Substantial changes to Alabama’s limited liability company statute became effective on January 1, 2015. Various provisions are set out below, with specific issues and recommendations following the table below.
JANUARY 1, 2015 for LLC's filed on or after that date; JANUARY 1, 2017 for existing LLC's (Conversion to the new model is optional)
LLC's may operate under a series of subordinate LLC's with autonomy of membership. Members of the master LLC are not necessarily members of the series entity; however, all members of a series LLC must be admitted as members of the master LLC. Debts, liabilities, obligations and expenses of a series are enforceable against the assets of that series only, and not the primary LLC or another series entity. Debts, liabilities, obligations, or expenses of a primary LLC are not enforceable against the assets of a series. Books & records of a series must be maintained separately from those of the primary LLC or another series. Members have the power to dissociate as a member associated with any series, severing participation rights, though dissociation does not discharge such member from any debt of the series, nor is dissociation effective as to any other series or the primary LLC.
LLC's may operate on a "for profit", "not for profit", or "non-business" basis, i.e., charitable entity or other business/non-business type.
The Agreement is now known as the Limited Liability Company Agreement, which may be written, oral, or implied. Risks include difficulty for financial institutions or clients determining which managers or members have actual authority to conduct business in the company name.
Admission to an LLC will be pursuant to the Agreement; resulting from a merger or conversion per Article 10; by consent of all members; or within 90 days after the last member is dissociated under certain circumstances (this is a new concept for LLC's). New members will be allowed without acquiring a transferrable interest, or any obligation to contribute to the LLC. Series members must first be admitted as members of the primary LLC. Risks include difficulty in knowing the principals of an entity, including ownership interest, if any.
DIRECTION & OVERSIGHT
Management may be by members, managers, or any other hierarchy approved by the members including, but not limited to, officers, directors, or other member or manager options (a new concept for LLC's).
ACTS BY MEMBERS
Members may maintain direct action against other members or a series; must plead and prove actual threatened injury; and a member may maintain a derivative action in the right of an LLC to enforce its right as may a member associated with a series. Sec. 9.03-9.09 sets forth the requirements and proceedings for such actions.
Members may now be dissociated under certain events, consistent with Alabama Partnership Law and Alabama Limited Partnership Law. Neither the LLC nor the members may force a dissociated member to sell his interest and the dissociated member cannot force the LLC or members to buy his interest. If a member associated with a series dissociates as a member of the LLC, 11.06(c) provides that the member is also dissociated with that series; however, a dissociated member of a series is not automatically dissociated as a member of the master LLC. Risks include the ability to determine members' affiliation with an entity.
Dissociated members have limited rights to information. Transferees do not have rights to information. Sec. 4.09(g) allows the LLC to utilize "reasonable restrictions/conditions" as to access and use of information furnished, and to keep certain information confidential from members in accordance with the Agreement.
Entities are allowed to change organization type, governing jurisdiction, or both, versus dissolving one entity to form a new entity. Either the converting or converted entity must be an LLC to be applicable and a plan of conversion may include other matters, i.e., provision of appraisal rights, provide authorization of a conversion or provide explicit denial of the right to convert. Conversion requires unanimous approval. Statement of Conversion is required to be filed if the converting organization was filed in Alabama. Either the converting or converted organization must be an LLC (as defined - domestic). All property, debts, obligations, liabilities, actions, proceedings, rights, privileges, immunities, powers, purposes, etc. remain vested in the converted organization, and no winding up or distribution is required. If a merger, a Plan of Merger must be in writing and requires unanimous approval. Statement must be filed with the Secretary of State, which forwards formation documents/amendments to the appropriate Judge of Probate with the appropriate fee. The merged entity ceases to exist, with all property, debts, obligations, liabilities, actions, proceedings, rights, privileges, immunities, powers, purposes, etc. vesting in the surviving organization. Risks include difficulty ascertaining entity status, thus the need for annual certification by vendors as to changes within a given interval.
The Act no longer requires filing Articles of Dissolution upon cessation of business. As with dissociation, neither the LLC nor the members may force a dissociated member to sell his interest and the dissociated member cannot force the LLC or members to buy his interest. If a member associated with a series dissociates as a member of the LLC, 11.06(c) provides that the member is also dissociated with that series; however, a dissociated member of a series is not automatically dissociated as a member of the master LLC. Risks include inability to determine entity status, as well as whether members are still affiliated with an entity or any Series, thus the need for annual certification by vendors as to changes within a given interval.
A dissolved entity (master or series) may file a Certificate of Reinstatement to revive the entity to the date of dissolution, provided the name is still available. The Certificate must include: a. Name of the LLC before reinstatement b. Name of the LLC after reinstatement c. Date of dissolution, though no Certificate of Dissolution is required d. Statement that all Sec. 7.07 requirements have been satisfied e. Address of the Registered Office and Registered Agent If the name is unavailable, a Certificate of Change is required to revive the entity. Certain persons may file written objection. If dissolution was via judicial means, members initiating dissolution must consent to reinstatement and certify that all provisions of Sec. 7.07 have been satisfied. Reinstatement requires the address of the Registered Office, as well as the name of the Registered Agent. Unless affirmative action is taken upon dissolution, the LLC resumes operations as though it were never dissolved. Non-members may consent to reinstatement upon meeting, provided that the LLC Agreement protocols are followed and no written objections to reinstatement exist. Risks include difficulty in determining whether an entity has been dissolved, revoked, operating under a different name, or otherwise inactive for any period throughout its existence.
Members are not liable to third parties, solely by reason of being a member. Members are not, however, relieved for liability arising out of actions or omissions in an individual capacity. Section 10A-5A-3.02 eliminates any statutorily imposed agency powers under the prior law and gives members more freedom to determine agency powers in the LLC Agreement, by consent of the members, or under the law of agency.
Transferrable interest refers to a member's rights to distribution and excludes the right to participate in the oversight or direction of the LLC's activities and affairs, including rights to inspect company books or records. Risks include difficulty in identifying members associated with, or liable for, an entity's actions.
Creditors may obtain charging orders against unsecured creditors; includes the right to receive any distribution the debtor would have received after the LLC has been served the charging order; clarifies what the judgment credit may receive and protects the LLC from unknown charging orders.
Difficulty identifying and/or ascertaining (a) principals for OFAC, credit, or other relevant checks; (b) entity status for continued business relationships; (c) liability for account relationship and/or related obligations
LLC's should be prepared to provide annual certifications to financial institutions and others, as appropriate, relative to (a) full legal name of all entities; (b) full legal name of members, including principals' authority and ownership interest; (c) occurrence and effect of any merger, conversion, dissolution, reinstatement, or other event; (d) changes as to membership, management structure, principals, authority, ownership interest, or other factors affecting the relationship in any way; and (e) prompt reporting of such changes to all business partners, including a full description and effect on all party entities
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