SB810: Bill Text

As under current law, this bill provides general partners and limited partners with certain rights to inspect and copy records maintained by the limited partnership, although the details of these rights in the bill differ from current law. The bill specifies records and information that the limited partnership must furnish to general partners and limited partners without demand, as well as information that the limited partnership must furnish to partners on demand. The duty to furnish information also applies to each general partner on whom a demand is made, not just to the limited partnership. The bill also specifies the rights to information of a person dissociated as a general partner or limited partner. The bill allows a limited partnership to impose reasonable restrictions and conditions on access to and use of information furnished by the partnership.

Dissociation of partners

Current law specifies the circumstances under which a general partner or limited partner may withdraw from a limited partnership. With a narrow exception, a limited partner may withdraw from a limited partnership only at the time or upon the occurrence of an event specified in the partnership agreement. In contrast, a general partner may withdraw from a limited partnership at any time by giving notice to the other partners, but if the withdrawal violates the partnership agreement, the limited partnership may recover damages from the withdrawing general partner for breaching the partnership agreement. Current law also specifies events that, absent consent of all partners, cause a person to cease to be a general partner of the limited partnership, including that the general partner: 1) is removed as a general partner in accordance with the partnership agreement; 2) assigns all his or her partnership interest to another; 3) files for bankruptcy; or 4) dies or is adjudicated incompetent.

This bill adopts the term “dissociation" in connection with the voluntary or involuntary withdrawal of a general partner or limited partner from a limited partnership and modifies the bases under which a partner's dissociation from the limited partnership occurs. Among other events causing dissociation, a general partner is dissociated when 1) the partner withdraws from the partnership or is expelled from the partnership; 2) an event occurs that, under the terms of the partnership agreement, results in the partner's dissociation; 3) the partner becomes a debtor in bankruptcy, dies, has a guardian or conservator appointed, or is adjudged to be incapable of performing his or her duties under the partnership agreement; or 4) the partnership dissolves and completes winding up. A general partner has the power to dissociate from a limited partnership at any time, rightfully or wrongfully, by expressly withdrawing, but the dissociation is wrongful if it breaches the partnership agreement or if it occurs before the winding up of the limited partnership and the general partner withdraws by express will, is expelled by judicial order, files for bankruptcy, or dissolves or terminates. A general partner that wrongfully dissociates is liable to the limited partnership and the other partners for damages caused by the dissociation.

Under this bill, in contrast to a general partner, a limited partner does not have a right to dissociate before the winding up of the limited partnership. The bill specifies that, among the events causing dissociation, a limited partner is dissociated when 1) the partner withdraws from the partnership or is expelled from the partnership; 2) an event occurs that, under the terms of the partnership agreement, results in the partner's dissociation; 3) the partner dies or, if an entity, its existence terminates; or 4) the partnership dissolves and completes winding up.

The bill provides more specific information, in comparison with current law, about the effects of a general partner's or limited partner's dissociation from a limited partnership. Among these effects, a dissociated general partner has no right to participate in the management and conduct of the partnership activities and affairs; a dissociated partner's interest takes on the status of a transferee's interest rather than a partner's interest; and certain obligations terminate as to future events but may continue to apply to past events.

Under current law, a partner that withdraws from a limited partnership is entitled to receive, within a reasonable time after withdrawal, the fair value of the partner's interest in the limited partnership as of the date of withdrawal, unless the partnership agreement provides otherwise.

Under this bill, unless the partnership agreement provides otherwise, a partner has no right to a distribution before the dissolution and winding up of the limited partnership, and any earlier distribution to a dissociated partner is discretionary with the limited partnership.

Dissolution and winding up

This bill modifies some of the grounds under which a limited partnership is dissolved and its activities and affairs must be wound up. Under current law, among the grounds for dissolution, a limited partnership may be voluntarily dissolved on the written consent of all general partners and limited partners.

Under the bill, a limited partnership may be voluntarily dissolved on the consent of all general partners and of limited partners owning a majority of the rights to receive distributions, whether as a general partner, limited partner, or both.

Under current law, if any general partner withdraws or otherwise ceases to be a general partner, the limited partnership is dissolved unless: 1) the partnership agreement allows the limited partnership to continue and there is at least one remaining general partner that continues the partnership's business; or 2) within 90 days, all partners agree to continue the business of the limited partnership and to appoint one or more additional general partners if necessary.

