of members' interests having separate rights, powers or duties with respect to property, obligations or profits and losses associated with property or obligations that are specified in the articles of organization or operating agreement or specified by one or more members or managers or other persons as provided in the articles of organization or operating agreement.

17.  18.  "State" means a state, possession or territory of the United States, the District of Columbia or the Commonwealth of Puerto Rico. END_STATUTE

Sec. 2.  Section 29-632, Arizona Revised Statutes, is amended to read:

START_STATUTE29-632.  Articles of organization

A.  The articles of organization shall state:

1.  The name of the limited liability company.

2.  The name, street address in this state and signature of the agent for service of process required to be maintained by section 29‑604.

3.  The address of the limited liability company's known place of business in this state, if different from the street address of the company's statutory agent.

4.  The latest date, if any, on which the limited liability company must dissolve.

5.  Either of the following statements:

(a)  Management of the limited liability company is vested in a manager or managers.

(b)  Management of the limited liability company is reserved to the members.

6.  The name and address of either of the following:

(a)  If management of the limited liability company is vested in a manager or managers, each person who is a manager of the limited liability company and each member who owns a twenty per cent or greater interest in the capital or profits of the limited liability company.

(b)  If management of the limited liability company is reserved to the members, each person who is a member of the limited liability company.

7.  If the limited liability company is to have one or more series of members and the debts or liabilities of any series are to be enforceable against the assets of that series only and not against the assets of another series or the limited liability company generally, a statement to that effect and a statement that does either of the following:

(a)  Sets forth the relative rights, powers and duties of the series.

(b)  Indicates that the relative rights, powers and duties of the series will be set forth in the operating agreement or established as provided in the operating agreement.

B.  The articles of organization may include any other provision that is consistent with law, including any provisions under this chapter that are required or permitted to be set out in an operating agreement of the limited liability company.

C.  It is not necessary to set out in the articles of organization any of the powers enumerated in this chapter. END_STATUTE

Sec. 3.  Section 29-635, Arizona Revised Statutes, is amended to read:

START_STATUTE29-635.  Formation of limited liability company

A.  Except as provided in section 29‑634, subsection D, a limited liability company is formed when the articles of organization are delivered to the commission for filing, even if the commission is unable to make the determination required for filing by section 29‑634, subsection A at the time of delivery.  If the articles of organization, as delivered to the commission, do not conform to the filing provisions of this chapter and are not brought into conformance within the time period prescribed by section 29‑634, subsection C, paragraph 2, the existence of the limited liability company terminates at the end of the time period.

B.  A copy of the articles of organization that is filed with the commission and that is stamped "filed" and marked with the filing date is conclusive evidence that all conditions precedent required to be performed by the organizers have been complied with and that the limited liability company has been legally organized and formed under this chapter.  A limited liability company continues perpetually unless otherwise provided in its articles of organization or operating agreement or until the limited liability company is dissolved and terminated in accordance with this chapter.

C.  Within sixty days after the commission approves the filing, there shall be published in a newspaper of general circulation in the county of the known place of business, for three consecutive publications, a notice of the filing of such articles of organization consisting of the information required in section 29‑632, subsection A, paragraphs 1, 2, 3, 5, and 6 and 7. An affidavit evidencing publication may be filed with the commission. END_STATUTE

Sec. 4.  Title 29, chapter 4, article 3, Arizona Revised Statutes, is amended by adding section 29-658, to read:

START_STATUTE29-658.  Series; limited liability companies

A.  The articles of organization or operating agreement of a limited liability company may create one or more series of members or vest authority in one or more members or managers of the limited liability company or in other persons to create one or more series of members, including rights, powers and duties senior to existing members.  The articles of organization or operating agreement may provide that any member associated with a series has voting rights that differ from other members or series or no voting rights at all.  A series may have separate powers, rights 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 any series may have a separate business purpose or investment objective.

B.  The debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular series are enforceable against the assets of that series only and not against the assets of the limited liability company generally or any other series, if both of the following are true:

1.  Separate and distinct records are maintained for the series and the assets associated with the series are held, directly or indirectly, including through a nominee or otherwise, and accounted for separately from the other assets of the limited liability company and any other series.

2.  The articles of organization comply, or an amendment to the articles complies, with section 29-632, subsection A, paragraph 7, subdivision (a).

