Uniform Protected Series Act
Caution State Law Variances!
SECTION 108. RULES FOR APPLYING LIMITED LIABILITY COMPANY ACT TO SPECIFIED PROVISIONS OF ACT.
(a) Except as otherwise provided in subsection (b) and Section 107, the following rules apply in applying Sections 106, 304(c) and (f), 501(4)(A), 502(a), and 503(2):
(1) A protected series of a series limited liability company is deemed to be a limited liability company that is formed separately from the series limited liability company and is distinct from the series limited liability company and any other protected series of the series limited liability company.
JayNote: Very importantly, while § 108(a) and its subparts are indeed every bit as conceptually esoteric as they seem, they do provide the legal basis for extrapolation, i.e., the application of ULLCA to protected series in the absence of guidance from the UPSA.
In a sense, § 108(a)(1) is yet another statement that a protected series is its own, independent, standalone juridical entity, except when it isn't. Caution also § 104(c) which says that a protected series can't outlive the series organization, i.e., the series organization effectively has the power to instantly terminate all of its protected series simply by terminating itself.
(2) An associated member of the protected series is deemed to be a member of the company deemed to exist under paragraph (1).
JayNote: This says that an associated member of a protected member is treated like a member as to the series organization for purposes of ULLCA.
A member of a protected series must be also be a member of the series organization. This makes sense, particularly if one recalls my tranche description of a series LLC whereby the owner of an interest in a protected series is really just owning a particular tranche of equity in the series organization.
This does not mean, however, that all the members in the series organization barnyard are necessarily equal, since the Operating Agreement of the series organization can itself create different classes of members. Thus, one could draft into the series organization's Operating Agreement that members who are also members of protected series have greater or lesser rights than those who are not.
(3) A protected-series transferee of the protected series is deemed to be a transferee of the company deemed to exist under paragraph (1).
JayNote: Subsection (3) and (4) bring in by extrapolation the ULLCA rules relating to transferees, both voluntary (the transferee acquires the interest by gift or purchase, etc.) and involuntarily (the whole charging order and foreclosure thingy).
This also makes sense when one considers that multiple tranche characterization of a Series LLC and that members of protected series must also be members of the series organization: If a person has been transferred an interest in a protected series, then effectively they have also been transferred an interest in the series organization.
(4) A protected-series transferable interest of the protected series is deemed to be a transferable interest of the company deemed to exist under paragraph (1).
(5) A protected-series manager is deemed to be a manager of the company deemed to exist under paragraph (1).
JayNote: The ULLCA rules relating to managers and their duties are also made by extrapolation to apply to the managers of protected series.
Query: If a person who is a manager of a protected series is also a member of the series organization, is there a potential for conflict between the person's duties as a manager and the person's obligations as a member? Absolutely, yes. Again, a sophisticated Operating Agreement is a necessity to flesh out and resolve these and similar issues as much as possible.
(6) An asset of the protected series is deemed to be an asset of the company deemed to exist under paragraph (1), whether or not the asset is an associated asset of the protected series.
JayNote: A particular asset of a protected series must be characterized one of two ways, i.e., it is either an associated asset (proper records of association have been kept) or it is a non-associated asset (the records of association have fallen short). Section 108(6) basically says that both varietals are to be considered an asset of the protected series to the extent that the protected series is treated like a standalone LLC.
(7) Any creditor or other obligee of the protected series is deemed to be a creditor or obligee of the company deemed to exist under paragraph (1).
Reporter's Comment to Subsection (a) – This provision provides the mechanics for the extrapolation approach which is at the core of this act. See Prefatory Note, Part 6. In effect, this provision treats each listed item at the protected series level as if the item were the analogous construct at the limited liability company level. However, the intrinsic the nature of the item being "deemed up" does not change. As Black's explains, "deem" means "[t]o treat (something) as if … it has qualities that it does not have") Black's Law Dictionary (10th ed. 2014) (emphasis added).
Extrapolation does not "deem up" a protected series designation and does not encompass the operating agreement. A protected series designation has no analog at the limited liability company level. A certificate of formation would be the closest, but that certificate does far more than is done by a protected series designation. As for the operating agreement, again no analog exists. A protected series does not have its own operating agreement.
This provision is not self-executing. It applies only when another provision of this act expressly invokes Section 108. Extrapolation, like "proof of negligence" does not float "in the air." Palsgraf v. Long Island R. Co., 248 N.Y. 339, 341, 162 N.E. 99 (1928) (Cardozo, J.) (quoting Pollock, Torts [11th ed.], p. 455).
Provision Invoking Section 108-Function of Invoking Provision
106 - delineates the multifaceted relationship among the operating agreement of a series limited liability company, this act, and an enacting state's limited liability company act
304(c) - determines the duties of a protected-series manager to the protected series and any associated members and protected-series transferees of the protected series
304(f) - invokes the derivative claim provisions of an enacting state's limited liability company act
501(4)(A) - addresses judicial dissolution of a protected series
502(a) - addresses the winding up of a protected series
50(2) - delineates what happens to a protected series of a series limited liability company when the company revokes its voluntary dissolution or is reinstated after being administratively dissolved
JayNote: This subpart brings to the obligations and liabilities of protected series the rules relating to the same under the ULLCA.
(b) Subsection (a) does not apply if its application would:
(1) contravene [cite provision of this state's limited liability company act limiting the power of an operating agreement]; or
(2) authorize or require the [Secretary of State] to:
(A) accept for filing a type of record that neither this ACT nor [the cite this state's limited liability company act] authorizes or requires a person to deliver to the [Secretary of State] for filing; or
(B) make or deliver a record that neither this ACT nor [cite this state's limited liability company act] authorizes or requires the [Secretary of State] to make or deliver.
Reporter's Comment to Subsection (b)(1) – A state that has enacted Uniform Limited Liability Company Act (2006) (Last Amended 2013) would cite Section 105.
Reporter's Comment to Subsection (b)(2) – This provision does not address the question of whether the filing office may, may not, or shall accept for filing a record that includes information beyond the information specified by the statute providing for the filing of the record.
JayNote: Section 108(b) itself says that extrapolation works until it doesn't. For instance, a state may have modified its ULLCA such that extrapolation wouldn't make sense in a given situation, or extrapolation may end up requiring a filing with the Secretary of State's office that cannot be made. (Still think that "Litigators Full Employment Act" would be a non-descriptive alternative title for the UPSA?).
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