This is an excerpt from an article discussing the The Revised Uniform Limited Liability Company Act written by Daniel S. Kleinberger. For a discussion of Minnesota’s new LLC law, see the Minnesota Revised Uniform LLC Act.
On July 13th, 2006, the National Conference of Commissioners on Uniform State Laws (“NCCUSL” or “the Conference”) “approved and recommended for enactment in all the States” (1) the Revised Uniform Limited Liability Company Act (“Re-ULLCA’). This approval came ten years after the Conference approved the original Uniform Limited Liability Company Act (“ULLCA”) and ended a drafting process that had itself spanned three years. (2)
The new Act brings major innovations to the law of limited liability companies, and NCCUSL has begun actively seeking enactments around the country. This article seeks to introduce the new Act to business lawyers across the country, (3) by: (i) explaining why NCCUSL decided to draft a new LLC statute, reviewing the process through which the Conference produced and approved the new Act, and describing the Act’s basic architecture; (ii) highlighting the Act’s major innovations; and (iii) providing a roadmap through the Act’s intricate and all-important provisions concerning the operating agreement.
II. WHY A NEW LLC ACT NOW, BY WHOM AND HOW WAS THE NEW ACT DRAFTED, AND WHAT DOES THE NEW ACT LOOK LIKE?
A. WHY A NEW LLC ACT NOW?
The new Act’s Prefatory Note contains the most succinct explanation for “Why a new LLC Act Now?”
Eighteen years have passed since the IRS issued its gate-opening Revenue Ruling 88-76, declaring that a Wyoming LLC would be taxed as a partnership despite the entity's corporate-like liability shield. More than eight years have passed since the IRS opened the gate still further with the "check the box" regulations. It is an opportune moment to identify the best elements of the myriad "first generation" LLC statutes and to infuse those elements into a new, "second generation" uniform act. (4)
B. BY WHOM AND HOW WAS THE NEW ACT DRAFTED?
The Drafting Committee for Re-ULLCA was chaired by David Walker, Dean of the Drake Law School, included eight other commissioners, and benefited from the active participation of 13 advisors appointed by the ABA. (5) In addition to the ABA Advisor, (6) the Committee had eight advisors from the Business Law Section, (7) three from the Real Property, Probate and Trust Law Section, (8) and one from the Section on Taxation. (9) The current chair of the PUBO Committee was one of the Business Law Section’s Advisors, (10) and the immediate past chair of that Committee was the ABA Advisor. (11)
As explained in March 2006 newsletter of the ABA Committee on Partnerships and Unincorporated Business Organizations:
ABA advisors actually outnumbered NCCUSL commissioners on the committee, and on most votes the committee's chair counted commissioners and ABA advisors together as one group. On the rare occasions when the committee seemed significantly divided, the chair took a formal vote of commissioners (as NCCUSL procedures require) but then also made note of a vote of the ABA advisors. (12)
The Drafting Committee also benefited from a scholarly perspective. As is usual, the co-reporters are law professors. In addition, the chair of the Committee is a law school dean, (13) one of the members is a dean emeritus, (14) and another is a law professor. (15) One of the ABA advisors is a business school professor, (16) and two others are law professors. (17) Several of the ABA advisors who are full-time practitioners have also published several articles on LLC law. (18) All and all, authors from the three leading LLC treatises were part of this working group. (19)
The drafting process spanned three years and included ten drafting committee meetings, (20) six drafts, (21) and consideration by the entire Conference at four consecutive annual meetings. Each committee meeting lasted two and a half days, and many key issues were debated, re-debated and re-debated. (22) The Act was on the annual meeting agenda in 2003 (concept discussion, based on drafting committee’s briefing memo); 2004 (partial first reading), 2005 (first reading), and 2006 (final reading). (23)
C. WHAT DOES THE NEW ACT LOOK LIKE?
Re-ULLCAs architecture derives from and resembles that of RUPA, ULLCA, and ULPA (2001).
Article 1 contains general provisions, including definitions; sections on a limited liability company's duration, purposes, powers, name, and agent for service of process; and three key provisions concerning the operating agreement Article 2 provides for the formation of limited liability companies and for the public filing of records pertaining to an LLC Article 3 governs the relations of members and managers to third parties--i.e. with non-members dealing with or affected by the limited liability company Article 4 states the default rules for the members' relationship inter se and with the limited liability company and provides templates for member-management and manager-management Article 5 implements the "pick your partner" principle, which is at the core of the law of unincorporated business organizations, and delimits the rights of transferees Article 6 states the causes and consequences of a person's dissociation as a member of a limited liability company Article 7 delineates the causes and consequences of the dissolu- tion of a limited liability company Article 8 governs foreign limited liability companies Article 9 provides for direct and derivative claims by members and for the establishment, conduct, and judicial review of special litigation committees Article 10 governs organic transactions--mergers, conversions, and domestications Article 11 contains miscellaneous provisions, including a section providing transition rules for pre-existing limited liability companies
The only significant nomenclature change from ULLCA is the use of “certificate of organization” rather than “articles of organization” to refer to the publicly filed document used to create a limited liability company. The change is intended “to signal that: (i) the certificate merely reflects the existence of an LLC (rather than being the locus for important governance rules); and (ii) this document is significantly different from articles of incorporation, which have a substantially greater power to affect inter se rules for the corporate entity and its owners.” (24)
This is an excerpt from The Next Generation: The Revised Uniform Limited Liability Company Act. Read the entire article.
About the Author
Attorney Daniel S. Kleinberger serves as an arbitrator, special counsel, expert witness, and consensual special magistrate. His experience includes Professor of Law at William Mitchell College of Law, Co-Reporter at the Uniform Law Commissioners, and author of numerous published works on business law. You may contact him at (651) 290-6387 or firstname.lastname@example.org.