Uniform LLC Act as introduced in Hawaii HB2093, 1995 Session, Part 2 of 4 Article 3 through article 4, pages 28 through 45 of the Bill Source FYI Hawaii, telnet: fyi.uhcc.hawaii.edu ------------------------------------------------------------------------- 1 ARTICLE 3. 2 RELATIONS OF MEMBERS AND MANAGERS TO PERSONS 3 DEALING WITH LIMITED LIABILITY COMPANY 4 § -301 Agency of members and managers. (a) Subject to 5 subsections (b) and (c): 6 (1) Each member is an agent of the limited liability 7 company for the purpose of its business; 8 (2) An act of a member, including the signing of an 9 instrument in the company name, for apparently carrying 10 on in the ordinary course the company business or 11 business of the kind carried on by the company binds 12 the company, unless the member had no authority to act 13 for the company in the particular matter and the person 14 with whom the member was dealing knew or had received 15 notice that the member lacked authority; and 16 (3) An act of a member which is not apparently for carrying 17 on in the ordinary course the company business or 18 business of the kind carried on by the company binds 19 the company only if the act was authorized by the other 20 members. 21 (b) Subject to subsection (c), in a manager-managed limited 22 liability company: a Page 28 2093 H.B. NO. 1 (1) A member is not an agent of the company for the purpose 2 of its business solely by reason of being a member; 3 (2) Each manager is an agent of the company for the purpose 4 of its business; 5 (3) An act of a manager, including the signing of an 6 instrument in the company name, for apparently carrying 7 on in the ordinary course the company business or 8 business of the kind carried on by the company binds 9 the company, unless the manager had no authority to act 10 for the company in the particular matter and the person 11 with whom the manager was dealing knew or had received 12 notice that the manager lacked authority; and 13 (4) An act of a manager which is not apparently for 14 carrying on in the ordinary course the company business 15 or business of the kind carried on by the company binds 16 the company only if the act was authorized in 17 accordance with section -404(b)(2). 18 (c) Unless the articles of organization set forth a 19 limitation on their authority, any member in a member-managed 20 limited liability company, or any manager in a manager-managed 21 company, may sign and deliver any instrument transferring or 22 affecting the company's interest in real property, which a Page 29 2093 H.B. NO. 1 instrument shall be conclusive in favor of a person who gives 2 value without knowledge of the lack of the authority of the 3 person signing and delivering the instrument. 4 § -302 Limited liability company liable for member's or 5 manager's actionable conduct. A limited liability company is 6 liable for loss or injury caused to a person, or for a penalty 7 incurred, as a result of a wrongful act or omission, or other 8 actionable conduct, of a member or manager acting in the ordinary 9 course of business of the company or with authority of the 10 company. 11 § -303 Liability of members and managers. (a) Except as 12 otherwise provided in subsection (c), the debts, obligations, and 13 liabilities of a limited liability company, whether arising in 14 contract, tort, or otherwise, are solely the debts, obligations, 15 and liabilities of the company. A member or manager is not 16 personally liable for a debt, or other obligation of the company, 17 solely by reason of being or acting as a member or a manager. 18 (b) The failure of a limited liability company to observe 19 the usual company formalities or requirements relating to the 20 exercise of its company powers or management of its business is 21 not a ground for imposing personal liability on the members or 22 managers for liabilities of the company. a Page 30 2093 H.B. NO. 1 (c) All or specified members of a limited liability company 2 are liable in their capacity as members for all or specified 3 debts or other obligations of the company if: 4 (1) A provision to this effect is included in the articles 5 of organization; and 6 (2) A member so liable has consented in writing to the 7 adoption of the provision or to be bound by the 8 provision. 9 ARTICLE 4. 10 RELATIONS OF MEMBERS TO EACH OTHER AND 11 TO LIMITED LIABILITY COMPANY 12 § -401 Form of contribution. A contribution of a member 13 of a limited liability company may consist of tangible or 14 intangible property or other benefit to the company, including 15 money, promissory notes, services performed, or other obligations 16 to contribute cash or property, or contracts for services to be 17 performed. 18 § -402 Member's liability for contributions. (a) A 19 member's obligation to contribute money, property, or other 20 benefit to, or to perform services for, a limited liability 21 company is not excused by the member's death, disability, or 22 other inability to perform personally. If a member does not make a Page 31 2093 H.B. NO. 1 the required contribution of property or services, the member is 2 obligated at the option of the company to contribute money equal 3 to that portion of the value of the stated contribution which has 4 not been made. 5 (b) A creditor of a limited liability company who extends 6 credit or otherwise acts in reliance on such an obligation, and 7 without notice of any compromise under section -404(c)(5), may 8 enforce the original obligation. 