C.  Unless otherwise provided in the articles of organization or operating agreement, debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the limited liability company generally or any other series are not enforceable against the assets of the series.

D.  The articles of organization or operating agreement may provide that the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular series are enforceable against the assets of that series only and not against the assets of the limited liability company generally or any other series.

E.  Unless otherwise provided in the articles of organization or operating agreement, any event described in this chapter or in the articles of organization or operating agreement that causes a manager to cease to be a manager with respect to a series does not, in itself, cause the manager to cease to be a manager with respect to the limited liability company or with respect to any other series.  Unless otherwise provided in the articles of organization or operating agreement, any event described in this chapter or in the articles of organization or operating agreement that causes a manager to cease to be associated with a series does not, in itself, cause the member to cease to be associated with any other series, terminate the continued membership of a member in the limited liability company or cause the termination of the series, regardless of whether the member was the last remaining member associated with the series.END_STATUTE

Sec. 5.  Section 29-681, Arizona Revised Statutes, is amended to read:

START_STATUTE29-681.  Management of limited liability company; series

A.  Unless the articles of organization provide that management of the limited liability company or series is vested in one or more managers, management of the limited liability company or series is vested in the members, subject to any provision in an operating agreement restricting or enlarging the management rights or responsibilities of one or more members or classes of members.

B.  If the articles of organization provide that management of the limited liability company is vested in one or more managers, management of the limited liability company is vested in a manager or managers, subject to any provisions in an operating agreement restricting or enlarging the management rights or responsibilities of one or more managers or classes of managers or reserving specified management rights to the members or classes of members.  A manager need not be a member of the limited liability company unless otherwise required by an operating agreement.  A manager shall be designated or elected and may be removed or replaced in the manner provided in an operating agreement.  A manager also holds the office and has the responsibilities that are accorded to him by the members and that are provided in an operating agreement.  If an operating agreement does not provide a manner for designating or electing additional or replacement managers, on the withdrawal or resignation of a manager, management of the limited liability company continues to be vested in the remaining managers, or if there are no remaining managers, management is vested in one or more new managers to be designated or elected by a majority of the members.

C.  Except as provided in an operating agreement, the affirmative vote, approval or consent of all members is required to:

1.  Adopt, amend, amend and restate or revoke an operating agreement or authorize a transaction, agreement or action on behalf of the limited liability company that is unrelated to its purpose or business as stated in an operating agreement or that otherwise violates an operating agreement.

2.  Issue an interest in the limited liability company to any person.

3.  Approve a plan of merger or consolidation of the limited liability company with or into one or more business entities as defined in section 29‑751.

4.  Authorize an amendment to the articles of organization that changes the status of the limited liability company from or to one in which management is vested in a manager or managers to or from one in which management is reserved to the members.

D.  Except as provided in an operating agreement, the affirmative vote, approval or consent of a majority of the members, or if management of the limited liability company is vested in one or more managers, the affirmative vote, approval or consent of the sole manager or a majority of the managers, is required to:

1.  Resolve any difference concerning matters connected with the business of the limited liability company.

2.  Authorize the distribution of limited liability company cash or property to the members.

3.  Authorize the limited liability company to repurchase all or part of any member's interest in the limited liability company from that member.

4.  Authorize the filing of articles of termination concerning the limited liability company.

5.  Subject to subsection C, paragraph 4 of this section, authorize an amendment to the articles of organization, except that an amendment that merely corrects a false or inaccurate statement in the articles of organization may be filed at any time by a manager if management of the limited liability company is vested in one or more managers or by a member if management of the limited liability company is reserved to the members.

E.  For purposes of subsections B and D of this section, a majority consists of more than one‑half of the members or managers, as the case may be, except that if an operating agreement provides for allocation of voting rights among different members or managers or classes of members or managers on any basis other than a per capita basis, a majority consists of one or more members or managers, as the case may be, who control more than one‑half of the votes entitled to be cast with respect to general business decisions as provided in an operating agreement. END_STATUTE

Sec. 6.  Section 29-706, Arizona Revised Statutes, is amended to read:

START_STATUTE29-706.  Limitation on distributions; wrongful distribution; treatment as income

A.  A limited liability company or a series of a limited liability company shall not make a distribution to a member to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the limited liability company or series of the limited liability company would exceed the fair value of the assets of the limited liability company, except that:

1.  Liabilities to members and former members under sections 29‑703 and 29‑707 and liabilities for which the recourse of creditors is limited to specified property shall be excluded.

