2018 -- H 7619

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LC003519

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2018

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A N   A C T

RELATING TO CORPORATIONS, ASSOCIATIONS, AND PARTNERSHIPS -- THE RHODE

ISLAND LIMITED LIABILITY COMPANY ACT

     Introduced By: Representatives Ucci, Winfield, Shekarchi, and Solomon

     Date Introduced: February 14, 2018

     Referred To: House Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Chapter 7-16 of the General Laws entitled "The Rhode Island Limited

Liability Company Act" is hereby amended by adding thereto the following section:

     7-16-77. Series of members, managers, limited liability company interests or assets.

     (a) The articles of organization or operating agreement may establish or provide for the

establishment of one or more designated series of members, managers, limited liability company

interests or assets. Any such series may have separate rights, powers or duties with respect to

specified property or obligations of the limited liability company or profits and losses associated

with specified property or obligations, and any such series may have a separate business purpose

or investment objective.

     (b) Notwithstanding anything to the contrary set forth in this chapter or under other

applicable law, in the event that the articles of organization or operating agreement establishes or

provides for the establishment of one or more series, and if the records maintained for any such

series account for the assets associated with such series separately from the other assets of the

limited liability company, or any other series thereof, and if the operating agreement so provides,

and if notice of the limitation on liabilities of a series as referenced in this subsection is set forth

in the articles of organization of the limited liability company, then the debts, liabilities,

obligations and expenses incurred, contracted for or otherwise existing with respect to a particular

series shall be enforceable against the assets of such series only, and not against the assets of the

limited liability company generally or any other series thereof, and, unless otherwise provided in

the articles of organization or operating agreement, none of the debts, liabilities, obligations and

expenses incurred, contracted for or otherwise existing with respect to the limited liability

company generally or any other series thereof shall be enforceable against the assets of such

series. Assets associated with a series may be held directly or indirectly, including in the name of

such series, in the name of the limited liability company, through a nominee or otherwise.

Records maintained for a series that reasonably identify its assets, including by specific listing,

category, type, quantity, computational or allocational formula or procedure (including a

percentage or share of any asset or assets) or by any other method where the identity of such

assets is objectively determinable, will be deemed to account for the assets associated with such

series separately from the other assets of the limited liability company, or any other series thereof.

Notice in the articles of organization of the limitation on liabilities of a series as referenced in this

subsection shall be sufficient for all purposes of this subsection whether or not the limited

liability company has established any series when such notice is included in the articles of

organization, and there shall be no requirement that any specific series of the limited liability

company be referenced in such notice. The fact that the articles of organization that contains the

foregoing notice of the limitation on liabilities of a series is on file in the office of the secretary of

state shall constitute notice of such limitation on liabilities of a series.

     (c) A series established in accordance with subsection (b) of this section may carry on

any lawful business, purpose or activity, whether or not for profit, with the exception of the

business of banking as governed by title 19. Unless otherwise provided in the articles of

organization or operating agreement, a series established in accordance with subsection (b) of this

section shall have the power and capacity to, in its own name, contract, hold title to assets

(including real, personal and intangible property), grant liens and security interests, and sue and

be sued.

     (d) Notwithstanding any other provisions of this chapter, under the articles of

organization or operating agreement, or under another agreement, a member or manager may

agree to be obligated personally for any or all of the debts, obligations and liabilities of one or

more series.

     (e) The articles of organization or operating agreement may provide for classes or groups

of members or managers associated with a series having such relative rights, powers and duties as

the articles of organization or operating agreement may provide, and may make provision for the

future creation in the manner provided in the articles of organization or operating agreement of

additional classes or groups of members or managers associated with the series having such

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relative rights, powers and duties as may from time to time be established, including rights,

powers and duties senior to existing classes and groups of members or managers associated with

the series. The operating agreement may provide for the taking of an action, including the

amendment of the operating agreement, without the vote or approval of any member or manager

or class or group of members or managers, including an action to create under the provisions of

the operating agreement a class or group of the series of limited liability company interests that

was not previously outstanding. An operating agreement may provide that any member or class or

group of members associated with a series shall have no voting rights.

