Uniform Protected Series Act
Caution State Law Variances!
SECTION 501. EVENTS CAUSING DISSOLUTION OF PROTECTED SERIES.
JayNote: Section 501 deals with what causes the dissolution of a protected series, which is very different than the dissolution of the "mothership" series organization. The former is governed only and exclusively by the UPSA, the latter is governed only and exclusively by ULLCA (like any other LLC) without any reference to the UPSA.
A protected series of a series limited liability company is dissolved, and its activities and affairs must be wound up, only on the:
(1) dissolution of the company;
Reporter's Comment to Paragraph (1) – This non-variable provision has no analogy at the series limited liability company level, comports with Section 104(c) (stating that a protected series of a series limited liability company may not continue when the company has completed winding up). The provision applies regardless of the cause of the company's dissolution, including administrative dissolution.
JayNote: Section 501(1) says that the if the series organization dissolves, then a protected series (in fact, all of them) simultaneously dissolves. This provision is said to be "non-variable" in the sense that it cannot be "toggled off" by a contrary provision in either the series organization's operating agreement or any operating agreement that is specific to the protected series. What this says, in effect, is that the protected series simply cannot exist in the absence of the series organization, and that if the series organization dies, then its protected series organization dies with it.
This is entirely consistent with the underlying principle of the UPSA that a protected series is its "own person", and a completely independent, self-sufficient, standalone entity, right up until the point where it isn't -- and dissolution of the series organization is that point.
There is one exception to this rule, which is the merger situation to be discussed in the context of Article 6, whereby series organization A merges with series organization B, and all the protected series of A become those of B. In that circumstance, when A dies, its (now former) protected series do not also die but continue to live a life of continued bliss and happiness under B. More about that later when we meander around to Section 607.
(2) occurrence of an event or circumstance the operating agreement states causes dissolution of the protected series;
Reporter's Comment to Paragraphs (2) and (3) – Section 107(a) does not list these provisions as non-variable, but any variation would be nonsensical – e.g., an operating agreement provision: (i) stating a cause of dissolution while providing that the stated cause does not cause dissolution; or (ii) providing that unanimous consent of the members does not cause dissolution, although unanimous consent suffices to delete the provision.
JayNote: Section 501(2) operates to dissolve the protected series if there is something in the operating agreement which commands that result. This a variable provision which can be "toggled off" in the operating agreement, although the Reporter's Comment to § 501(2) points out that such would be nonsensical if you think through it.
In this context, the "operating agreement" referred to in § 501(2) was meant to indicate the operating agreement of the series organization under § 106. But note that a protected series can (and arguably should) have its own operating agreement too, and in that event § 501(2) would probably require that the protected series be dissolved if so provided in its own operating agreement, e.g., the operating agreement for Protected Series X says that it will be dissolved on December 31, 2056 if not dissolved before.
(3) affirmative vote or consent of all members; or
Reporter's Comment to Paragraph (3) – This provision refers to "the affirmative vote or consent of all the members" (emphasis added) – i.e., not solely the associated members (if any) of the protected series. Except as provided in the operating agreement, associated members of a protected series have no special right to cause (or prevent) dissolution of the protected series. See Section 304(e).
JayNote: Section 501(3) says that a protected series can be dissolved by the unanimous action of all members. This seems pretty straightforward, until you ask the question, "Which members?" Recall that the protected series has members (called "associated members"), and the series organization has members, and while all the members of the protected series must also be members of the series organization, the converse is not true, since some members of the series organization may not also be members of a particular series.
The Reporter's Comment to § 501(3) ends the suspense by stating that the reference to "members" means those of the series organization, and that if the members of the protected series had been meant then "associated members" would have been used instead. The Comment also then points out the result, which is that the "associated members" by themselves have no power to dissolve the protected series, but instead thus must be unanimous action by all the members of the series organization (unless, of course, the operating agreement for the series organization calls for a lesser voting bloc, such as simple majority of members).
