HSB 209

Article provides for a special type of business organization referred to as a “series LLC”. Article includes a number of miscellaneous provisions, including providing for the uniformity of the Code chapter’s application and construction, the relationship of Code chapter 489 to the federal Electronic Signatures in Global and National Commerce Act, and a savings clause (allowing actions commenced prior to the Act’s effective date). The bill enacts the Uniform Protected Series Act (UPSA) and amends provisions allowing for the cancellation of an LLC’s voluntary dissolution. GENERAL —— LLC DESCRIPTION. _____ associated with for-profit corporations (Code chapter 490) and partnerships (Code chapter 486A). When adequately capitalized and operating pursuant to its operating agreement, an LLC resembles a corporation operating under its articles of incorporation and bylaws, by shielding its members (equity holders) from the organization’s liabilities (debts). It also resembles a partnership in that business income passes through the organization to its members who report their respective share of profits or losses on individual rather than the organization’s (corporate) tax returns. An LLC is formed by filing a certificate of organization with the secretary of state (comparable to a corporation’s articles of incorporation), while many of its powers and duties are governed by contract (referred to as an operating agreement and generally comparable to a partnership agreement)., whether it is member-managed or manager-managed) and the rights and duties of its members and managers. A member’s interest refers to the member’s proportionate equity position in the LLC and associated control of its business decisions (affairs and internal activities). A transferable interest refers to the right of a member or former member to receive distributions from the LLC in accordance with the LLC’s operating agreement. Absent a provision in the operating agreement to the contrary, a transferable interest does not include a unilateral transfer of control rights. Dissociation occurs when a member withdraws from an LLC which may be on either a voluntary or an involuntary basis. GENERAL —— IOWA SERIES (ARTICLE 12). Under Code chapter 489, article 12, an LLC’s operating agreement may provide for the establishment of a designated series. Under this arrangement, an LLC acts as an umbrella organization for any number of segregated transferable interests. The term commonly used to describe the umbrella organization is a series LLC.1201). Likewise, as far as income, any gain or loss of a series may be allocated directly to the members of the series rather than to the series LLC or another series. Because a series is a component of a series LLC it cannot be completely independent.1206). DIVISION I —— UNIFORM PROTECTED SERIES ACT —— GENERAL. Division I enacts the UPSA adopted by the ULC which in time will entirely replace current article 12. The provisions of the UPSA are codified and fit within the other provisions of the RULLCA. The article as amended contains two parts: part includes the sections of the UPSA taking the place of current Iowa series LLC sections and part includes the current Iowa series sections temporarily transferred to another part of article until repealed on January 1, 2021. PART 1, SUBPART A —— GENERAL PROVISIONS. This subpart includes definitions, a description of the nature of a protected series; its power, purpose, and duration; how the protected series is governed by the LLC’s operating agreement; and rules for applying certain provisions of an existing LLC to a protected series.12102(18)).12102(12)).12102(1)).12301(1)).12101(10)).12102(9)).12104(2)).12104(3)).12104(4)).12105).12106).12107(1)). Various provisions govern how the UPSA and the RULLCA are to be interpreted in harmony. PART 1, SUBPART B —— ESTABLISHING PROTECTED SERIES. This subpart provides for how a protected series is established.12201(1)).12201(2)).12202).12203(1)).12204).12205).209.12206). PART 1, SUBPART C —— ASSETS, MEMBERS, MANAGEMENT, AND INFORMATION. Unless provided otherwise in an operating agreement, the owner of an asset is responsible for meeting the record-keeping requirements for that asset.12301(2)).12302(1)).12303(1)).407.12304(4)).12304(6)).407).12305). PART 1, SUBPART D —— LIABILITY LIMITATIONS AND CLAIMS. This subpart limits the liability of certain persons and the enforcement of claims, by creating two types of liability shields: vertical and horizontal. A vertical shield applies to members and managers from liability in the same manner as an ordinary LLC. A horizontal shield applies to a protected series of a series LLC and its associated assets from liability for the debts or obligations of the series LLC or another protected series.12401(1)).12402(1)).12403).12404). PART 1, SUBPART E —— DISSOLUTION AND WINDING UP AFFAIRS.12501(1)).12501(2)-(5)).704.12502(4)).12503). PART 1, SUBPART F —— CHANGING TRANSACTIONS. This subpart restricts mergers and other changing transactions involving LLCs and protected series. A number of new definitions apply.12601(3)).12601(6)).12602(1)).12602(2)).12604).12606).12607).12608(1)).12608(3)). PART 1, SUBPART G —— FOREIGN PROTECTED SERIES.12701(1)).12702).12703).12704(1)). PART 1, SUBPART H —— TRANSITIONAL PROVISIONS.1302).12). The provisions of UPSA, codified as new sections in article 12, part 1, take effect on January 1, 2020, and applies only to a series LLC formed or a protected series established on or after that date.12803(1)).12803(1)).12803(4)). DIVISION II —— UNIFORM PROTECTED SERIES ACT —— CONFORMING AMENDMENTS. The bill amends the sections currently codified in article (Iowa series) to provide for their repeal on January 1, 2021, the date when all series LLC and umbrella series must comply with the new Code sections codified in part (UPSA). It also provides for the transfer of current sections to new part 2. It amends other provisions in the Code to conform with part 1, including sections that restrict agricultural landholding by LLCs (Code chapter 10).801). The division takes effect January 1, 2020. DIVISION III —— DISASSOCIATION —— MANAGEMENT.407(2)(f)). There are two different methods of managing a LLC.407(1)), a LLC is member-managed, meaning that all members participate in decisions managing the activities and affairs to the organization (a partnership model). Alternatively, a manager-managed LLC, formed and governed under an operating agreement, provides that certain members or nonmembers are designated to take such actions while the remaining members act as passive investors (corporate model). DIVISION IV —— DISSOLUTION.702). A dissolution is a fundamental change transaction that triggers the LLC’s termination., for nonpayment of a fee). The bill provides that in cases of a voluntary dissolution in which a statement of dissolution is filed, an LLC may rescind such a statement by filing with the secretary of state a statement of rescission. Generally, once an LLC rescinds its dissolution, the LLC carries on its affairs as if the dissolution had never occurred. One exception applies to protect a person (creditor) who would be adversely affected by the retroactive effect of the statement of rescission.