Brief(1)
H.B. 2276 repeals the current Limited Liability Company (LLC) Act found at K.S.A. 17-7601 et seq., and replaces it with the Kansas Revised Limited Liability Company Act. H.B. 2276 makes revisions to the Kansas law to make it conform more closely to the Delaware limited liability company act and the Kansas corporation code. The following is a summary of the major provisions of the bill.
1. Sections 1-11 are general provisions dealing with LLCs. Section 1 includes a definition of the term "majority in interest" which has been added. Section 7 contains a broad general statement listing the powers of an LLC to carry on any lawful business, purpose, or activity. An LLC may carry on any lawful business, purpose, or activity, whether or not for profit, with the exception of the business of granting policies of insurance or assuming insurance risks or banking.
Sections 8 and 9 authorize members and managers to lend money to, borrow money from, act as a surety, guarantor or endorser for, guarantee or assume one or more obligations of, provide collateral for, and transact other business with, an LLC and have the same rights and obligations as a person who is not a member or manager. An LLC may indemnify and hold harmless any member of manager or other person from and against any and all claims and demands. Similar provisions now exist in the Kansas corporation code.
2. Sections 12-24 establish rules for the articles of organization, amendments to the articles, filing procedures, merger and consolidation of LLCs, contractual appraisal rights, conversion of other legal entities including a sole proprietorship to an LLC, and conversion of LLCs to other legal entities.
Section 21 is a new provision dealing with appraisal rights. It provides that an operating agreement or an agreement of merger or consolidation may provide that contractual appraisal rights with respect to an LLC interest or another interest in an LLC shall be available for members or LLC interests in connection with any amendment of the operating agreement, any merger or consolidation in which the LLC is a constituent party to the merger or consolidation, or the sale of all or substantially all of the LLC's assets. The district court shall have jurisdiction to hear and determine any matter relating to any appraisal rights.
3. Sections 25-30 deal with admission of members, classes of members and voting rights, liability to third parties, a member's right to access to information of the LLC, and remedies against members who breach the operating agreement.
Section 27, dealing with liability to third parties, provides the debts, obligations, and liabilities of an LLC, whether arising in contract, tort, or otherwise, shall be solely the debts, obligations, and liabilities of the LLC. No member or manager of an LLC shall be obligation personally for any such debt, obligation, or liability of the LLC solely by reason of being a member or acting as a manager. A member or manager may agree, however, to be obligated personally for any or all of the debts, obligations, and liabilities of the LLC. A member or manager of an LLC is not a proper party to proceedings by or against an LLC, except when the object is to enforce a member's or manager's right against, or liability to, the LLC.
The effect of bankruptcy of a member is covered in Section 28. A person ceases to be a member of an LLC and becomes an assignee upon the happening of any of the following events unless otherwise provided in the operating agreement:
4. Sections 31-37 deal with managers, classes of managers and voting. Sections 34 to 37 are new and deal with classes of managers and their powers, remedies for breach of the operating agreement by a manager, reliance of members on reports of managers and delegation of rights and powers to manage. The role of managers is patterned after the corporate officer model.
5. Sections 38-42 deal with the finances of LLCs. Section 39 provides that a member shall be obligated to an LLC to perform any promise to contribute cash or property or to perform services, even if the member is unable to perform because of death, disability, or any other reason. If a member does not make the required contribution of property or services, the member is obligated at the option of the LLC to contribute cash equal to that portion of the agreed value (as stated in the records of the LLC) of the contribution that has not been made. The foregoing option shall be in addition to, and not in lieu of, any other rights, including the right to specific performance.
Section 40 establishes a default rule for the allocation of profits and losses among the members, and among classes or groups of members. If the operating agreement does not so provide, profits and losses shall be allocated on the basis of the agreed value (as stated in the records of the LLC) of the contributions made by each member to the extent they have been received by the LLC and have not been returned. Current law provides that profits and losses will be allocated as distributions are allocated, which is equally.
6. Sections 43-49 deal with interim distributions and the resignation of managers and members. Current Kansas law does not mentioned the resignation of members.
7. Sections 50-4 deal with the nature of an LLC interest (personal property), the assignment of LLC interests, the rights of a judgment creditor, the right of an assignee to become a member, and the powers of an estate of a deceased or incompetent member.
Section 52 is new and provides that on application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the LLC interest of the member with payment of the unsatisfied amount of the judgement with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the LLC interest. This act does not deprive any member of the benefit of any exemption laws applicable to the member's LLC interest. The rights provided to the judgement creditor shall be the sole and exclusive remedy of a judgement creditor with respect to the member's LLC interest.
8. Sections 55-58 deal with dissolution and winding up of LLCs.
9. Sections 59-68 deal with the operation of foreign LLCs in the State of Kansas including their registration, services of process, and venue.
10. Sections 69-72 deal with derivative suits and is new and similar to procedures that apply to corporations.
11. Sections73-82 are miscellaneous provisions including such things as fees for documents or services of the Secretary of State, the state taxation of LLCs, and annual reports.
Background
The bill was requested by a study group of the Kansas Bar Association. The proposed new revised law is based on the Delaware Limited Liability Company Act. The group chose the Delaware Law as a pattern since Kansas corporate law now is patterned after the Delaware code; it is expected that litigation of LLC issues in Delaware will arise more often than in Kansas thus providing a good source for case law interpretation; and, the study group thought the Delaware law was well thought out.
Kansas enacted the Limited Liability Company Act in 1990 and was the third state to take such action. Now all 50 states have an LLC law.
LLCs are fast becoming the entity of choice for large and small businesses and most professions.
1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html