9 § -403 Member's rights to payments and reimbursement. 10 (a) A limited liability company shall reimburse a member for 11 payments made and indemnify a member for liabilities incurred by 12 the member in the ordinary course of the business of the company 13 or for the preservation of its business or property. 14 (b) A limited liability company shall reimburse a member 15 for an advance to the company beyond the amount of contribution 16 the member agreed to make. 17 (c) A payment or advance made by a member which gives rise 18 to an obligation of a limited liability company under subsection 19 (a) or (b) constitutes a loan to the company upon which interest 20 accrues from the date of the payment or advance. 21 (d) A member is not entitled to remuneration for services 22 performed for a limited liability company, except for reasonable a Page 32 2093 H.B. NO. 1 compensation for services rendered in winding up the business of 2 the company. 3 § -404 Management of limited liability company. (a) In 4 a member-managed limited liability company: 5 (1) Each member has equal rights in the management and 6 conduct of the company business; and 7 (2) Except as specified in subsection (c) or in section 8 -801(3)(i), any matter relating to the business of 9 the company may be decided by a majority of the 10 members. 11 (b) In a manager-managed limited liability company: 12 (1) Except as specified in subsection (c), the managers 13 have the exclusive authority to manage and conduct the 14 company business; 15 (2) Except as specified in subsection (c), any matter 16 relating to the business of the company may be 17 exclusively decided by the manager or, if there is more 18 than one manager, by a majority of the managers; and 19 (3) A manager: 20 (i) Must be designated, appointed, elected, removed, 21 or replaced by a vote, approval, or consent of a 22 majority of the members; and a Page 33 2093 H.B. NO. 1 (ii) Holds office until a successor has been elected 2 and qualified, unless sooner removed. 3 (c) The only matters of a limited liability company's 4 business requiring the consent of all the members are: 5 (1) The amendment of the operating agreement under section 6 -103; 7 (2) The authorization or ratification of acts or 8 transactions under section -103(b)(2)(ii) which 9 would otherwise violate the duty of loyalty; 10 (3) An amendment to the articles of organization under 11 section -204; 12 (4) The compromise of an obligation to make a contribution 13 under section -402(b); 14 (5) The compromise, as among members, of an obligation of a 15 member to make a contribution or return money or other 16 property paid or distributed in violation of this 17 chapter; 18 (6) The making of interim distributions under section 19 -405(a); 20 (7) The admission of a new member; 21 (8) The use of company property to redeem an interest 22 subject to a charging order; a Page 34 2093 H.B. NO. 1 (9) The consent to dissolve the company under section 2 -801(2); 3 (10) A waiver of the right to have the company's business 4 wound up and the company terminated under section 5 -802(b); 6 (11) The consent of members to merge with another entity 7 under section -904(c)(1); and 8 (12) The sale, lease, exchange, or other disposal of all, or 9 substantially all, of company property with or without 10 goodwill. 11 (d) Action requiring the consent of members or managers 12 under this chapter may be taken at a meeting of the members or 13 managers. An action that may be taken at a meeting of the 14 members or managers may be taken without a meeting if the action 15 is taken by all of the members or managers entitled to vote on 16 the action. The action must be evidenced by one or more consents 17 reflected in a record describing the action taken and signed by 18 all of the members or managers entitled to vote on the action. 19 (e) A member or manager may appoint a proxy to vote or 20 otherwise act for the member or manager by signing an appointment 21 instrument, either personally or by the member's or manager's 22 attorney-in-fact. An appointment of a proxy is valid for eleven a Page 35 2093 H.B. NO. 1 months unless a different time is specified in the appointment 2 instrument. An appointment is revocable by the member or manager 3 unless the appointment form conspicuously states that it is 4 irrevocable and the appointment is coupled with an interest, in 5 which case the appointment is revoked when the coupled interest 6 is extinguished. 7 § -405 Sharing of and right to distributions. (a) Any 8 limited liability company distributions made before its 9 dissolution and winding must be in equal shares. 10 (b) A member has no right to receive, and may not be 11 required to accept, a distribution in kind. 12 (c) If a member becomes entitled to receive a distribution, 13 the member has the status of, and is entitled to all remedies 14 available to, a creditor of the limited liability company with 15 respect to the distribution. 