SB113 By Senator Orr RFD Judiciary Rd 1 03-MAR-15

SYNOPSIS: Under existing law, the Alabama Limited Liability Company Law of 2014, provides for the formation of limited liability companies.

This bill would clarify that the law of the state in which a foreign limited liability company is formed governs the internal affairs of that entity.

This bill would clarify the treatment of a limited liability company and a foreign limited liability company for purposes of certain taxation.

This bill would clarify that, under normal circumstances, the liability of a member of a limited liability company for wrongful distributions is limited to the amount of the distributions received.

This bill would also make technical corrections in cross references.

A BILL TO BE ENTITLED AN ACT

To amend Sections 10A-5A-1.05, 10A-5A-1.06, 10A-5A-1.07, and 10A-5A-4.06, Code of Alabama 1975, as added by Act 2014-144, 2014 Regular Session (Acts 2014), relating to the Alabama Limited Liability Company Law of 2014, to clarify that the law of the state in which a foreign limited liability company is formed governs the internal affairs of that entity; to clarify the treatment of a limited liability company and a foreign limited liability company for purposes of certain taxation; to clarify that under normal circumstances the liability of a member of a limited liability company for wrongful distributions is limited to the amount of the distributions received; and to make technical corrections in cross references.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:Section 1. Sections 10A-5A-1.05, 10A-5A-1.06, 10A-5A-1.07, and 10A-5A-4.06 of the Code of Alabama 1975, as added by Act 2014-144, 2014 Regular Session (Acts 2014), are amended to read as follows:

§10A-5A-1.05.

"(a) The law of this state governs:

"(a)(1) the organization and internal affairs of a limited liability company, or series thereof;

"(b)(2) the liability of a member as a member for the debts, obligations, or other liabilities of a limited liability company, or series thereof;

"(c)(3) the authority of the members and agents of a limited liability company, or series thereof; and

"(d)(4) the availability and liability of the assets of a series or the limited liability company for the obligations of another series or the limited liability company.

"(b) The law of this state or other jurisdiction under which a foreign limited liability company is formed governs:

"(1) the organization and internal affairs of a foreign limited liability company, or series thereof;

"(2) the liability of a member as a member for the debts, obligations, or other liabilities of a foreign limited liability company, or series thereof;

"(3) the authority of the members and agents of a foreign limited liability company, or series thereof; and

"(4) the availability and liability of the assets of a series or the foreign limited liability company for the obligations of another series or the foreign limited liability company.

§10A-5A-1.06.

"(a) It is the policy of this chapter and this state to give maximum effect to the principles of freedom of contract and to the enforceability of limited liability company agreements.

"(b) Unless displaced by particular provisions of this chapter, the principles of law and equity supplement this chapter.

"(c) The rule that statutes in derogation of the common law are to be strictly construed shall have no application to this chapter.

"(d) The use of any gender shall be applicable to all genders. The captions contained in this chapter are for purposes of convenience only and shall not control or affect the construction of this chapter.

"(e) Sections 7-9A-406 and 7-9A-408 of the Uniform Commercial Code, and all successor statutes thereto, do not apply to any interest in a limited liability company, including all rights, powers, and interests arising under a limited liability company agreement or this chapter. This provision prevails over Sections 7-9A-406 and 7-9A-408 of the Uniform Commercial Code, and all successor statutes thereto, and is expressly intended to permit the enforcement of the provisions of a limited liability company agreement that would otherwise be ineffective under Sections 7-9A-406 and 7-9A-408 of the Uniform Commercial Code, and all successor statutes thereto.

"(f) Division E of Article 3 of Chapter 1 of this title shall have no application to this chapter.

"(g) Sections 10A-1-1.03(75), (84), (91), and (94) 10A-1-1.03 (73), (81), (88), and (91) shall have no application to this chapter.

"(h) Section 10A-1-2.13(c) shall have no application to this chapter.

§10A-5A-1.07.

"Subject to Section 10A-5A-3.01:

"(a) The terms "partnership" and "limited partnership," when used in any chapter or title other than the Alabama Limited Liability Company Law, the Alabama General Partnership Law, and the Alabama Limited Partnership Law, and any successors of those laws, include a limited liability company organized under this chapter, unless the context requires otherwise.

"(b) Notwithstanding subsection (a), for purposes of taxation, other than Chapter 14A of Title 40, a limited liability company or foreign limited liability company shall be treated as a partnership unless it is classified otherwise for federal income tax purposes, in which case it shall be classified in the same manner as it is for federal income tax purposes.

§10A-5A-4.06.

"(a)(1) A limited liability company shall not make a distribution to a member to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the limited liability company, other than liabilities to members on account of their transferable interests and liabilities for which the recourse of creditors is limited to specific property of the limited liability company, exceed the fair value of the assets of the limited liability company, except that the fair value of the property that is subject to a liability for which recourse of creditors is limited shall be included in the assets of the limited liability company only to the extent that the fair value of the property exceeds that liability.

"(2) A member who receives a distribution in violation of subsection (a)(1) or the limited liability company agreement, and who knew at the time of the distribution that the distribution violated subsection (a)(1) or the limited liability company agreement, shall be liable to the limited liability company for the amount of the distribution received by that member. A member who receives a distribution in violation of subsection (a)(1) or the limited liability company agreement, and who did not know at the time of the distribution that the distribution violated subsection (a)(1) or the limited liability company agreement, shall not be liable for the amount of the distribution.

"(b)(1) A series shall not make a distribution to a member associated with the series to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the series, other than liabilities to members associated with the series on account of their transferable interests and liabilities for which the recourse of creditors is limited to specific property of the series, exceed the fair value of the assets of the series, except that the fair value of the property that is subject to a liability for which recourse of creditors is limited shall be included in the assets of the series only to the extent that the fair value of the property exceeds that liability.

"(2) A member associated with a series who receives a distribution in violation of subsection (b)(1) or the limited liability company agreement, and who knew at the time of the distribution that the distribution violated subsection (b)(1) or the limited liability company agreement, shall be liable to that series for the amount of the distribution. A member associated with a series who receives a distribution in violation of subsection (b)(1) or the limited liability company agreement, and who did not know at the time of the distribution that the distribution violated subsection (b)(1) or the limited liability company agreement, shall not be liable for the amount of the distribution.

"(3) Subsection (a) shall not apply to a distribution made by a series.

"(c) Except as provided in subsection (d), this section shall not affect any obligation or liability of a member under other applicable law for the amount of a distribution.

"(d) An action under this section or other applicable law is barred if not commenced within two years after the distribution.

"(e) For purposes of Sections 10A-5A-4.06(a) and 10A-5A-4.06(b), distribution does not include amounts constituting reasonable compensation for present or past services or reasonable payments made in the ordinary course of the limited liability company's activities and affairs under a bona fide retirement plan or other benefits program.

"(f) This section shall not apply to distributions made in accordance with Section 10A-5A-7.06 or Section 10A-5A-11.14."

Section 2. This act shall become effective on the first day of the third month following its passage and approval by the Governor, or its otherwise becoming law.

Corporations

Limited Liability Companies

Limited Liability Law of 2014

Code Amended