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.
C O M M O N P A G E F O O T E R
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