HCS SB 170 -- LIMITED LIABILITY COMPANIES

This bill makes several changes in the law governing partnerships, limited partnerships, limited liability partnerships, "S" corporations, and limited liability companies. In the area of the law governing the taxation of business entities, the bill requires any nonresident partner or "S" corporation shareholder to agree to file a state income tax return and be subject to personal jurisdiction (for the purposes of collecting any state income tax due) before the partnership or "S" corporation is released from the requirement of withholding state income tax due from the partner or "S" corporation shareholder.

LIMITED LIABILITY COMPANIES

In the area of the law governing limited liability companies, (LLC) the bill:

(1) Repeals the definition of "limited liability company" that required an LLC to be composed of 2 or more persons, and clarifies that no existing LLC will be found to be not in compliance with Chapter 347, RSMo, on the basis that it has only one member;

(2) Limits the definition of "person" as that term is used in the chapter governing LLC's, by replacing the phrase "any other legal entity" with the phrase any "other business or not for profit entities";

(3) Allows the name of an LLC, as set forth in its articles of incorporation, to include the word "association";

(4) Allows an LLC to set forth in its articles of organization the date the company will be formed, but such date may not be more than 90 days from the date the articles are filed with the Secretary of State;

(5) Repeals the provision requiring the articles of organization to set forth any rights granted to remaining members to continue the business and affairs of the LLC upon a member's withdrawal;

(6) Makes any operating agreement provision that provides for the dissolution of an LLC upon the withdrawal of a member subject to the remedy of specific performance (whereas current law requires specific performance only for agreements to continue the company);

(7) Allows the articles of organization of an LLC to stipulate an event or events, as opposed to dates, upon which the company would dissolve;

(8) Grants a withdrawn member the rights of an assignee with respect to the withdrawn member's interest in an LLC that is continuing its operation, unless otherwise provided for in the operating agreement;

(9) Entitles a member withdrawing from a continuing LLC to payment of the member's interest upon demand and within 180 days, rather than "within a reasonable time after" the withdrawal. This provision will apply to existing LLC's, unless such a company elects otherwise by written agreement of all its members;

(10) Limits a member's liability for making or accepting wrongful distributions to a period of 3 years following the date of distribution, and only to the extent of the value of the wrongful distribution;

(11) Clarifies that upon the withdrawal of an LLC member, the member has no duties to the company except a duty to account for any profit or benefit derived from the company, including the use of any company property, without the informed consent of the majority of the members of the company. Also, such a withdrawn member has no further right to participate in the management of the company, and has only the rights of an assignee;

(12) Requires the inclusion of any registered fictitious names used by a general partnership when filing articles of organization to convert to an LLC;

(13) Cancels automatically any registered fictitious name or certificate of limited partnership when a general or limited partnership converts to an LLC, upon the filing of the articles of organization;

(14) Requires merger or consolidation agreements to be written, and sets forth the information to be addressed in the agreement;

(15) Requires any merger or consolidation to become effective within 90 days of the filing of the notice of merger or consolidation;

(16) Requires the articles of organization to be attached to any notice of merger or consolidation; and

(17) Allows a majority to vote for dissolution of an LLC upon the withdrawal of a member, except as otherwise provided in the operating agreement. Current law requires consent of all remaining members.

LIMITED LIABILITY PARTNERSHIPS

In the area of the law governing registered limited liability partnerships (LLP), the bill:

(1) Requires any agreement to contribute capital to an LLP to be written and signed by the contributing partner. Third parties may not enforce such agreements unless the partner consents or the LLP assigns the obligation to the third party;

(2) Prohibits a registered LLP from making any distribution to a partner that would make the LLP insolvent;

(3) Limits the liability of a partner in a registered LLP for making or accepting wrongful distributions to a period of 3 years following the date of distribution, and only to the extent of the value of the wrongful distribution; and

(4) Limits the personal liability of a partner in a registered LLP to the total amount of assets distributed to the partner in liquidation, in the event a claim against a dissolved partnership cannot be paid by the remaining partnership assets.

PARTNERSHIPS AND LIMITED PARTNERSHIPS

In the area of the law governing partnerships and limited partnerships, the bill:

(1) Allows a domestic partnership to merge or consolidate with any type of business entity;

(2) Requires limited partnerships that are merging or consolidating to file a certificate with the Secretary of State, and sets forth the information that must be included in such a certificate;

(3) Bars any claim against a partnership that is dissolved without fraudulent intent when the claim against the partnership is not timely filed, and establishes procedures for disposing of claims against a dissolved partnership, including notice requirements and time restrictions;

(4) Repeals the provision making a limited partner liable for the obligations of the partnership when the limited partner participates in the management or control of the business;

(5) Repeals the provision requiring 6 months notice for a limited partner to withdraw, unless otherwise provided in the agreement;

(6) Allows partners owning a majority interest in the limited partnership to agree to continue a limited partnership after the withdrawal of a partner, rather than requiring the agreement of all partners.

OTHER PROVISIONS

In addition, the bill:

(1) Creates the entity "Limited Liability Limited Partnership," whose members' personal liability will be limited as though they were partners of a registered LLP, and sets forth the requirements for forming such a partnership;

(2) In the event a limited partnership ceases to be registered as a limited liability limited partnership, the limited partnership must file an amendment with the Secretary of State within 90 days. Operating the limited partnership after failing to timely file such a certificate is a Class B misdemeanor, subjecting the general partners to criminal prosecution, in addition to civil fines;

(3) Defines "organizational document," as that term is applied in the sub-chapter governing merger and consolidation of business entities, with respect to general partnerships, LLP's and limited liability limited partnerships;

(4) Clarifies that limited partnerships and LLC's may agree to borrow money at any interest rate or terms;

(5) Adds LLC's and LLP's to the list of entities under which a person may be organized for the practice of law; and

(6) Sets forth a form for a certificate of acknowledgment executed by a member of an LLC.

The bill has an emergency clause.

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