Under this bill, there is no presumptive dissolution of the limited partnership upon dissociation of a general partner. Instead, upon dissociation of a general partner, the limited partnership is dissolved only if: 1) the partnership has at least one remaining general partner and partners owning a majority interest consent, within 90 days, to dissolve the partnership; or 2) the partnership does not have any remaining general partner and 90 days pass without both of the following occurring: a majority (by interest) of limited partners consenting to continue the partnership; and, at least one general partner being admitted.

Under current law, a limited partnership must file a certificate of cancellation upon dissolution or at any other time that there are no limited partners.

The bill provides that a limited partnership is dissolved if: 1) 90 consecutive days pass after the dissociation of the partnership's last limited partner without the partnership admitting at least one limited partner; or 2) 90 consecutive days pass during which the limited partnership has only one partner or does not have both a general partner and a limited partner. The bill, which does not require a certificate of limited partnership to include a statement of duration, also eliminates the automatic dissolution under current law of a limited partnership upon expiration of its stated duration.

Under this bill, a dissolved limited partnership, in winding up its activities and affairs, may amend its certificate of limited partnership to state that the partnership is dissolved and may also file a statement of termination with DFI. With exceptions, a limited partnership that initiates dissolution may also rescind its dissolution and continue carrying on its activities and affairs as if dissolution had never been initiated.

The bill also provides DFI with authority to administratively dissolve a limited partnership. Under the bill, DFI may commence a proceeding to dissolve a limited partnership administratively if the limited partnership does not pay a required fee or penalty or file an annual report within one year after the fee or penalty or report is due or is without a registered agent or registered office in this state for at least one year. The bill establishes a procedure for these proceedings and allows an administratively dissolved limited partnership to apply to DFI for reinstatement. The bill also provides a process for appeal and court review of DFI's denial of an application for reinstatement.

Mergers, conversions, and other business combinations

This bill makes significant changes with respect to mergers, conversions, and other business-combination transactions involving domestic or foreign limited partnerships. Under current law, one or more domestic limited partnerships may merge with or into one or more other domestic or foreign business entities (business corporations, nonprofit or nonstock corporations, limited liability companies, or limited partnerships) if the merger satisfies certain requirements. Current law also allows a domestic limited partnership to convert to another form of domestic or foreign business entity if the conversion satisfies certain requirements.

This bill significantly changes the requirements applicable to a merger or conversion involving a limited partnership and also allows a limited partnership to undertake transactions in the form of an interest exchange or domestication. In an interest exchange, a limited partnership acquires interests of another domestic or foreign business entity, or has its own interests acquired by another domestic or foreign business entity. In a domestication, an entity governed by the law of a foreign country (a non-U.S. entity) may domesticate as a domestic limited partnership under Wisconsin law while continuing to be subject to the foreign country's law and a domestic limited partnership may domesticate as a non-U.S. entity subject to a foreign country's law while continuing to be a domestic limited partnership. The bill allows mergers, conversions, interest exchanges, and domestications to involve a diverse array of business entities, including business corporations, nonprofit or nonstock corporations, limited liability companies, limited partnerships, LLPs, cooperative associations, and unincorporated associations. Certain requirements apply to these business-structure transactions, including approval of a plan of merger, conversion, interest exchange, or domestication and filing with DFI articles of merger, conversion, interest exchange, or domestication, although the terms of the partnership agreement generally govern mergers, conversions, interest exchanges, and domestications. When the merger, conversion, interest exchange, or domestication becomes effective, certain results occur automatically, as a matter of law, with respect to such matters as assets, obligations, continued existence, and organizational documents of the parties involved in the transaction. The bill also eliminates a provision of current law that requires a surviving foreign business entity in a merger to pay dissenting owners of merged domestic business entities for their interests, but creates new dissenter's rights for a partner in a business-structure transaction if the transaction materially increases the partner's obligation or liability or treats the partner's interest different from that of other partners.

Other changes

Under current law, on application to the circuit court by a creditor that has obtained a judgment against a general partner or limited partner, the court may charge the partnership interest of the partner with payment of the unsatisfied amount of the judgment. To the extent charged, the judgment creditor has only the rights of an assignee of the partnership interest.

