REPORT TITLE:
Limited Liability Companies


DESCRIPTION:
Along with housekeeping and other amendments, amends the Hawaii
Limited Liability Company Act, Chapter 428, HRS, to conform with
amendments made to the Uniform Limited Liability Company Act.
(SB1139 HD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                H.D. 2
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 appropriately designated and to
 
 3 read as follows:
 
 4      "428-      Amended and restated articles of organization.
 
 5 (a)  A limited liability company at any time may amend and
 
 6 restate its articles of organization by complying with the
 
 7 procedures and requirements of section 428-204.
 
 8      (b)  Upon its adoption, the amended and restated articles of
 
 9 organization shall set forth:
 
10      (1)  All of the operative provisions of the articles of
 
11           organization as therefore amended;
 
12      (2)  The information required by section 428-204; and
 
13      (3)  A statement that the amended and restated articles of
 
14           organization supersede the original articles of
 
15           organization and all amendments thereto.
 
16      (c)  The amended and restated articles of organization shall
 
17 be delivered to the director for filing.  The director may
 
18 certify the amended and restated articles of organization as the
 
19 articles of organization currently in effect, without including
 

 
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 1 the information required to be filed by subsection (b)(2) and
 
 2 (3)."
 
 3      SECTION 2. Section 428-103, Hawaii Revised Statutes, is
 
 4 amended by amending subsection (b) to read as follows:
 
 5      "(b)  The operating agreement may not:
 
 6      (1)  Unreasonably restrict a right to information or access
 
 7           to records under section 428-408;
 
 8      (2)  Eliminate the duty of loyalty under section 428-409(b)
 
 9           or 428-603(b)(3), but the agreement may:
 
10           (A)  Identify specific types or categories of
 
11                activities that do not violate the duty of
 
12                loyalty, if not manifestly unreasonable; and
 
13           (B)  Specify the number or percentage of members or
 
14                disinterested managers that may authorize or
 
15                ratify, after full disclosure of all material
 
16                facts, a specific act or transaction that
 
17                otherwise would violate the duty of loyalty;
 
18      (3)  Unreasonably reduce the duty of care under section
 
19           428-409(c) or 428-603(b)(3);
 
20      (4)  Eliminate the obligation of good faith and fair dealing
 
21           under section 428-409(d), but the operating agreement
 
22           may determine the standards by which the performance of
 
23           the obligation is to be measured, if the standards are
 
24           not manifestly unreasonable;
 

 
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 1      (5)  Vary the right to expel a member in an event specified
 
 2           in section 428-601(5);
 
 3      (6)  Vary the requirement to wind up the limited liability
 
 4           company's business in a case specified in section
 
 5           428-801(3) or 428-801(4) [or 428-801(5)]; or
 
 6      (7)  Restrict rights of third parties under this chapter,
 
 7           other than managers, members, or their transferees."
 
 8      SECTION 3.  Section 428-111, Hawaii Revised Statutes, is
 
 9 amended by amending subsection (a) to read as follows:
 
10      "(a)  A limited liability company may be organized under
 
11 this chapter for any lawful purpose[; provided that the following
 
12 purposes are prohibited:
 
13      (1)  Activities of a financial institution under chapter
 
14           412;
 
15      (2)  Activities under chapter 431; or
 
16      (3)  Activities under chapter 442, 448, 453, 455, 459, 460,
 
17           461, 463E, 465, 466, 471, or 605, or section 554-2.
 
18 A limited liability company shall be], subject to any law of this
 
19 State governing or regulating business. [If the purpose for which
 
20 a limited liability company is organized or its form makes it
 
21 subject to a special provision of law, the limited liability
 
22 company shall also comply with that provision.]"
 

 
 
 
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 1      SECTION 4.  Section 428-404, Hawaii Revised Statutes, is
 
 2 amended by amending subsections (a), (b), and (c) to read as
 
 3 follows:
 
 4      "(a)  In a member-managed limited liability company:
 
 5      (1)  Each member has equal rights in the management and
 
 6           conduct of the company's business; and
 
 7      (2)  Except as specified in subsection (c) [or in section
 
 8           428-801(3)(A)], any matter relating to the business of
 
 9           the company may be decided by a majority of the
 
10           members[; and
 
11      (3)  Each member who is not an individual must be qualified
 
12           to transact business in this State].
 
13      (b)  In a manager-managed limited liability company:
 
14      (1)  The manager or managers have the exclusive authority to
 
15           manage and conduct the company's business;
 
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 exclusively decided by the manager
 
19           or, if there is more than one manager, by a majority of
 
20           the managers; and
 
21      (3)  A manager shall:
 
22           (A)  Be designated, appointed, elected, removed, or
 
23                replaced by a vote, approval, or consent of a
 
24                majority of the members; and
 

 
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 1          [(B)  Be qualified to transact business in this State if
 
 2                the manager is an entity; and
 
 3           (C)] (B)  Remain in office until a successor has been
 
 4                elected [and qualified], unless the manager
 
 5                resigns or is removed sooner.
 
