Uniform Protected Series Act
Caution State Law Variances!
SECTION 102. DEFINITIONS.
In this ACT:
(1) "Asset" means property:
(A) in which a series limited liability company or protected series has rights; or
(B) as to which the company or protected series has the power to transfer rights.
Reporter's Comment to "Asset"  – This definition derives from Uniform Commercial Code ("UCC") § 9-203(b)(2) and is intended to have the same meaning. The UCC provision states as a precondition to the enforceability of a security interest in collateral that "the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party."
Property that is subject to a security interest, mortgage, or other lien is nonetheless an asset under this definition. Moreover, an asset remains an asset even if "under water" (i.e., the amount owed and secured by the asset exceeds the value of the asset).
JayNote: The definition of "asset" is specific to the UPSA, although as the Reporter's Comment notes, it is generally intended to have the same meaning as UCC § 9-203(b)(2). This definition is nothing like universal, however, even throughout the Uniform Acts, e.g., contrast with the definition of "asset" under the Uniform Voidable Transactions Act ("UVTA") which excludes property that is (1) exempt under applicable law, (2) held in tenancy by the entireties, or (3) to the extent that it is the subject of a bona fide security interest.
(2) "Associated asset" means an asset that meets the requirements of Section 301.
Reporter's Comment to "Associated asset"  – This definition is key to establishing and delineating the "internal shields" provided by Section 401(b). Even though a protected series is not liable for the debts of its series limited liability company or any other protected series of the company, under Section 404 an asset owned by a protected series is available for creditors of the company or another protected series of the company unless the asset is an associated asset of the protected series. Section 301 delineates the recordkeeping required for an asset to obtain and maintain "associated asset" status. The same rules apply to assets owned by a series limited liability company.
JayNote: Arguably, the definitions of "associated asset" and "associated member" are the two most important definitions found in the UPSA. An "associated asset" is one that has been satisfactorily tied per § 301 to a particular protected series. If the asset has not been properly tied to a particular protected series, then it is an "unassociated asset" under § 102(6), below.
(3) "Associated member" means a member that meets the requirements of Section 302.
Reporter's Comment to "Associated member"  – Except for requiring that a person be a member of a series limited liability company in order to be an associated member of a protected series of the company, this act does not determine how a member becomes an associated member of a protected series. The operating agreement must address this important question. See Section 302(b).
JayNote: An "associated member" is an owner of a particular tranche of equity which constitutes a particular protected series.
(4) "Foreign protected series" means an arrangement, configuration, or other structure established by a foreign limited liability company which has attributes comparable to a protected series established under this ACT. The term applies whether or not the law under which the foreign company is organized refers to "protected series".
Reporter's Comment to "Foreign protected series"  – This definition is derived from Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 102(5), which defines "foreign limited liability company" as "an unincorporated entity formed under the law of a jurisdiction other than this state which would be a limited liability company if formed under the law of this state." This act characterizes a domestic protected series as a person, Section 103, but this definition omits that characterization. Most current statutes do not address the characterization issue.
Because at this nascent stage in the development of series LLC there is no standard nomenclature, the term "foreign protected series" basically means any similar statute that works about the same way. The term "foreign" in this context refers to another state or territory, etc.; a jurisdiction outside of the United States is considered "alien".
(5) "Foreign series limited liability company" means a foreign limited liability company that has at least one foreign protected series.
JayNote: See JayNote to 102(4).
(6) "Non-associated asset" means:
(A) an asset of a series limited liability company which is not an associated asset of the company; or
(B) an asset of a protected series of the company which is not an associated asset of the protected series.
JayNote: The difference between an "associated asset" and a "non-associated asset" is this: An associated asset is only available to the creditors of a particular protected series, whereas a non-associated asset is available on a first-come, first-served basis to the creditors of any series or the series organization.
(7) "Person" includes a protected series.
Reporter's Comment to "Person"  – The definition of "person" in Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 102(15) does not expressly include a protected series, although that definition's catchall term – "other … commercial entity" – might apply.
JayNote: These five words may not sound like much, but they are one of the most important parts of the UPSA. This § 102(7) basically says that, at least legally, a protected series is a person. This means that a protected series has all the rights, privileges, responsibilities, liabilities, etc., as any other person under the law. In other words, each protected series of a series organization is its own person who stands alone and independent in the legal world. Among other things, this declaration is made in the hopes that a protected series would be treated in bankruptcy as a separate juridical entity and not simply an appendage of the series organization. The harder question, which generated much debate within the Drafting Committee, was whether it should be a person (my own view is that a protected series is simply a tranche of equity and should not be, but those taking this position were simply outvoted).