This bill expands on provisions of current law under which a creditor of a general partner or limited partner may seek from a court a charging order against the partner's interest in the limited partnership to satisfy the unpaid amount of the creditor's judgment. Under the bill, a charging order is available against the interest of either a partner or a transferee of a partner. A charging order constitutes a lien on the partner's or transferee's interest and requires the limited partnership to pay over to the creditor any distribution that otherwise would be paid to the partner or transferee. Under certain circumstances, the court may foreclose the lien and order the sale of the partner's or transferee's interest in the limited partnership. The purchaser of the interest at the foreclosure sale obtains only the interest and does not thereby become a partner or gain any right to participate in the activities and affairs of the limited partnership.

Under current law, a limited partner may bring an action on behalf of a limited partnership (derivative action) to recover a judgment in its favor if general partners with authority to do so have refused to bring the action or if an effort to cause those general partners to bring the action is not likely to succeed.

This bill continues to allow a limited partner to bring a derivative action and also allows a general partner to bring a derivative action. However, under the bill, the limited partnership may appoint a special litigation committee to investigate the claims in the derivative action and to determine whether pursuing the action is in the best interests of the limited partnership. The special litigation committee must be composed of disinterested and independent individuals, who may be partners. If the limited partnership appoints a special litigation committee, the court must, on motion of the committee, stay discovery for the time reasonably necessary to permit the committee to make its investigation, unless there is good cause shown for the court to deny the stay. After appropriate investigation, the special litigation committee may determine that it is in the best interests of the limited partnership for the proceeding to continue under the control of the plaintiff; for the proceeding to continue under the control of the committee; for the proceeding to be settled on terms approved by the committee; or for the proceeding to be dismissed. After making its determination, the special litigation committee must submit its determination to the court and, if the court determines that certain requirements are satisfied, the court must follow and enforce the committee's recommendation. If the court finds the applicable requirements are not satisfied, the court must dissolve the stay of discovery and allow the plaintiff to continue the action.

The bill provides a procedure and specifies grounds for DFI to terminate authority of a foreign limited partnership to do business in this state.

The bill includes many changes relating to procedures applicable to limited partnerships and foreign limited partnerships, including changes related to registered agents, service of process, and permissible names. The bill also provides a procedure for DFI to issue a certificate of status for a limited partnership or foreign limited partnership.

This bill includes provisions specifying when a person is considered to have notice or knowledge of a fact. The bill also specifies when a person is considered to have given another person notice of a fact. The bill also allows DFI to provide written notice to a limited partnership or foreign limited partnership solely by e-mail to its registered agent.

The bill includes numerous other substantive and stylistic changes from current law. The bill also includes some modifications from, or additions to, the model language of RULPA. For example, the bill includes provisions relating to DFI fees that are not included in RULPA.

Phase-in

The changes in this bill apply to a limited partnership formed on or after January 1, 2021, and apply on January 1, 2021, to a limited partnership formed before that date unless 1) the limited partnership elects to be governed earlier by the new provisions of the bill, or 2) the limited partnership elects to be governed by the existing law applicable before enactment of the bill.

PARTNERSHIPS

In enacting 2015 Wisconsin Act 295, this state repealed and recreated Wisconsin's partnership law to adopt, with modifications, the Revised Uniform Partnership Act (RUPA), as last amended in 2013. This state's law was previously based on an earlier version of the Uniform Partnership Act. With a limited exception, a partnership formed on or after January 1, 2018, is subject to the new statutory provisions of RUPA.

This bill makes modifications to the state's partnership law as created in Act 295, including changes relating to 1) a partnership's governing law; 2) prohibited provisions in a partnership agreement; 3) DFI's fees for partnership-related filings; 4) consent to partnership action without a meeting of the partners; 5) a partner's duty of care in the conduct or winding up of the partnership business; 6) compensating a dissociated partner; 7) claims against a dissolved limited liability partnership; 8) business-structure transactions involving partnerships, including dissenter's rights for a partner; and 9) the method by which DFI may provide written notice to a partnership.

LIMITED LIABILITY COMPANIES

In 1992, the ULC began working on the Uniform Limited Liability Company Act, which was completed in 1994 and approved in 1996. Before the ULC had completed its work, many states had already passed limited liability company (LLC) legislation and the American Bar Association had created a prototype LLC Act. The ULC adopted a Revised Uniform Limited Liability Company Act in 2006, which was amended in 2013.