16 § -406 Limitations on distributions. (a) A distribution 17 may not be made if: 18 (1) The limited liability company would not be able to pay 19 its debts as they become due in the ordinary course of 20 business; or 21 (2) The company's total assets would be less than the sum 22 of its total liabilities plus the amount that would be a Page 36 2093 H.B. NO. 1 needed, if the company were to be dissolved, wound up, 2 and terminated at the time of the distribution, to 3 satisfy the preferential rights upon dissolution, 4 winding up, and termination of members whose 5 preferential rights are superior to those receiving the 6 distribution. 7 (b) A limited liability company may base a determination 8 that a distribution is not prohibited under subsection (a) either 9 on financial statements prepared on the basis of accounting 10 practices and principles that are reasonable in the circumstances 11 or on a fair valuation or other method that is reasonable in the 12 circumstances. 13 (c) Except as otherwise provided in subsection (e), the 14 effect of a distribution under subsection (a) is measured: 15 (1) In the case of distribution by purchase, redemption, or 16 other acquisition of a limited liability company's 17 membership interests, as of the date money or other 18 property is transferred or debt incurred by the 19 company; and 20 (2) In all other cases, as of the date the: 21 (i) Distribution is authorized if the payment occurs 22 within one hundred twenty days after the date of a Page 37 2093 H.B. NO. 1 authorization; or 2 (ii) Payment is made if it occurs more than one hundred 3 twenty days after the date of authorization. 4 (d) A limited liability company's indebtedness to a member 5 incurred by reason of a distribution made in accordance with this 6 section is at parity with the company's indebtedness to its 7 general, unsecured creditors. 8 (e) Indebtedness of a limited liability company, including 9 indebtedness issued in connection with or as part of a 10 distribution, is not considered a liability for purposes of 11 determinations under subsection (a) if its terms provide that 12 payment of principal and interest are made only if and to the 13 extent that payment of a distribution to members could then be 14 made under this section. If the indebtedness is issued as a 15 distribution, each payment of principal or interest on the 16 indebtedness is treated as a distribution, the effect of which is 17 measured on the date the payment is actually made. 18 § -407 Liability for unlawful distributions. (a) A 19 member of a member-managed limited liability company or a member 20 or manager of a manager-managed company who votes for or assents 21 to a distribution made in violation of section -406, the 22 articles of organization, or a written operating agreement is a Page 38 2093 H.B. NO. 1 personally liable to the company for the amount of the 2 distribution which exceeds the amount that could have been 3 distributed without violating section -406, the articles of 4 organization, or a written operating agreement if it is 5 established that the member or manager did not perform the 6 member's or manager's duties in compliance with section -409. 7 (b) A member of a manager-managed limited liability company 8 who knew a distribution was made in violation of section -406 9 is personally liable to the limited liability company, but only 10 to the extent that the distribution received by the member 11 exceeded the amount that could properly have been paid under 12 section -406. 13 (c) A member or manager against whom an action is brought 14 under this section may implead in the action all: 15 (1) Other members or managers who voted for or assented to 16 the distribution in violation of subsection (a) and may 17 compel contribution from them; and 18 (2) Members who received a distribution in violation of 19 subsection (b) and may compel contribution from the 20 member in the amount received in violation of 21 subsection (b). 22 (d) A proceeding under this section is barred unless it is a Page 39 2093 H.B. NO. 1 commenced within two years after the date of the distribution. 2 § -408 Member's right to information. (a) A limited 3 liability company shall provide members and their agents and 4 attorneys access to any of its books and records at reasonable 5 locations specified in the operating agreement. The company 6 shall provide former members and their agents and attorneys 7 access for proper purposes to books and records pertaining to the 8 period during which they were members. The right of access 9 provides the opportunity to inspect and copy books and records 10 during ordinary business hours. The company may impose a 11 reasonable charge, limited to the costs of labor and material, 12 for copies of records furnished. 13 (b) A limited liability company shall furnish to a member, 14 and to the legal representative of a deceased member or member 15 under legal disability: 16 (1) Without demand, information concerning the company's 17 business or affairs reasonably required for the proper 18 exercise of the member's rights and duties under the 19 operating agreement or this chapter; and 20 (2) On demand, other information concerning the company's 21 business or affairs, except to the extent the demand or 22 the information demanded is unreasonable or otherwise a Page 40 2093 H.B. NO. 1 improper under the circumstances. 