Transcript UTAH REVISED LLC ACT (2001) LLCS IN THE NEW CENTURY

NUTS AND BOLTS OF
LLC FORMATION,
OPERATION &
DISSOLUTION
Utah State Bar
Mid-Year Convention
March 23, 2002
Brent R. Armstrong
Armstrong Law Offices, P.C.
© 2002 Brent R. Armstrong
Brent R. Armstrong
Armstrong Law Offices, P.C.
Suite 150 Bank One Tower
50 West 300 South
Salt Lake City, Utah 84101-2006
Telephone No.: (801) 359-5511
Fax No.: (801) 359-5570
E-mail: [email protected]
Nuts and Bolts of LLCs
 Overview
of Utah Revised LLC Act
 Formation of a Utah LLC
 Admitting an LLC Member
 Assignment of LLC Interests
 Conversion of LP to LLC
 Dissolution of LLC
Utah Revised LLC Act--Overview
 Signed
into law – March 19, 2001
 Effective
July 1, 2001
Utah Revised LLC Act--Overview
 Added
new Chapter 2c to Title 48,
Utah Code
 Repealed
Chapter 2b of Title 48
Utah Revised LLC Act--Overview
 Re-codified
 Updated
prior law
prior law
 Expanded
prior law
Utah Revised LLC Act--Overview
In
2001, new Utah entities:
54.5% were LLCs

3.6% were LPs

41.9% were profit corporations

Utah Revised LLC Act--Overview
Goals
of Revised Act:
 Organized
 Useful
 Flexible
 Comprehensive
Utah Revised LLC Act--Overview
Contract
Model
Many default rules included

LLC documents may over-ride
default rules

Utah Revised LLC Act--Overview
Legislative
Intent –
“…to give maximum effect
to freedom of contract and
enforceability of operating
agreements. . .”
UCA §48-2c-1901
Utah Revised LLC Act--Overview
Provisions
of Old Act retained
13 new general definitions
Special definitions for:
Winding up
Professions
Indemnification

Utah Revised LLC Act--Overview
New Definitions:

capital account
 distribution
 designated office
 entity
 filed with the division
 interest in the company
 manager






manager-managed
company
member
member-managed
company
operating agreement
proceeding
signed
Utah Revised LLC Act--Overview
No
All
grandfathering
LLCs became subject to
Revised Act on July 1, 2001
Utah Revised LLC Act--Overview
19
Part
1
2
3
4
5
Parts
Heading
General Provisions
Filing Requirements
Service of Process
Formation
Operating
Agreements
Part
6
7
8
9
10
Heading
Limited Liability
Members
Management
Contributions;
Profits & Losses
Distributions
Utah Revised LLC Act--Overview
19
Parts--Cont’d
Part
Heading
11
Assignment of
Interests
Dissolution
Winding Up
Conversions and
Mergers
Professions
12
13
14
15
Part
16
17
18
19
Heading
Foreign Limited
Liability Companies
Derivative Actions
Indemnification
Miscellaneous
Utah Revised LLC Act--Overview
What Act
is NOT –
Not
the Uniform LLC Act
Not
the Prototype LLC Act
Utah Revised LLC Act--Overview
New
Concepts
 capital
account
 constructive notice
 conversion
 designated office
 domestication
 expulsion
of a
member
 fiduciary duties
Utah Revised LLC Act--Overview
Capital Account
A
partnership concept
 Measuring standard for
Profit and losses
 Distributions
 Voting

Utah Revised LLC Act--Overview
New
Concepts
 capital
account
 constructive
notice
 conversion
 designated office
 domestication
 expulsion
of a
member
 fiduciary duties
Utah Revised LLC Act--Overview
Constructive
Notice
 Required
provisions in Articles Permitted
provisions in Articles for:
Limited business or purpose
 Limits on authority of managers/members
 Required items in LLC’s annual report filed
with Division

Utah Revised LLC Act--Overview
New
Concepts
 capital
account
 constructive notice
 conversion
 designated office
 domestication
 expulsion
of a
member
 fiduciary duties
Utah Revised LLC Act--Overview
Designated
Office
A
geographical address (not P. O. Box)
 Where LLC records are kept
 Determines court location for action:
To compel inspection of records (48-2c-115)
 To compel Division to file a document (48-2c-211)
 To interpret or enforce an LLC’s operating
agreement (48-2c-505)
 To remove a manager (48-2c-809(1))
 To dissolve LLC by court order (48-2c-1211)

