REPORT TITLE:


DESCRIPTION:


 
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THE SENATE                              S.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO LIMITED LIABILITY COMPANIES.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1. Chapter 428, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to be designated and to read as follows:
 
 3      "428-203.5.  Amended and restated articles of organization.
 
 4 (a)  A limited liability company at any time may amend and
 
 5 restate its articles of organization by complying with the
 
 6 procedures and requirements of section 428-204.
 
 7      (b)  Upon its adoption, the amended and restated articles of
 
 8 organization shall set forth:
 
 9      (1)  All of the operative provisions of the articles of
 
10           organization as therefore amended;
 
11      (2)  The information required by section 428-204; and
 
12      (3)  A statement that the amended and restated articles of
 
13           organization supersede the original articles of
 
14           organization and all amendments thereto.
 
15      (c)  The amended and restated articles of organization shall
 
16           be delivered to the director for filing.  The director
 
17           may certify the amended and restated articles of
 
18           organization as the articles of organization currently
 
19           in effect, without including the information required
 

 
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 1           to be filed by subsection (b)(2) and (3)."
 
 2      SECTION 2. Section 428-103, Hawaii Revised Statutes, amended
 
 3           to read as follows:
 
 4      "[[] 428-103[]].  Effect of operating agreement;
 
 5        nonwaivable provisions.
 
 6 (a) Except as provided in subsection (b), all the members of a
 
 7           limited liability company may enter into an operating
 
 8           agreement, which must be in writing, to regulate the
 
 9           affairs of the company and the conduct of its business,
 
10           and to govern relations among the members, managers,
 
11           and company.  To the extent the operating agreement
 
12           does not otherwise provide, this chapter governs
 
13           relations among the members, managers, and company. 
 
14      (b) The operating agreement may not:
 
15      (1)  Unreasonably restrict a right to information or access
 
16           to records under section 428-408;
 
17      (2)  Eliminate the duty of loyalty under section 428-409(b)
 
18           or 428-603(b)(3), but the agreement may:
 
19           (A)  Identify specific types or categories of
 
20                activities that do not violate the duty of
 
21                loyalty, if not manifestly unreasonable; and
 
22           (B)  Specify the number or percentage of members or
 
23                disinterested managers that may authorize or
 

 
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 1                ratify, after full disclosure of all material
 
 2                facts, a specific act or transaction that
 
 3                otherwise would violate the duty of loyalty;
 
 4      (3)  Unreasonably reduce the duty of care under section
 
 5           428-409(c) or 428-603(b)(3);
 
 6      (4)  Eliminate the obligation of good faith and fair dealing
 
 7           under section 428-409(d), but the operating agreement
 
 8           may determine the standards by which the performance of
 
 9           the obligation is to be measured, if the standards are
 
10           not manifestly unreasonable;
 
11      (5)  Vary the right to expel a member in an event specified
 
12           in section 428-601(5);
 
13      (6)  Vary the requirement to wind up the limited liability
 
14           company's business in a case specified in section
 
15           428-801(3) or 428-801(4) [or 428-801(5)]; or
 
16      (7)  Restrict rights of third parties under this chapter,
 
17           other than managers, members, or their transferees."
 
18      SECTION 3.  Section 428-111, Hawaii Revised Statutes, is
 
19 amended by amending subsection (a) to read as follows:
 
20      "(a)  A limited liability company may be organized under
 
21 this chapter for any lawful purpose[; provided that the following
 
22 purposes are prohibited:
 
23      (1)  Activities of a financial institution under chapter
 

 
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 1           412;
 
 2      (2)  Activities under chapter 431; or
 
 3      (3)  Activities under chapter 442, 448, 453, 455, 459, 460,
 
 4           461, 463E, 465, 466, 471, or 605, or section 554-2.
 
 5 A limited liability company shall be], subject to any law of this
 
 6 State governing or regulating business. [If the purpose for which
 
 7 a limited liability company is organized or its form makes it
 
 8 subject to a special provision of law, the limited liability
 
 9 company shall also comply with that provision.]"
 
10      SECTION 4.  Section 428-404, Hawaii Revised Statutes, is
 
11 amended by amending subsections (a), (b), and (c) to read as
 
12 follows:
 
13      "(a)  In a member-managed limited liability company:
 
14      (1)  Each member has equal rights in the management and
 
15           conduct of the company's business; and
 
16      (2)  Except as specified in subsection (c) [or in section
 
17           428-801(3)(A)], any matter relating to the business of
 
18           the company may be decided by a majority of the
 
19           members[; and
 
20      (3)  Each member who is not an individual must be qualified
 
21           to transact business in this State].
 