2 (c) A member has the right upon signed record given to the 3 limited liability company to obtain at the company's expense a 4 copy of any operating agreement in record form. 5 § -409 General standards of member's and manager's 6 conduct. (a) The only fiduciary duties a member owes to a 7 member-managed limited liability company and its other members 8 are the duty of loyalty and the duty of care imposed by 9 subsections (b) and (c). 10 (b) A member's duty of loyalty to a member-managed limited 11 liability company and its other members is limited to the 12 following: 13 (1) To account to the company and to hold as trustee for it 14 any property, profit, or benefit derived by the member 15 in the conduct or winding up of the company business or 16 derived from a use by the member of company property, 17 including the appropriation of a company opportunity; 18 (2) To refrain from dealing with the company in the conduct 19 or winding up of the company business as or on behalf 20 of a party having an interest adverse to the company; 21 and 22 (3) To refrain from competing with the company in the a Page 41 2093 H.B. NO. 1 conduct of the company business before the dissolution 2 of the company. 3 (c) A member's duty of care to a member-managed limited 4 liability company and its other members in the conduct of and 5 winding up of the company business is limited to refraining from 6 engaging in grossly negligent or reckless conduct, intentional 7 misconduct, or a knowing violation of law. 8 (d) A member shall discharge the duties to a member-managed 9 limited liability company and its other members under this 10 chapter or under the operating agreement and exercise any rights 11 consistently with the obligation of good faith and fair dealing. 12 (e) A member of a member-managed limited liability company 13 does not violate a duty or obligation under this chapter or under 14 the operating agreement merely because the member's conduct 15 furthers the member's own interest. 16 (f) A member of a member-managed limited liability company 17 may lend money to and transact other business with the company. 18 As to each loan or transaction, the rights and obligations of the 19 member are the same as those of a person who is not a member, 20 subject to other applicable law. 21 (g) This section applies to a person winding up the limited 22 liability company business as the personal or legal a Page 42 2093 H.B. NO. 1 representative of the last surviving member as if the person were 2 a member. 3 (h) In a manager-managed limited liability company: 4 (1) A member who is not also a manager has no duties to the 5 company or to the other members solely by reason of 6 being a member; 7 (2) A manager is held to the same standards of conduct 8 prescribed for members in subsections (b) through (f); 9 (3) A member who pursuant to the operating agreement 10 exercises some or all of the rights of a manager in the 11 management and conduct of the company business is held 12 to the standards of conduct in subsections (b) through 13 (f) to the extent that the member exercises the 14 managerial authority vested in a manager by this 15 chapter; and 16 (4) A manager is relieved of liability imposed by law for 17 violation of the standards prescribed by subsections 18 (b) through (f) to the extent of the managerial 19 authority delegated to the members by the operating 20 agreement. 21 § -410 Actions by members. (a) A member may maintain an 22 action against a limited liability company or another member for a Page 43 2093 H.B. NO. 1 legal or equitable relief, with or without an accounting as to 2 the company business, to enforce: 3 (1) The member's rights under the operating agreement; 4 (2) The member's rights under this chapter, including: 5 (i) The member's rights under sections -403, 6 -404, -405, -407, -408, and -409; 7 and 8 (ii) The member's right to compel a dissolution and 9 winding up of the company business under section 10 -801 or to enforce any other right under 11 article 8. 12 (3) The rights and otherwise protect the interests of the 13 member, including rights and interests arising 14 independently of the member's relationship to the 15 company. 16 (b) The accrual, and any time limitation for the assertion, 17 of a right of action for a remedy under this section is governed 18 by other law. A right to an accounting upon a dissolution and 19 winding up does not revive a claim barred by law. 20 § -411 Continuation of term limited liability company 21 beyond expiration of stated duration. (a) If a term limited 22 liability company is continued after the expiration of its term, a Page 44 2093 H.B. NO. 1 the rights and duties of the members and managers, if any, remain 2 the same as they were at the expiration of the term except to the 3 extent inconsistent with an at-will limited liability company. 4 (b) If the members in a member-managed limited liability 5 company or the managers in a manager-managed company continue the 6 business without any winding up of the business of the company, 7 it will continue as an at-will company. -- John DeBruyn, Denver, Colorado, The Mile High City, USA (jdebruyn@usa.net)