     (f) An operating agreement may grant to all or certain identified members or managers or

a specified class or group of the members or managers associated with a series the right to vote

separately or with all or any class or group of the members or managers associated with the

series, on any matter. Voting by members or managers associated with a series may be on a per

capita, number, financial interest, class, group or any other basis.

     (g) Unless otherwise provided in an operating agreement, the management of a series

shall be vested in the members associated with such series in proportion to the then current

percentage or other interest of members in the profits of the series owned by all of the members

associated with such series. the decision of members owning more than fifty percent (50%) of the

said percentage or other interest in the profits controlling; provided, however, that if an operating

agreement provides for the management of the series, in whole or in part, by a manager, the

management of the series, to the extent so provided, shall be vested in the manager who shall be

chosen in the manner provided in the operating agreement. The manager of the series shall also

hold the offices and have the responsibilities accorded to the manager as set forth in the operating

agreement. A series may have more than one manager. Subject to the provisions of this chapter, a

manager shall cease to be a manager with respect to a series as provided in the operating

agreement. Except as otherwise provided in an operating agreement, any event under this chapter

or in an operating agreement that causes a manager to cease to be a manager with respect to a

series shall not, in itself, cause such manager to cease to be a manager of the limited liability

company or with respect to any other series thereof.

     (h) Notwithstanding the provisions of this chapter, but subject to subsections (i) and (l) of

this section, and unless otherwise provided in an operating agreement, at the time a member

associated with a series that has been established in accordance with subsection (b) of this section

becomes entitled to receive a distribution with respect to such series, the member has the status

of, and is entitled to all remedies available to, a creditor of the series, with respect to the

distribution. An operating agreement may provide for the establishment of a record date with

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respect to allocations and distributions with respect to a series.

     (i) Notwithstanding the provisions of this chapter, a limited liability company may make

a distribution with respect to a series that has been established in accordance with subsection (b)

of this section. A limited liability company shall not make a distribution with respect to a series

that has been established in accordance with subsection (b) of this section to a member to the

extent that at the time of the distribution, after giving effect to the distribution, all liabilities of

such series, other than liabilities to members on account of their limited liability company

interests with respect to such series and liabilities for which the recourse of creditors is limited to

specified property of such series, exceed the fair value of the assets associated with such series,

except that the fair value of property of the series that is subject to a liability for which the

recourse of creditors is limited shall be included in the assets associated with such series only to

the extent that the fair value of that property exceeds that liability. For purposes of the

immediately preceding sentence, the term "distribution" shall not include amounts constituting

reasonable compensation for present or past services or reasonable payments made in the

ordinary course of business pursuant to a bona fide retirement plan or other benefits program. A

member who receives a distribution in violation of this subsection, and who knew at the time of

the distribution that the distribution violated this subsection, shall be liable to a series for the

amount of the distribution. A member who receives a distribution in violation of this subsection,

and who did not know at the time of the distribution that the distribution violated this subsection,

shall not be liable for the amount of the distribution. Subject to the provisions of this chapter,

which shall apply to any distribution made with respect to a series under this subsection, this

subsection shall not affect any obligation or liability of a member under an agreement or other

applicable law for the amount of a distribution.

     (j) Unless otherwise provided in the operating agreement, a member shall cease to be

associated with a series and to have the power to exercise any rights or powers of a member with

respect to such series upon the assignment of all of the member's limited liability company

interest with respect to such series. Except as otherwise provided in an operating agreement, any

event under this chapter or an operating agreement that causes a member to cease to be associated

with a series shall not, in itself, cause such member to cease to be associated with any other series

or terminate the continued membership of a member in the limited liability company or cause the

termination of the series, regardless of whether such member was the last remaining member

associated with such series.