Wisconsin authorized the creation of LLCs prior to the ULC's first model act, by enacting 1993 Wisconsin Act 112, effective January 1, 1994. Since then, various modifications have been made to this state's LLC law.

This bill repeals and recreates Wisconsin's LLC law to adopt the Revised Uniform Limited Liability Company Act (2006), as last amended in 2013 (RULLCA), subject to certain modifications. Many provisions of RULLCA are similar to current law. Under both current law and RULLCA, an LLC is a distinct legal entity separate from its members and may be organized for any lawful purpose. An LLC may be managed by its members or by managers, and an operating agreement between the members may provide rules of governance for the LLC. In many instances, statutory provisions are merely default rules that govern an LLC only in the absence of applicable terms in an operating agreement, but in some instances the terms of an operating agreement may not vary from statutory requirements. Some of the significant changes to current law made by RULLCA, as adopted under this bill, are discussed below.

Formation and operating agreement

Under current law, an organizer files articles of organization with the Department of Financial Institutions to form an LLC. The articles of organization must contain specified information and may not contain any additional information.

This bill modifies the information required in articles of organization filed with DFI and allows additional information to be included in the articles of organization. The bill also specifies that an LLC has perpetual duration (although the duration may be modified by the operating agreement). The bill allows a person, in addition to various other permissible ways, to become a member of an LLC in any way provided for in the operating agreement. The bill includes various provisions regarding the formation of a one-member LLC (which is also permitted under current law).

Current law defines “operating agreement" to include only a written document and allows for the possibility that an LLC could be formed and operate without an operating agreement. Under current law, “operating agreement" means an agreement in writing, if any, among all of the members as to the conduct of the business of an LLC and its relationships with its members.

Under this bill, the operating agreement may be oral or written, express or implied, and an LLC cannot exist without an operating agreement. Under the bill, “operating agreement" means the agreement, whether or not referred to as an operating agreement and whether oral, implied, written, or recorded in a tangible or electronic medium, or in any combination of these, of all the members of an LLC, including a sole member, concerning 1) relations among the members as members and between the members and the LLC; 2) the rights and duties of managers; 3) the activities and affairs of the LLC and the conduct of those activities and affairs; 4) the means and conditions for amending the operating agreement; and 5) mergers, conversions, and other business combinations.

This bill provides more specific guidance, in comparison with current law, as to when the provisions of an operating agreement override contrary statutory provisions and when they do not. Under the bill, subject to certain exceptions, the operating agreement governs all matters described in items 1) to 5), above, but if the operating agreement does not provide for a matter described in items 1) to 5), above, statutory provisions govern the matter. The operating agreement also governs the obligations of an LLC and its members to a person dissociated as a member or a person to whom a member's interest (right to receive distributions from the LLC) has been transferred. The bill includes a list of matters for which the operating agreement may not vary from statutory provisions, including matters related to a member's fiduciary and other duties, discussed below.

Authority of members

This bill generally eliminates the concept of “apparent authority" in connection with LLCs. Under current law, in a member-managed LLC, each member is an agent of the LLC and, subject to exceptions, the act of a member for apparently carrying on the business of the LLC binds the LLC. This principle does not apply in a manager-managed LLC, where the managers, not the members, are the agents of the LLC for purposes of carrying on its business.

Under this bill, a member is not an agent of an LLC solely by reason of being a member. An LLC may file with DFI a statement of authority identifying the authority of any position with the LLC (which covers all persons holding that position), identifying the authority of any specific person, or identifying limitations on the authority of any position or person. The statement of authority is effective for five years from its original date or its most recent amendment or renewal, and the statement affects only the power of a person to bind the LLC to persons that are not members. The bill allows any person named in a statement of authority to file with DFI a statement of denial of authority.

Fiduciary and other duties of members and managers

Under current law, unless otherwise provided in an operating agreement, a member or manager cannot act, or fail to act, in a manner that constitutes willful misconduct; a willful failure to deal fairly with the LLC or its members where the member or manager has a material conflict of interest; or, with exceptions, a violation of criminal law. Unless otherwise provided in an operating agreement, a member or manager cannot derive improper personal profit from a transaction. A member or manager must account to the LLC, and hold as trustee for it, any improper personal profit derived, without the consent of a majority of the disinterested members or managers, from a transaction connected with the LLC or from use by the member or manager of LLC property, including confidential or proprietary information.