 6      (c)  The [following] only matters [require] of a limited
 
 7 liability company's business that require the consent of all the
 
 8 members [of the limited liability company:] are:
 
 9      (1)  Amendments to the operating agreement under section
 
10           428-103;
 
11      (2)  Authorization or ratification of acts or transactions
 
12           under section 428-103(b)(2)(B) which would otherwise
 
13           violate the duty of loyalty;
 
14      (3)  Amendments to the articles of organization under
 
15           section 428-204;
 
16      (4)  Compromising an obligation to make a contribution under
 
17           section 428-402(b);
 
18      (5)  Compromising among members, of an obligation of a
 
19           member to make a contribution or return money or other
 
20           property paid or distributed in violation of this
 
21           chapter;
 
22      (6)  Making interim distributions under section 428-405(a);
 
23      (7)  Admission of a new member;
 

 
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 1      (8)  Use of the company's property to redeem an interest
 
 2           subject to a charging order;
 
 3      (9)  Consent to dissolve the company under section
 
 4           428-801(2);
 
 5     (10)  Waiving of the right to have the company's business
 
 6           wound up and the company terminated under section
 
 7           428-802(b);
 
 8     (11)  Merging the company with another entity under section
 
 9           428-904(c)(1); and
 
10     (12)  Selling, leasing, exchanging, or otherwise disposing of
 
11           all, or substantially all, of the company's property
 
12           with or without goodwill."
 
13      SECTION 5.  Section 428-503, Hawaii Revised Statutes, is
 
14 amended by amending subsection (e) to read as follows:
 
15      "(e)  A transferee who does not become a member is entitled
 
16 to:
 
17      (1)  Receive, in accordance with the transfer, distributions
 
18           to which the transferor would otherwise be entitled;
 
19      (2)  Receive, upon dissolution and winding up of the limited
 
20           liability company's business:
 
21           (A)  In accordance with the transfer, the net amount
 
22                otherwise distributable to the transferor; and
 

 
 
 
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 1           (B)  A statement of account only from the date of the
 
 2                latest statement of account agreed to by all the
 
 3                members; and
 
 4      (3)  Seek under section [428-801(6),] 428-801(5), a judicial
 
 5           determination that it is equitable to dissolve and wind
 
 6           up the company's business."
 
 7      SECTION 6.  Section 428-603, Hawaii Revised Statutes, is
 
 8 amended by amending subsection (a) to read as follows:
 
 9      "(a)  [If under section 428-801] Upon a member's
 
10 dissociation from a limited liability company [results in a
 
11 dissolution and winding up of the company's business, part VIII
 
12 shall apply.  If a member's dissociation from the company does
 
13 not result in a dissolution and winding up of the company's
 
14 business under section 428-801]:
 
15      (1)  In an at-will company, the company shall cause the
 
16           dissociated member's company interest to be purchased
 
17           under part VII; and
 
18      (2)  In a company having a specified term:
 
19           (A)  If the company dissolves and winds up its business
 
20                on or before the expiration of its specified term,
 
21                part VIII applies to determine the dissociated
 
22                member's rights to distributions; and
 

 
 
 
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 1           (B)  If the company does not dissolve and wind up its
 
 2                business on or before the expiration of its
 
 3                specified term, the company must cause the
 
 4                dissociated member's distributional interest to be
 
 5                purchased under part VII on the date of the
 
 6                expiration of the term specified at the time of
 
 7                the member's dissociation."
 
 8      SECTION 7.  Section 428-701, Hawaii Revised Statutes, is
 
 9 amended by amending subsection (c) to read as follows:
 
10      "(c)  If the price and other terms of a purchase of a
 
11 distributional interest are fixed or are to be determined by the
 
12 operating agreement, the price and terms so fixed or determined
 
13 govern the purchase unless the purchaser defaults.  In that case
 
14 the dissociated member is entitled to commence a proceeding to
 
15 have the company dissolved under section [428-801(5).] 428-
 
16 801(4)."
 
17      SECTION 8.  Section 428-702, Hawaii Revised Statutes, is
 
18 amended by amending subsection (d) to read as follows:
 
19      "(d)  If the purchase is not completed in accordance with
 
20 the specified terms, the company is to be dissolved upon
 
21 application under section [428-801(5)(D).] 428-801(4)(D).  If a
 
22 limited liability company is so dissolved, the dissociated member
 
23 shall have the same rights and priorities in the company's assets
 
24 as if the sale had not been ordered."
 

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

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

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

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