Will a protected series be considered a "person" for federal bankruptcy law purposes? Suffice it to say that there was nobody on the Drafting Committee, including Yours Truly, who would have wagered $20 on the issue one way or another. Nobody knows, and nobody will know until somebody in a black robe gives their ruling.
(8) "Protected series", except in the phrase "foreign protected series", means a protected series established under Section 201.
(9) "Protected-series manager" means a person under whose authority the powers of a protected series are exercised and under whose direction the activities and affairs of the protected series are managed under the operating agreement, this ACT, and [cite this state's limited liability company act].
Reporter's Comment to "Protected-series manager"  – This definition derives from Uniform Business Organization Code (2013), Section 1-102(18)(K) (catchall provision in definition of "governor"). Note that, if a protected series is managed by its associated members, each associated member fits the definition of "protected-series manager".
JayNote: The obvious implication here is that each protected series can have it own manager(s).
(10) "Protected-series transferable interest" means a right to receive a distribution from a protected series.
JayNote: Note that "transferable interest" is not separately defined in the UPSA, but instead one would look to ULLCA § 102(24) for guidance as to the meaning of that term. This is an example of the extrapolation involving the ULLCA which is found throughout the UPSA.
(11) "Protected-series transferee" means a person to which all or part of a protected-series transferable interest of a protected series of a series limited liability company has been transferred, other than the company. The term includes a person that owns a protected-series transferable interest as a result of ceasing to be an associated member of a protected series.
Reporter's Comment to "Protected-series transferee"  – A protected-series transferee is analogous to a transferee of a membership interest, see Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 102(25), and the definition includes an associated member of a protected series to whom is transferred a protected-series transferable interest owned by another person. For how the act treats a protected-series transferable interest owned by the series limited liability company, see Section 303(d).
(12) "Series limited liability company", except in the phrase "foreign series limited liability company", means a limited liability company that has at least one protected series.
Reporter's Comment to "Series limited liability company"  – This term is shorthand for "a limited liability company that at the relevant moment has at least one protected series." Thus, a limited liability company might:
JayNote: This is a screwy definition, because on the date of formation, the local Secretary of State (by whatever name) is going to issue a Certificate of Formation for a "series LLC", which will not have any protected series at that moment in time. What this definition really means is that until the company forms at least one protected series, the company will be governed by ULLCA alone, whether formed as a series LLC or not. Upon the moment in time when the company creates its first protected series, then the company and the protected series fall under both ULLCA and UPSA.
Anecdotally, according to fellow ABA advisor (and buddy) John Williams who has formed literally hundreds of series LLCs, a considerable number of these companies never actually get around to forming even a single protected series, but operate simply as ordinary LLCs throughout their lifetime, but the owners of these companies merely wanted the option to be able to create protected series in the future should they then so desire. In this light, one wonders why somebody forming an LLC in a UPSA state would ever consider forming a non-series LLC for reasons other than additional cost, i.e., nothing compels the owner to form protected series but the future option is always open to them without having to later reorganize into a series LLC.
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Legislative Note: Because this act is intended to be inserted into a state's current limited liability company act, this section does not define terms already defined in the Uniform Limited Liability Company Act (2006) (Last Amended 2013). This act presupposes the following definitions from that act:
defined term - Uniform Limited Liability Company Act (2006) (Last Amended 2013) Section
Each enacting state should determine whether its limited liability company act defines the terms listed above. If a state's limited liability company act lacks a particular term entirely, the state should add the term as defined in the Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 102. If a state defines a particular concept but uses a different term – e.g., "limited liability company interest" instead of "transferable interest" – the state should modify this act accordingly.
In both the 2006 and 2013 versions of the Uniform Limited Liability Company Act, some of the above listed definitions appear in Section 1001, which states that it defines terms for use "[i]n this ARTICLE" (pertaining to entity transactions). When adopting this act, a state that has adopted either the 2006 or 2013 version should revise Section 1001 to begin: "In this ARTICLE and [cite the ARTICLE containing this act]". See also Section 101, Legislative Note 3.
C O M M O N P A G E F O O T E R
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