     (k) Subject to the provisions of this chapter, except to the extent otherwise provided in

the operating agreement, a series may be terminated and its affairs wound up without causing the

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dissolution of the limited liability company. The termination of a series established in accordance

with subsection (b) of this section shall not affect the limitation on liabilities of such series

provided by subsection (b) of this section. A series is terminated and its affairs shall be wound up

upon the dissolution of the limited liability company under the provisions of this chapter or

otherwise upon the first to occur of the following:

     (1) At the time specified in the operating agreement;

     (2) Upon the happening of events specified in the operating agreement;

     (3) Unless otherwise provided in the operating agreement, upon the affirmative vote or

written consent of the members of the limited liability company associated with such series or, if

there is more than one class or group of members associated with such series, then by each class

or group of members associated with such series, in either case, by members associated with such

series who own more than two-thirds (2/3) of the then-current percentage or other interest in the

profits of the series of the limited liability company owned by all of the members associated with

such series or by the members in each class or group of such series, as appropriate; or

     (4) The termination of such series under subsection (m) of this section.

     (l) Notwithstanding the provisions of this chapter, unless otherwise provided in the

operating agreement, a manager associated with a series who has not wrongfully terminated the

series or, if none, the members associated with the series or a person approved by the members

associated with the series or, if there is more than one class or group of members associated with

the series, then by each class or group of members associated with the series, in either case, by

members who own more than fifty percent (50%) of the then-current percentage or other interest

in the profits of the series owned by all of the members associated with the series or by the

members in each class or group associated with the series, as appropriate, may wind up the affairs

of the series; but, if the series has been established in accordance with subsection (b) of this

section, the superior court, upon cause shown, may wind up the affairs of the series upon

application of any member or manager associated with the series, or the member's personal

representative or assignee, and in connection therewith, may appoint a liquidating trustee. The

persons winding up the affairs of a series may, in the name of the limited liability company and

for and on behalf of the limited liability company and such series, take all actions with respect to

the series as are permitted under this chapter. The persons winding up the affairs of a series shall

provide for the claims and obligations of the series and distribute the assets of the series as

provided in this chapter, which shall apply to the winding up and distribution of assets of a series.

Actions taken in accordance with this subsection shall not affect the liability of members and

shall not impose liability on a liquidating trustee.

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     (m) On application by or for a member or manager associated with a series established in

accordance with subsection (b) of this section, the superior court may decree termination of such

series whenever it is not reasonably practicable to carry on the business of the series in

conformity with an operating agreement.

     (n) If a foreign limited liability company that is registering to do business in the state of

Rhode Island in accordance with this chapter is governed by an operating agreement that

establishes or provides for the establishment of designated series of members, managers, limited

liability company interests or assets having separate rights, powers or duties with respect to

specified property or obligations of the foreign limited liability company or profits and losses

associated with specified property or obligations, that fact shall be so stated on the application for

registration as a foreign limited liability company. In addition, the foreign limited liability

company shall state on such application whether the debts, liabilities and obligations incurred,

contracted for or otherwise existing with respect to a particular series, if any, shall be enforceable

against the assets of such series only, and not against the assets of the foreign limited liability

company generally or any other series thereof, and whether any of the debts, liabilities,

obligations and expenses incurred, contracted for or otherwise existing with respect to the foreign

limited liability company generally or any other series thereof shall be enforceable against the

assets of such series.

     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO CORPORATIONS, ASSOCIATIONS, AND PARTNERSHIPS -- THE RHODE

ISLAND LIMITED LIABILITY COMPANY ACT

***

     This act would provide for the establishment of limited liability companies having one or

more designated series of members, managers, limited liability company interests or assets. Any

such series may have separate rights, powers or duties with respect to specified property or

obligations of the limited liability company or profits and losses associated with specified

property or obligations, and any such series may have a separate business purpose.

     This act would take effect upon passage.

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