22      (b)  In a manager-managed limited liability company:
 
23      (1)  The manager or managers have the exclusive authority to
 

 
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 1           manage and conduct the company's business;
 
 2      (2)  Except as specified in subsection (c) [or in section
 
 3           428-801(3)(A)], any matter relating to the business of
 
 4           the company may be exclusively decided by the manager
 
 5           or, if there is more than one manager, by a majority of
 
 6           the managers; and
 
 7      (3)  A manager shall:
 
 8           (A)  Be designated, appointed, elected, removed, or
 
 9                replaced by a vote, approval, or consent of a
 
10                majority of the members; and
 
11          [(B)  Be qualified to transact business in this State if
 
12                the manager is an entity; and
 
13           (C)] (B)  Remain in office until a successor has been
 
14                     elected [and qualified], unless the manager
 
15                     resigns or is removed sooner.
 
16      (c)  The [following] only matters [require] of a limited
 
17 liability company's business that require the consent of all the
 
18 members [of the limited liability company:] are:
 
19      (1)  Amendments to the operating agreement under section
 
20           428-103;
 
21      (2)  Authorization or ratification of acts or transactions
 
22           under section 428-103(b)(2)(B) which would otherwise
 
23           violate the duty of loyalty;
 

 
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 1      (3)  Amendments to the articles of organization under
 
 2           section 428-204;
 
 3      (4)  Compromising an obligation to make a contribution under
 
 4           section 428-402(b);
 
 5      (5)  Compromising among members, of an obligation of a
 
 6           member to make a contribution or return money or other
 
 7           property paid or distributed in violation of this
 
 8           chapter;
 
 9      (6)  Making interim distributions under section 428-405(a);
 
10      (7)  Admission of a new member;
 
11      (8)  Use of the company's property to redeem an interest
 
12           subject to a charging order;
 
13      (9)  Consent to dissolve the company under section
 
14           428-801(2);
 
15     (10)  Waiving of the right to have the company's business
 
16           wound up and the company terminated under section
 
17           428-802(b);
 
18     (11)  Merging the company with another entity under section
 
19           428-904(c)(1); and
 
20     (12)  Selling, leasing, exchanging, or otherwise disposing of
 
21           all, or substantially all, of the company's property
 
22           with or without goodwill."
 
23      SECTION 5.  Section 428-503, Hawaii Revised Statutes, is
 

 
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 1 amended by amending subsection (e) to read as follows:
 
 2      "(e)  A transferee who does not become a member is entitled
 
 3 to:
 
 4      (1)  Receive, in accordance with the transfer, distributions
 
 5           to which the transferor would otherwise be entitled;
 
 6      (2)  Receive, upon dissolution and winding up of the limited
 
 7           liability company's business:
 
 8           (A)  In accordance with the transfer, the net amount
 
 9                otherwise distributable to the transferor; and
 
10           (B)  A statement of account only from the date of the
 
11                latest statement of account agreed to by all the
 
12                members; and
 
13      (3)  Seek under section [428-801(6),] 428-801(5), a judicial
 
14           determination  that it is equitable to dissolve and
 
15           wind up the company's business."
 
16      SECTION 6.  Section 428-603, Hawaii Revised Statutes, is
 
17 amended by amending subsection (a) to read as follows:
 
18      "(a)  [If under section 428-801] Upon a member's
 
19 dissociation from a limited liability company [results in a
 
20 dissolution and winding up of the company's business, part VIII
 
21 shall apply.  If a member's dissociation from the company does
 
22 not result in a dissolution and winding up of the company's
 
23 business under section 428-801]:
 

 
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 1      (1)  In an at-will company, the company shall cause the
 
 2           dissociated member's company interest to be purchased
 
 3           under part VII; and
 
 4      (2)  In a company having a specified term:
 
 5           (A)  If the company dissolves and winds up its business
 
 6                on or before the expiration of its specified term,
 
 7                part VIII applies to determine the dissociated
 
 8                member's rights to distributions; and
 
 9           (B)  If the company does not dissolve and wind up its
 
10                business on or before the expiration of its
 
11                specified term, the company must cause the
 
12                dissociated member's distributional interest to be
 
13                purchased under part VII on the date of the
 
14                expiration of the term specified at the time of
 
15                the member's dissociation."
 
16      SECTION 7.  Section 428-701, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18      "(c)  If the price and other terms of a purchase of a
 
19 distributional interest are fixed or are to be determined by the
 
20 operating agreement, the price and terms so fixed or determined
 
21 govern the purchase unless the purchaser defaults.  In that case
 
22 the dissociated member is entitled to commence a proceeding to
 
23 have the company dissolved under section [428-801(5).]428-
 

 
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 1 801(4)."
 