2.  The fair value of property subject to a liability for which the recourse of creditors is limited to specified property shall be included in the assets of the limited liability company or series of the limited liability company only to the extent that the fair value of the property exceeds that liability.

B.  The limited liability company may base a determination that a distribution is not prohibited under subsection A of this section on either of the following:

1.  Financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances.

2.  A fair valuation or other method that is reasonable in the circumstances.

C.  The effect of a distribution under subsection A of this section is measured either as of the date the distribution is authorized if the payment occurs within one hundred twenty days after the date of authorization or as of the date the payment is made if it occurs more than one hundred twenty days after the date of authorization.

D.  If a member receives a distribution with respect to his interest in a limited liability company in violation of this chapter or an operating agreement, he is liable to the limited liability company for a period of six years thereafter for the amount of the wrongful distribution.

E.  Except as otherwise provided in the operating agreement or the trust instrument, a distribution to a member that is a charitable remainder trust as defined in section 664(d) of the internal revenue code is income for the purposes of title 14, chapter 7, article 4 to the extent that the value of the member's interest in the limited liability company after distribution is equal to or greater than its value at the date of contribution of the member's interest in the limited liability company to the charitable remainder trust.  In this subsection, "internal revenue code" has the same meaning prescribed in section 43‑105.END_STATUTE

Sec. 7.  Section 29-781, Arizona Revised Statutes, is amended to read:

START_STATUTE29-781.  Dissolution

A limited liability company or series of a limited liability company organized under this chapter is dissolved on the occurrence of the first of the following:

1.  At the time or on the happening of the events specified for dissolution in the articles of organization or an operating agreement.

2.  Except as otherwise provided in an operating agreement, the written consent to dissolve by more than one‑half of the members and by one or more members who on dissolution and liquidation of the assets of the limited liability company or series of the limited liability company would be entitled to receive assets valued at more than one‑half of the value of all assets distributed to all members on liquidation.

3.  Involuntary judicial dissolution under section 29‑785 or an administrative dissolution under section 29‑786.

4.  Except as otherwise provided in an operating agreement, an event of withdrawal of the last remaining member unless within ninety days all assignees by written consent admit at least one member pursuant to section 29‑731, subsection B, paragraph 4 to continue the business of the limited liability company or the series of the limited liability company.END_STATUTE

Sec. 8.  Section 29-785, Arizona Revised Statutes, is amended to read:

START_STATUTE29-785.  Involuntary judicial dissolution

A.  On application by or for a member, the superior court in the county in which the known place of business of the limited liability company is located may decree dissolution of a limited liability company on judicial determination of any of the following:

1.  It is not reasonably practicable to carry on the limited liability company business in conformity with an operating agreement.

2.  Unless otherwise provided in an operating agreement, the members or managers are deadlocked in the management of the limited liability company and irreparable injury to the limited liability company is threatened or being suffered or the business of the limited liability company cannot be conducted to the advantage of the members generally because of the deadlock.

3.  Unless otherwise provided in an operating agreement, the members or managers of the limited liability company have acted or are acting in a manner that is illegal or fraudulent with respect to the business of the limited liability company.

4.  Unless otherwise provided in an operating agreement, substantial assets of the limited liability company are being wasted, misapplied or diverted for purposes not related to the business of the limited liability company.

B.  The superior court has full power to wind up and liquidate the assets and business of a limited liability company:

1.  On application by a limited liability company after dissolution to have its liquidation continued under the supervision of the court.

2.  In an action filed by any member after the issuance of a judgment of dissolution as provided in subsection A of this section.

C.  On application by or for a member of a series, the superior court may decree the termination of the series only and not the dissolution of the limited liability company when it is reasonably practicable to carry on the business of the series in conformity with the articles of organization or operation agreement. END_STATUTE

Sec. 9.  Effective date

A.  Sections 29-601, 29-632, 29-635, 29-681, 29-706, 29-781 and 29-785, Arizona Revised Statutes, as amended by this act, are effective from and after December 31, 2014.

B.  Section 29-658, Arizona Revised Statutes, as added by this act, is effective from and after December 31, 2014.