(4) entry by the court of an order dissolving the protected series on application by an associated member or protected-series manager of the protected series:
(A) in accordance with Section 108; and
(B) to the same extent, in the same manner, and on the same grounds the court would enter an order dissolving a limited liability company on application by a member or manager of the company; or
Reporter's Comment to Paragraph (4) – This provision analogizes the grounds for court-ordered dissolution of a protected series to the grounds for court-ordered dissolution of a limited liability company. If an enacting state's limited liability company act makes those grounds non-waivable, Section 107(b) extrapolates that limitation to the protected series level.
JayNote: Section 501(4) is another extrapolation provision, which says that a protected series can be dissolved by a court the same way that an ordinary LLC would be dissolved. However, under § 501(4), the order must arise from an application by either an associated member or a manager of the protected series. This provision is non-variable, i.e., cannot be "toggled off".
(5) entry by the court of an order dissolving the protected series on application by the company or a member of the company on the ground that the conduct of all or substantially all the activities and affairs of the protected series is illegal.
Reporter's Comment to Paragraph (5) – When a protected series acts illegally, any member of a series limited liability company has reason to worry. Accordingly, a member has standing under this provision regardless of whether an associated member of the protected series.
Reporter's Comment to Section 501
This section states five grounds for dissolving a protected series, which group into three categories:
Because this act permits a protected series to be established and function without associated members, this section does not provide for dissolution when a protected series has no associated members. The operating agreement can add such a provision, if desired, as well as sundry other grounds for dissolution.
JayNote: Section 501(5) is must like 501(4), except that the court order must be obtained by either the series organization or a member of the series organization (which doesn't have to be an associated member of the protected series). There is, however, one additional requirement to § 501(5), which is that the order of dissolution be based "on the ground that the conduct of all or substantially all the activities and affairs of the protected series is illegal."
In other words, under § 501(5), neither the series organization nor a non-associated member of the series organization can bring an application to dissolve a protected series unless the protected series was substantially engaged in illegal conduct. Otherwise, if no substantial illegal conduct by the protected series is involved, then the series organization and its members must go through § 501(3) to dissolve the protected series. Note that § 501(5) is also non-variable, meaning that it cannot be "toggled off" in the series organization's operating agreement.
UPSA AND WEBSITE CONTENTS
ARTICLE 1. GENERAL PROVISIONS
SECTION 101. SHORT TITLE. SECTION 102. DEFINITIONS. SECTION 103. NATURE OF PROTECTED SERIES. SECTION 104. POWERS AND DURATION OF PROTECTED SERIES. SECTION 105. GOVERNING LAW. SECTION 106. RELATION OF OPERATING AGREEMENT, THIS ACT, AND LIMITED LIABILITY COMPANY ACT. SECTION 107. ADDITIONAL LIMITATIONS ON OPERATING AGREEMENT. SECTION 108. RULES FOR APPLYING LIMITED LIABILITY COMPANY ACT TO SPECIFIED PROVISIONS OF ACT.
ARTICLE 2. ESTABLISHING PROTECTED SERIES
SECTION 201. PROTECTED SERIES DESIGNATION; AMENDMENT. SECTION 202. NAME. SECTION 203. REGISTERED AGENT. SECTION 204. SERVICE OF PROCESS, NOTICE, DEMAND, OR OTHER RECORD. SECTION 205. CERTIFICATE OF GOOD STANDING FOR PROTECTED SERIES. SECTION 206. INFORMATION REQUIRED IN ANNUAL BIENNIAL REPORT; EFFECT OF FAILURE TO PROVIDE.
ARTICLE 3. ASSOCIATED ASSET; ASSOCIATED MEMBER; PROTECTED-SERIES TRANSFERABLE INTEREST; MANAGEMENT; RIGHT OF INFORMATION
SECTION 301. ASSOCIATED ASSET. SECTION 302. ASSOCIATED MEMBER. SECTION 303. PROTECTED-SERIES TRANSFERABLE INTEREST. SECTION 304. MANAGEMENT. SECTION 305. RIGHT OF PERSON NOT ASSOCIATED MEMBER OF PROTECTED SERIES TO INFORMATION CONCERNING PROTECTED SERIES.