 2      SECTION 8.  Section 428-801, Hawaii Revised Statutes, is
 
 3 amended to read as follows:
 
 4      "[[]428-801.[]]  Events causing dissolution and winding up
 
 5 of company's business.  A limited liability company is dissolved,
 
 6 and its business shall be wound up, upon the occurrence of any of
 
 7 the following events:
 
 8      (1)  An event specified in the operating agreement;
 
 9      (2)  Consent of the number or percentage of members
 
10           specified in the operating agreement;
 
11     [(3)  Dissociation of a member-manager or, if  none, a member
 
12           of an at-will company, and dissociation of a member
 
13           manager or, if none, a member of a company having a
 
14           specified term but only if the dissociation was for a
 
15           reason provided in section 428-601(6) to (10) and
 
16           occurred before the expiration of the specified term,
 
17           provided that the company is not dissolved and required
 
18           to be wound up by reason of the dissociation:
 
19           (A)  If, within ninety days after the dissociation, a
 
20                majority of the remaining members agree to
 
21                continue the business of the company; or
 
22           (B)  The business of the company is continued under a
 
23                right to continue stated in the operating
 

 
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 1                agreement;
 
 2      (4)] (3)  An event that makes it unlawful for all or
 
 3           substantially all of the business of the company to be
 
 4           continued, provided that any cure of illegality within
 
 5           ninety days after notice to the company of the event
 
 6           shall be effective retroactively to the date of the
 
 7           event for purposes of this section;
 
 8     [(5)] (4)  On application by a member or a dissociated
 
 9           member, upon entry of a judicial decree that:
 
10           (A)  The economic purpose of the company is likely to
 
11                be unreasonably frustrated;
 
12           (B)  Another member has engaged in conduct relating to
 
13                the company's business that makes it not
 
14                reasonably practicable to carry on the company's
 
15                business with that member;
 
16           (C)  It is not otherwise reasonably practicable to
 
17                carry on the company's business in conformity with
 
18                the articles of organization and the operating
 
19                agreement;
 
20           (D)  The company failed to purchase the petitioner's
 
21                distributional interest as required by section
 
22                428-701; or
 
23           (E)  The managers or members in control of the company
 

 
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 1                have acted, are acting, or will act in a manner
 
 2                that is illegal, oppressive, fraudulent, or
 
 3                unfairly prejudicial to the petitioner; or
 
 4     [(6)] (5)  On application by a transferee of a member's
 
 5           interest, a judicial determination that it is equitable
 
 6           to wind up the company's business:
 
 7           (A)  After the expiration of the specified term, if the
 
 8                company was for a specified term at the time the
 
 9                applicant became a transferee by member
 
10                dissociation, transfer, or entry of a charging
 
11                order that gave rise to the transfer; or
 
12           (B)  At any time, if the company was at-will at the
 
13                time the applicant became a transferee by member
 
14                dissociation, transfer, or entry of a charging
 
15                order that gave rise to the transfer[; or
 
16      (7)  The expiration of a specified term]."
 
17      SECTION 9.  Section 428-811, Hawaii Revised Statutes, is
 
18 amended by amending subsection (a) to read as follows:
 
19      "(a)  A limited liability company administratively
 
20 terminated before July 1, 1999, may apply to the director for
 
21 reinstatement within ninety days after the effective date of
 
22 termination.  A limited liability company administratively
 
23 terminated on or after July 1, 1999 may apply to the director for
 

 
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 1 reinstatement within two years after the effective date of
 
 2 termination.  The application shall:
 
 3      (1)  Recite the name of the company and the effective date
 
 4           of its administrative termination;
 
 5      (2)  State that all delinquent annual reports have been
 
 6           filed and that all delinquent fees, penalties,
 
 7           assessments, and costs have been paid; and
 
 8      (3)  Contain a certificate from the director of taxation
 
 9           reciting that all taxes owed by the company have been
 
10           paid."
 
11      SECTION 10.  Section 428-1202, Hawaii Revised Statutes, is
 
12 repealed.
 
13      " [[428-1202]  Application of corporation case law to set
 
14 aside limited liability.
 
15      In any case in which a party seeks to hold the members of a
 
16 limited liability company personally responsible for the
 
17 liabilities or alleged improper actions of the limited liability
 
18 company, the court shall apply the case law which interprets the
 
19 conditions and circumstances under which the corporate veil of a
 
20 corporation may be pierced under the law of this State."]
 
21      SECTION 11.  Statutory material to be repealed is bracketed.
 
22 New statutory material is underscored.
 
23      SECTION 12.  This Act shall take effect on July 1, 1999.
 

 
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 1 
 
 2                           INTRODUCED BY: ________________________
 

 
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