Uniform Protected Series Act
Caution State Law Variances!
SECTION 302. ASSOCIATED MEMBER.
(a) Only a member of a series limited liability company may be an associated member of a protected series of the company.
Reporter's Comment to Subsection (a) – The requirement stated here is integral to this act; allowing a non-member to be associated with a protected series would oust the operating agreement from its fundamental role, or at the very least make that role extraordinarily complex. See also Section 102(3) (defining "associated member" as "a member that meets the requirements under Section 302.") (emphasis added).
Under this subsection, any event causing a member's dissociation from a series limited liability company ipso facto ends the person's status as an associated member of any protected series company. The operating agreement can specify other events causing a member to cease being an associated member of a protected series.
This act does not prescribe the fate of the protected-series transferable interest of person who ceases to be an associated member of a protected series. That fate depends, first, on the operating agreement and, if the operating agreement is silent, then per Sections 106(d)(2) and 108 on the default rule provided by an enacting state's limited liability company act. The typical result is to freeze in the person as a transferee of its own transferable interest. For a discussion of the lot of a "bare naked assignee" at the limited liability company level, see Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 107(b), cmt.
JayNote: If one recalls the tranche characterization of protected series, this makes perfect sense. The holder of a tranche of equity is a holder of equity in the company generally, that equity being the particular tranche held. Thus, a member of a protected series must be a member of the series organization, but the converse is not true: A member of the series organization need not be a member of any protected series, i.e., that member can suffice to hold a general tranche of equity in the company but not a particularized tranche.
Again, however, note that there is no requirement that all the members of the series organization have the same rights and privileges, i.e., be equal members in the barnyard.
(b) A member of a series limited liability company becomes an associated member of a protected series of the company if the operating agreement or a procedure established by the agreement states:
(1) that the member is an associated member of the protected series;
(2) the date on which the member became an associated member; and
Reporter's Comment to Subsection (b)(2) – Following Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 401(d), this provision permits a member to be an associated member of a protected series without having an economic interest in the protected series.
(3) any protected-series transferable interest the associated member has in connection with becoming or being an associated member.
Reporter's Comment to Subsection (b) – Because this provision addresses how a member becomes an associated member, extrapolation for internal affairs (Sections 106(d) and 108) does not apply. In contrast, extrapolation will determine the consequences of a member ceasing to be an associated member of a protected series, unless the operating agreement addresses the matter.
JayNote: The reference to "Operating Agreement" in subsection (b) is to the Operating Agreement for the series organization, as defined in ULLCA § 102(13), and not to any separate Operating Agreement for the Protected Series itself. The upshot of subsection (b) is that the Operating Agreement for the series organization must set out (presumably in an Appendix or Exhibit to that document), a list of the protected series that have been created, a list of the members associated with particular series and the dates of their association, and describe the amount and quality of the interest in the protected series held by each associated member. If the requirements of subsection (b) are not met, then the putative member is not a member of the protected series at all, i.e., the attempted association of the member fails.
(c) If a person that is an associated member of a protected series of a series limited liability company is dissociated from the company, the person ceases to be an associated member of the protected series.
Legislative Note: If an enacting state's limited liability company act does not permit a "non-economic member," the state should determine whether to apply a parallel requirement at the protected series level, and, if so, change subsection (b)(2) by stating the requirement directly and substituting "the" for "any".
JayNote: Subsection (c) states the logical conclusion of subsection (a), to wit: If a person is no longer a member of the series organization, then they immediately at that time cease to be a member of any protected series as well.
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