Under this bill, unless the duty is permissibly modified in the LLC's operating agreement (as discussed below), a member of a member-managed LLC, or a manager of a manager-managed LLC, owes to the LLC, and to its members, fiduciary duties of loyalty and care, as described below. A member or manager must also discharge its duties and obligations, whether statutory or arising under the operating agreement, and exercise its rights, consistently with the contractual obligation of good faith and fair dealing. However, a member does not violate a duty or obligation solely because the member's conduct furthers the member's own interest.

Under the bill, a member of a member-managed LLC, or a manager of a manager-managed LLC, owes a duty of loyalty that includes the duty 1) to account to the LLC and hold as trustee for it any property, profit, or benefit derived by the member or manager in the conduct or winding up of the LLC's business, from use of the LLC's property, or from the appropriation of an LLC opportunity; 2) to refrain from dealing with the LLC, in the conduct or winding up of the LLC's business, adversely or on behalf of a person having an adverse interest; and 3) to refrain from competing with the LLC in the conduct of the LLC's business. However, all the members of an LLC may authorize or ratify, after disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty. Also, it is a defense to a claim of dealing adversely with the LLC (item 2, above) that the transaction was fair to the LLC.

Under the bill, a member of a member-managed LLC, or a manager of a manager-managed LLC, also owes a duty of care, in the conduct or winding up of the LLC's business, to refrain from 1) willfully failing to deal fairly with the LLC or its members when the person has a material conflict of interest; 2) violating the criminal law; 3) engaging in a transaction in which the person derives an improper personal profit; or 4) engaging in willful misconduct.

Under the bill, the operating agreement may not alter or eliminate, or restrict the remedies for breach of, the duty of loyalty or the duty of care, except as described below; eliminate, or restrict remedies for the breach of, the contractual obligation of good faith and fair dealing, but a written operating agreement may prescribe standards, if not manifestly unreasonable, by which performance of the obligation is measured; or relieve a person from liability for conduct that violates the duty of care described in items 1) to 4) in the immediately preceding paragraph. However, the operating agreement may specify the method by which an act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified after the disclosure of all material facts. In a member-managed LLC, a written operating agreement may also eliminate or limit a member's fiduciary duty if it also relieves the member of a responsibility and imposes it on another member. A written operating agreement may also alter or eliminate, or restrict remedies with respect to, certain aspects of the duty of loyalty; identify specific types or categories of activities that do not violate the duty of loyalty or the contractual obligation of good faith and fair dealing; alter the duty of care, if it does not authorize the conduct described in items 1) to 4) in this paragraph; or alter or eliminate any other fiduciary duty.

Operating requirements

This bill makes changes to the information that must be contained in an LLC's annual report. Under current law, if a domestic LLC or registered foreign LLC is manager-managed, its annual report must contain the name and business address of each manager. The annual report of a registered foreign LLC must also contain the name and business address of each LLC member. A domestic LLC is one organized under this state's law and a registered foreign LLC is one organized under the law of another state or jurisdiction and authorized to do business in this state.

Under this bill, the annual report of a domestic LLC or registered foreign LLC must include the name of at least one member if it is member-managed or the name of at least one manager if it is manager-managed.

This bill makes some changes with respect to the records that an LLC must keep at its office. As under current law, the bill provides members with certain rights to, on request, inspect and copy records maintained by the LLC, and requires the LLC to provide records and information, although the details of these requirements in the bill differ from current law. Under the bill, managers have these rights in a manager-managed LLC. In addition, the bill requires an LLC, without request, to furnish each member in a member-managed LLC, or each manager in a manager-managed LLC, with any information concerning the LLC's activities, affairs, financial condition, and other circumstances that the LLC knows and is material to the proper exercise of the member's or manager's rights and duties, unless the member or manager already knows the information. In a manager-managed LLC, the LLC must, without request, provide members with all known, material information before the member is required to vote on or give or withhold consent to a matter. In addition to the LLC's duty, each member in a member-managed LLC, or each manager in a manager-managed LLC, has a duty to furnish information known by the member or manager. The bill also contains provisions relating to the rights to information after a person dissociates as a member. The bill allows an LLC to impose reasonable restrictions and conditions on access to and use of information furnished by the LLC.

Current law includes provisions relating to when notice to, or knowledge of, a member or manager is imputed to an LLC.