ARTICLE 4. LIMITATION ON LIABILITY AND ENFORCEMENT OF CLAIMS
SECTION 401. LIMITATIONS ON LIABILITY. SECTION 402. CLAIM SEEKING TO DISREGARD LIMITATION OF LIABILITY. SECTION 403. REMEDIES OF JUDGMENT CREDITOR OF ASSOCIATED MEMBER OR PROTECTED-SERIES TRANSFEREE. SECTION 404. ENFORCEMENT AGAINST NON-ASSOCIATED ASSET.
ARTICLE 5. DISSOLUTION AND WINDING UP OF PROTECTED SERIES
SECTION 501. EVENTS CAUSING DISSOLUTION OF PROTECTED SERIES. SECTION 502. WINDING UP DISSOLVED PROTECTED SERIES. SECTION 503. EFFECT OF REINSTATEMENT OF SERIES LIMITED LIABILITY COMPANY OR REVOCATION OF VOLUNTARY DISSOLUTION.
ARTICLE 6. ENTITY TRANSACTIONS RESTRICTED
SECTION 601. DEFINITIONS. SECTION 602. PROTECTED SERIES MAY NOT BE PARTY TO ENTITY TRANSACTION. SECTION 603. RESTRICTION ON ENTITY TRANSACTION INVOLVING PROTECTED SERIES. SECTION 604. MERGER AUTHORIZED; PARTIES RESTRICTED. SECTION 605. PLAN OF MERGER. SECTION 606. STATEMENT OF MERGER. SECTION 607. EFFECT OF MERGER. SECTION 608. APPLICATION OF SECTION 404 AFTER MERGER.
ARTICLE 7. FOREIGN PROTECTED SERIES
SECTION 701. GOVERNING LAW. SECTION 702. NO ATTRIBUTION OF ACTIVITIES CONSTITUTING DOING BUSINESS OR FOR ESTABLISHING JURISDICTION. SECTION 703. REGISTRATION OF FOREIGN PROTECTED SERIES. SECTION 704. DISCLOSURE REQUIRED WHEN FOREIGN SERIES LIMITED LIABILITY COMPANY OR FOREIGN PROTECTED SERIES PARTY TO PROCEEDING.
ARTICLE 8. MISCELLANEOUS PROVISIONS
SECTION 801. UNIFORMITY OF APPLICATION AND CONSTRUCTION. SECTION 802. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT. SECTION 803. TRANSITIONAL PROVISIONS. SECTION 804. SAVINGS CLAUSE. SECTION 805. SEVERABILITY CLAUSE. SECTION 806. REPEALS; CONFORMING AMENDMENTS. SECTION 807. EFFECTIVE DATE.
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Protected Series Agreements and Forms -- A list of the "best practices" agreements and records that all protected series structures should have.
SERIES LLC COURT OPINIONS
UPSA COURT OPINIONS
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NON-UPSA COURT OPINIONS
191212 ... Ohio ... Delaware Act .. MSP Recovery Claims, Series LLC v. Phoenix Ins. Co., 2019 WL 6770981 (N.D. Ohio, 2019).
181019 ... Florida ... Delaware Act ... MRS Recovery Claims, Series LLC v. USAA General Indemnity Co., 2018 WL 5112998 (S.D.Fla., Oct. 19, 2018).
SERIES LLC ARTICLES BY JAY ADKISSON
2019.01.28 ... Understanding The Protected Series Act: Article 8 And Final Thoughts
2018.11.24 ... Understanding The Protected Series Act: Treating Out-Of-State Series
2018.11.18 ... Understanding The Protected Series Act: Mergers
2018.10.29 ... Understanding The Protected Series Act: Dissolution And Winding Up Of Protected Series
2018.10.21 ... Understanding The Protected Series Act: Liability Limitations And Claims
2018.08.30 ... Understanding The Protected Series Act: Assets, Members And Management
2018.08.28 ... Understanding The Protected Series Act: Creating A Protected Series And Service Of Process
2018.07.18 ... Understanding The Protected Series Act: The Framework of UPSA - Part 2 of a Series
2018.06.18 ... Understanding The Protected Series Act: What Is A Protected Series?
More articles on Series LLCs by Jay Adkisson click here
THE CHARGING ORDER PRACTICE GUIDE BY JAY ADKISSON
The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association
Now available for purchase at https://goo.gl/faZzY6
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