Utah Revised LLC Act--Overview
New Concepts--Cont’d
 redemption of
 filed with division
interest
 non-waivable
 transfer
provisions
 valuation of an
 organizer
LLC interest
Utah Revised LLC Act--Overview
Non-Waivable
Provisions
An LLC’s Articles of Organization or
Operating Agreement may not:
 Restrict right to inspect and copy records
 Reduce fiduciary duties of members and
managers
 Eliminate obligation of good faith and fair
dealing
 Vary any filing requirement
Utah Revised LLC Act--Overview
 Non-Waivable





Provisions--Cont’d
Vary any requirement for written document
Vary right to expel a member
Vary remedy for judicial dissolution of LLC
Restrict rights or impose duties on third parties
Eliminate liability of manager for breach for gross
negligence or willful misconduct, or where manager
receives financial gain
Utah Revised LLC Act--Overview
New Concepts--Cont’d
 redemption of
 filed with division
interest
 non-waivable
 transfer
provisions
 valuation of an
 organizer
LLC interest
Utah Revised LLC Act--Overview
Organizer
May form a Utah LLC
 Must sign Articles of Organization
 Need not be member or manager
 Must prepare record of name and
address of initial members (and
managers)

Nuts and Bolts of LLCs
 Overview
of Utah Revised LLC Act
 Formation of a Utah LLC
 Admitting an LLC Member
 Assignment of LLC Interests
 Conversion of LP to LLC
 Dissolution of LLC
FORMATION OF A
UTAH LLC
FORMATION OF A UTAH LLC
 Articles
of Organization (public document)
 Operating Agreement (private document)
 Tax ID Number
 Asset Transfer Documents
 Ancillary Documents
FORMATION OF A UTAH LLC
Articles of Organization - Contents
 Administrative
Matters
 Substantive Matters
 Constructive Notice to Third Parties
 Anything Else
FORMATION OF A UTAH LLC
Articles of Organization - Contents
 Administrative
 (name,
Matters
registered agent, registered office,
designated office, organizer)
FORMATION OF A UTAH LLC
Articles of Organization - Contents
 Administrative
Matters
 Substantive Matters
 Constructive Notice to Third Parties
 Anything Else
FORMATION OF A UTAH LLC
Articles of Organization - Contents

Substantive Matters
 (business
purpose, management)
FORMATION OF A UTAH LLC
Articles of Organization - Contents
 Administrative
Matters
 Substantive Matters
 Constructive Notice to Third Parties
 Anything Else
FORMATION OF A UTAH LLC
Articles of Organization - Contents
 Constructive
 -limit
Notice to Third Parties
scope of business
 -limit powers LLC may exercise
 -limit authority of managers and members
 -duration of LLC
FORMATION OF A UTAH LLC
Articles of Organization - Contents
 Anything
Else
FORMATION OF A UTAH LLC
Organizer - Qualifications
 Must
be individual 18 years of age or
older
 One organizer is required, more are
okay
 May be manager, member or other
individual
FORMATION OF A UTAH LLC
Organizer - Duties
 Signs Articles
 Affirmation
of Organization
that:
LLC has one or more members
 Managers, if any, have consented to serve

 Files Articles
of Organization with
Division
 Prepares written list of initial members,
managers and street addresses
FORMATION OF A UTAH LLC
 Articles
of Organization
 Bare
bones version
 Limitation of authority version
 Organizer’s
Statement
[See forms in handout materials]
FORMATION OF A UTAH LLC
 Operating Agreement
 Written
document
FORMATION OF A UTAH LLC
 Operating Agreement
 Written
document
 Signed by all initial members
FORMATION OF A UTAH LLC
 Operating Agreement
 Written
document
 Signed by all initial members
 Effective only after Articles filed
FORMATION OF A UTAH LLC
 Operating Agreement
 Written
document
 Signed by all initial members
 Effective only after Articles filed
 Specifies:
Rights and duties of members/managers
 How members admitted/expelled
 How managers appointed/removed
 How LLC interests transferred
 Any other desired provisions

FORMATION OF A UTAH LLC

Operating Agreement




Written document
Signed by all initial members
Effective only after Articles filed
Specifies:






Rights and duties of members/managers
How members admitted/expelled
How managers appointed/removed
How LLC interests transferred
Any other desired provisions
No set form
FORMATION OF A UTAH LLC
Questions on Forming a
Utah LLC
[See handout materials]
Nuts and Bolts of LLCs
 Overview
of Utah Revised LLC Act
 Formation of a Utah LLC
 Admitting an LLC Member
 Assignment of LLC Interests
 Conversion of LP to LLC
 Dissolution of LLC
ADMITTING AN LLC MEMBER
Upon LLC formation, a person becomes an
LLC member when person:
 Signs Articles
of Organization, or
 Signs Operating Agreement, or
 Makes contribution and membership is
reflected in LLC’s records
ADMITTING AN LLC MEMBER
After LLC formation, a person becomes an
LLC member when the person:
 Meets
the requirements of the LLC’s
governing documents, and
 Signs Operating Agreement, and
 All members consent, and
 On date reflected in LLC’s records
Nuts and Bolts of LLCs
 Overview
of Utah Revised LLC Act
 Formation of a Utah LLC
 Admitting an LLC Member
 Assignment of LLC Interests
 Conversion of LP to LLC
 Dissolution of LLC
ASSIGNMENT OF LLC INTERESTS
An LLC interest is transferred by
an “assignment” document
[See form in handout materials]
Nuts and Bolts of LLCs
 Overview
of Utah Revised LLC Act
 Formation of a Utah LLC
 Admitting an LLC Member
 Assignment of LLC Interests
 Conversion of LP to LLC
 Dissolution of LLC
CONVERSION OF
LP TO LLC
Conversion of lp to llc
 Obtain
approval for the conversion
 Prepare and file two documents:
 Articles
of Conversion
 Articles of Organization
[See forms in handout materials]
Conversion of lp to llc
Approval Requirements

Look at statute and Partnership Agreement
for Limited Partnership for approval
requirements.
 For Utah LPs, statute says look for
authorization as follows:



First: Partnership Agreement regarding
conversion; or, if silent
Second: partnership Agreement regarding
merger, or, if silent
Third: Unanimous consent of owners of LP.
Conversion of lp to llc
Effects of Conversion
 LP
becomes LLC and subject to
Revised LLC Act
 LLC takes on LP’s formation date
 LP’s obligations and liabilities become
obligations and liabilities of LLC
Conversion of lp to llc
Effects of Conversion—Cont’d
 LLC
retains all rights, privileges and
powers held by LP
 LP interests may be exchanged into
cash, property, or LLC interests
 LP not required to wind up and dissolve
Conversion of lp to llc
Tax Issues

Be careful!
 Usually no tax consequences in LP to LLC
conversion if LP has no debt and owners
percentage interests in profits,losses and
capital remain the same
 Usually LLC may use LP’s tax ID number
Nuts and Bolts of LLCs
 Overview
of Utah Revised LLC Act
 Formation of a Utah LLC
 Admitting an LLC Member
 Assignment of LLC Interests
 Conversion of LP to LLC
 Dissolution of LLC
DISSOLUTION OF LLC
A Utah LLC is dissolved upon the
occurrence of any of the following events:

When its period of duration expires;
 When the LLC fails to have at least one
member;
 By written agreement of all members;
DISSOLUTION OF LLC
A Utah LLC is dissolved upon the occurrence
of any of the following events:

A dissolution event specified in the Articles of
Organization or Operating Agreement;
 When the LLC is not a successor in a merger
of two or more LLCs;
DISSOLUTION OF LLC
A Utah LLC is dissolved upon the
occurrence of any of the following events:

Upon administrative dissolution under
§48-2c-1207 (subject to right of
reinstatement under §48-2c-1208); or
 Upon entry of a decree of judicial
dissolution under §48-2c-1213.
DISSOLUTION OF LLC
Upon an event of dissolution, Articles of
Dissolution are prepared and filed with
Division
[See form in handout materials]
DISSOLUTION OF LLC
A dissolved LLC continues its existence, but
may not carry on any business or activities,
except as appropriate to wind-up and liquidate
its business and affairs.
Dissolution of an LLC does NOT:
 Transfer title to the LLC’s property;
 Prevent transfer of an interest in the LLC;
 Subject its members or managers to
standards of conduct different than those
prescribed in the Act;
DISSOLUTION OF LLC
Dissolution of an LLC does NOT:

Change:
-limited liability
-voting requirements
-provisions for selection, resignation or removal of its
managers
-provisions for amending its Articles of Organization
or Operating Agreement;
DISSOLUTION OF LLC
Dissolution of an LLC does NOT:

Prevent commencement of a proceeding by
or against the Company;
 Abate or suspend a proceeding pending by or
against the Company;
 Terminate the authority of the Registered
Agent.
QUESTION AND
ANSWER TIME
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