This bill eliminates these provisions and creates new provisions as to when a person is considered to have notice or knowledge of a fact. The bill also specifies when a person is considered to have given another person notice of a fact.

The bill also allows DFI to provide written notice to an LLC solely by e-mail to its registered agent.

Dissociation of members

As under current law, this bill specifies circumstances under which a member of an LLC dissociates from the LLC, including voluntary dissociation. Under the bill, a person may dissociate as a member at any time, rightfully or wrongfully, by withdrawing as a member by express will. A person's dissociation as a member is wrongful if, among other things, the dissociation is in violation of a written operating agreement. The bill provides more specific information, in comparison with current law, about the effects of a member's dissociation from an LLC. Among these effects, a person dissociated as a member has no right to participate in the management and conduct of the LLC's business and the person's right to distributions takes on the status of the right of a transferee. Upon dissociation, certain obligations of the person terminate as to future events but continue to apply to past events.

Under current law, if a member withdraws from an LLC and the withdrawal occurs as a result of the member's wrongful conduct, the LLC may recover from the withdrawing member damages as a result of the wrongful conduct.

Under this bill, a member that wrongfully dissociates from an LLC is liable for damages caused by the dissociation and the liability is to both the LLC and to any other member if the other member shows that its injury is not solely the result of injury suffered by the LLC.

Under current law, a member who dissociates from an LLC has a right to a distribution in complete redemption of the fair value of the member's interest at the time of dissociation, unless the operating agreement provides otherwise.

Under this bill, unless the operating agreement provides otherwise, a distribution to a person who dissociates as a member of an LLC is discretionary with the LLC, and the person has no right to a distribution. The bill also specifies that an LLC's obligations to a person dissociated as a member are governed by the operating agreement, but an amendment to the operating agreement after the person has dissociated as a member cannot impose a new obligation on the person.

This bill expands on provisions of current law under which a creditor of an LLC's member may seek from a court a charging order against the member's interest in the LLC to satisfy the unpaid amount of the creditor's judgment. Under the bill, a charging order is available against the interest (right to receive distributions) of either a member or a person to whom the member's interest has been transferred (transferee). A charging order constitutes a lien on the member's or transferee's interest and requires the LLC to pay over to the creditor any distribution that otherwise would be paid to the member or transferee. Under certain circumstances, the court may foreclose the lien and order the sale of the member's or transferee's interest in the LLC. The purchaser of the interest at the foreclosure sale obtains only the interest and does not thereby become a member or gain any right to participate in the business of the LLC. The bill includes specific provisions applicable when a court orders foreclosure of a charging order lien against a single-member LLC.

Dissolution and winding up

This bill modifies some of the grounds under which an LLC is dissolved and its activities and affairs must be wound up, and replaces the term “articles of dissolution" in current law with the term “statement of dissolution." As new grounds for dissolution under the bill, dissolution occurs upon the passage of 90 consecutive days during which the LLC has no members. The bill eliminates as a ground for judicial dissolution of an LLC that the LLC is not acting in conformity with its operating agreement. The bill also eliminates a “grandfather" provision relating to dissolution of an LLC organized before October 1, 2002.

Under current law, DFI may administratively dissolve an LLC that does not file its annual report within one year after it is due. Under this bill, DFI may administratively dissolve an LLC if the LLC does not pay any required fee or penalty within one year after it is due; does not file its annual report within one year after it is due; is without a registered agent in this state for at least one year; does not notify DFI within one year of changes to its registered agent or registered office; or commits certain crimes involving human trafficking.

Mergers, conversions, and other business combinations

This bill makes significant changes with respect to mergers, conversions, and other business combinations involving domestic or foreign LLCs. Under current law, one or more domestic or foreign LLCs may merge with or into one or more other domestic or foreign business entities (business corporations, nonprofit or nonstock corporations, LLCs, or limited partnerships) if the merger satisfies certain requirements. Current law also allows a domestic LLC to convert to another form of domestic or foreign business entity if the conversion satisfies certain requirements.

