Uniform Protected Series Act
Caution State Law Variances!
SECTION 303. PROTECTED-SERIES TRANSFERABLE INTEREST.
(a) A protected-series transferable interest of a protected series of a series limited liability company must be owned initially by an associated member of the protected series or the company.
Reporter's Comment to Subsection (a) – A protected-series transferable interest can be owned initially only by an associated member or the series limited liability company. Cf. Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 102(24) (defining "[t]ransferable interest" as "the right, as initially owned by a person in the person's capacity as a member, to receive distributions from a limited liability company") (emphasis added). Subsection (a) is not variable, Section 107(a)(13), but does not restrict an initial owner's rights to transfer. The operating agreement should delineate those rights. If it does not, Sections 106(c) and 108 delineate the rights by extrapolation. See Section 106(d), cmt.
JayNote: The (necessarily) stilted verbiage of this section 303 probably makes interpreting it a lot harder than technically the section may actually be.
Subsection (a) basically says no more than that if there is an interest in a protected series which is transferable, i.e., the member/owner of that interest can sell or gift it to someone, then that interest must first be owned by an associated member of that protected series, i.e., the transferee cannot be the first owner of the interest.
This is where you have to go back to basic LLC law and recall that a transferee of an interest does not ipso facto become a member, but instead only becomes the owner of what amounts to the economic rights in the interest, i.e., the right to distributions, etc.
(b) If a protected series of a series limited liability company has no associated members when established, the company owns the protected-series transferable interests in the protected series.
Reporter's Comment to Subsection (b) – This provision is non-variable, Section 107(a)(13).
JayNote: Subsection (b) basically says that if, at the time the protected series is created, there are no members which are associated with it, the series organization itself owner the protected series.
(c) In addition to acquiring a protected series transferable series interest under subsection (b), a series limited liability company may acquire a series transferable interest through a transfer from another person or as provided in the operating agreement.
JayNote: Subsection (c) states that the series organization can always receive a transferable interest in a protected series from somebody else, whether that interest is received through some sort of assignment or other transaction, or is received through the mechanics of the Operating Agreement, i.e., "the Associated Members of Series THX-1138 shall cause their transferable interests to be assigned to the Company no later than October 1, 2032".
(d) Except for Section 108(a)(3), a provision of this ACT which applies to a protected-series transferee of a protected series of a series limited liability company applies to the company in its capacity as an owner of a protected-series transferable interest of the protected series. A provision of the operating agreement of a series limited liability company which applies to a protected-series transferee of a protected series of the company applies to the company in its capacity as an owner of a protected-series transferable interest of the protected series.
Reporter's Comment to Subsection (d) – By definition, this act does not permit a series limited liability company to be an associated member of any of the protected series of the company. See Section 302(a) ("Only a member of a series limited liability company may be an associated member of a protected series of the company."). In consequence, when a company acquires a series transferable interest it obtains no governance rights in the protected series except as provided in the operating agreement or under Subsection 304(b) (providing as a default rule that whenever a protected series has no associated members, the company is the series manager).
When a series limited liability company owns a protected-series transferable interest of a protected series of the company, the company's rights are identical to the rights of a protected-series transferee of the protected series with only one exception. The exception is Section 304(b), which makes the company the protected-series manager of any protected series that has no associated members.
The Drafting Committee discussed omitting this subsection in favor of expanding the definition of "protected-series transferee" to include the company. That approach is consistent with "[a] protected series of a series limited liability company [being] a person distinct from … the company," Section 103(1), but nonetheless seems counterintuitive (somewhat like a snake swallowing its own tail). To avoid potential confusion, the Committee chose the approach stated in this subsection.
JayNote: Subsection (d) basically says that if a series organization owns an interest in a protected series, then as to that protected series, the series organization must play by the rules as if it were any other member of the protected series.
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