This bill significantly changes the requirements applicable to a merger or conversion involving an LLC and also allows an LLC to undertake transactions in the form of an interest exchange or domestication. In an interest exchange, a domestic LLC acquires interests of another domestic or foreign business entity, or has its own interests acquired by another domestic or foreign business entity. In a domestication, an entity governed by the law of a foreign country (a non-U.S. entity) may domesticate as a domestic LLC under Wisconsin law while continuing to be subject to the foreign country's law and a domestic LLC may domesticate as a non-U.S. entity subject to a foreign country's law while continuing to be a domestic LLC. Under the bill, a merger, conversion, interest exchange, or domestication is not limited to transactions involving business entities that are business corporations, nonprofit or nonstock corporations, LLCs, or limited partnerships; the bill allows these transactions to include other entities such as limited liability partnerships, cooperative associations, and unincorporated associations. Certain requirements apply to organizational transactions under the bill, including approval of a plan of merger, conversion, interest exchange, or domestication and filing with DFI articles of merger, conversion, interest exchange, or domestication, although the terms of the operating agreement generally govern mergers, conversions, interest exchanges, and domestications. When the merger, conversion, interest exchange, or domestication becomes effective, certain results occur automatically, as a matter of law, with respect to such matters as assets, obligations, continued existence, and organizational documents of the parties involved in the transaction. With respect to a merger, the bill also eliminates a provision of current law that gives a dissenting member of the LLC who does not vote in favor of the merger the right, upon dissociation from the LLC, to receive fair value for the member's LLC interest, unless the operating agreement provides otherwise.

Other changes

Under the bill, a member of an LLC may bring a derivative action against the LLC to enforce a right of the LLC if certain conditions are satisfied. The LLC may appoint a special litigation committee to investigate the claims in the derivative action and to determine whether pursuing the action is in the best interests of the LLC. The special litigation committee must be composed of disinterested and independent individuals, who may be members. If the LLC appoints a special litigation committee, the court must, on motion of the committee, stay discovery for the time reasonably necessary to permit the committee to make its investigation, unless there is good cause shown for the court to deny the stay. After appropriate investigation, the special litigation committee may determine that it is in the best interests of the LLC for the proceeding to continue under the control of the plaintiff; for the proceeding to continue under the control of the committee; for the proceeding to be settled on terms approved by the committee; or for the proceeding to be dismissed. After making its determination, the special litigation committee must submit its determination to the court and, if the court determines that certain requirements are satisfied, the court must follow and enforce the committee's recommendation. If the court finds the applicable requirements are not satisfied, the court must dissolve the stay of discovery and allow the plaintiff to continue the action.

This bill also changes many terms used under current law in connection with LLCs. For example, in addition to changing “articles of dissolution" to “statement of dissolution," the bill changes “articles of correction" to “statement of correction" or “statement of change," depending on the circumstances.

The bill includes numerous other substantive and stylistic changes from current law. The bill also includes some modifications from, or additions to, the model language of RULLCA.

Phase-in

The changes in this bill apply to an LLC formed on or after January 1, 2021, and apply, on January 1, 2021, to an LLC formed before that date unless 1) the LLC elects to be governed earlier by the new provisions of the bill, or 2) the LLC elects to be governed by the existing law applicable before enactment of the bill. When the provisions of the bill become applicable to an LLC, provisions of prior law relating to obligations incurred by the LLC prior to the bill's enactment continue to apply and any provision of an operating agreement that was valid before enactment of the bill remains valid.

CORPORATIONS

This bill also makes changes to the law governing business corporations and nonstock corporations that generally correspond to the changes applicable to limited partnerships, LLCs, and partnerships, including changes similar to those described above and related to 1) mergers, conversions, and other business-structure transactions; 2) the process and fees for corporate filings with DFI; 3) procedures and requirements applicable to corporations including those related to registered agents and permissible names; 4) the method by which DFI may provide written notice to a corporation; and 5) consent to corporate action without a meeting.

Because this bill creates a new crime or revises a penalty for an existing crime, the Joint Review Committee on Criminal Penalties may be requested to prepare a report.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB810,1 Section 1 . 11.0101 (9) of the statutes is amended to read:

SB810,25,3 11.0101 (9) “Corporation" includes a foreign limited liability company, as defined in s. 183.0102 (8) (5) and a limited liability company, as defined in s. 183.0102 (10) (8), if the foreign limited liability company or the limited liability company elect to be treated as a corporation by the federal internal revenue service, pursuant to 26 CFR 301.7701-3, or if the foreign limited liability company or the limited liability company has publicly traded shares.

SB810,2 Section 2 . 13.69 (1) of the statutes is amended to read: