AB566: Bill Text

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, 2023, and apply, on January 1, 2023, 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:

AB566,1 Section 1 . 11.0101 (9) of the statutes is amended to read:

AB566,25,3 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.

AB566,2 Section 2 . 13.69 (1) of the statutes is amended to read:

AB566,25,10 13.69 (1) Except as provided in sub. (2m), any principal violating ss. 13.61 to 13.68 or a rule of the commission promulgated under those sections may be required to forfeit not more than $5,000. In the case of a partnership, other than a foreign or domestic limited liability partnership or a limited liability limited partnership, each of the partners, other than a limited partner of a limited partnership, is jointly and severally liable for any forfeiture imposed under this subsection.

AB566,3 Section 3. 44.03 (3) of the statutes is amended to read:

AB566,25,25 44.03 (3) Every affiliated society shall make a report of its work annually to the historical society that contains the information specified in s. 181.1622 (1) (a) to (e) sub. (3m), which, in its entirety or in part, may be included in the publications of the historical society, and upon application of any affiliated society the historical society may accept, in behalf of the state, custody of or title to the property, records and collections of the affiliated society or may assist in the disposal thereof. If any affiliated society becomes, in the opinion of the board of curators of the historical society, inactive or defunct, title to such property, records and collections not otherwise provided for in the grants of donors or in the articles of incorporation of the inactive and defunct society, shall vest in the historical society which shall take appropriate action in the public interest for the protection or disposal of such property, records and collections. Preference in disposition shall be given to historical or related organizations in the area or to whatever county or local governmental unit that has aided such affiliate financially.

AB566,4 Section 4. 44.03 (3m) of the statutes is created to read:

AB566,26,3 44.03 (3m) The report under sub. (3) shall include all of the following information:

AB566,26,5 (a) The name of the domestic nonstock corporation or foreign nonprofit or nonstock corporation and the state or country under whose law it is incorporated.

AB566,26,7 (b) The mailing address of its registered office and the name and e-mail address of its registered agent at that office in this state.

AB566,26,8 (c) The mailing address of its current principal office.

AB566,26,9 (d) The name and business address of each director and principal officer.

AB566,26,10 (e) A brief description of the nature of its business.

AB566,26,11 (f) Whether the nonprofit or nonstock corporation has members.

AB566,5 Section 5 . 71.80 (21) of the statutes is amended to read:

AB566,26,18 71.80 (21) Business entity conversion. Notwithstanding any provision of ss. 178.1141 to 178.1145, 179.76 179.1141 to 179.1145, 180.1161, 181.1161, and 183.1207 183.1041 to 183.1045, the conversion of a business entity to another form of business entity under s. 178.1141, 179.76 179.1141, 180.1161, 181.1161, or 183.1207 183.1041 shall be treated for state tax purposes in the same manner as the conversion is treated for federal tax purposes.

AB566,6 Section 6 . 71.80 (21m) of the statutes is amended to read:

AB566,26,25 71.80 (21m) Business entity interest exchange. Notwithstanding any provision of ss. 178.1131 to 178.1135, 179.1131 to 179.1135, 180.1102, 180.11021, 180.11032, 180.1105, 180.1106, 181.1131 to 181.1135, and 183.1031 to 183.1035, an interest exchange under s. 178.1131, 179.1131, 180.1102, 181.1131, or 183.1031 shall be treated for state tax purposes in the same manner as the interest exchange is treated for federal tax purposes.

AB566,7 Section 7. 71.80 (22) of the statutes is amended to read:

AB566,27,8 71.80 (22) Business entity merger. Notwithstanding any provision of ss. 178.1121 to 178.1125, 179.77 179.1121 to 179.1125, 180.1101, 180.1104 180.11012, 180.11031 to 180.1106, 181.1101, 181.1104 to 181.11055, and 183.1201 183.1021 to 183.1025, the merger of a business entity with one or more business entities under s. 178.1121, 179.77 179.1121, 180.1101, 180.1104, 181.1101, 181.1104, or 183.1201 183.1021 shall be treated for state tax purposes in the same manner as the merger is treated for federal tax purposes.

AB566,8 Section 8 . 71.80 (22m) of the statutes is amended to read:

AB566,27,14 71.80 (22m) Business entity domestication. Notwithstanding any provision of ss. 178.1151 to 178.1155, 179.1151 to 179.1155, 180.1171 to 180.1175, 181.1171 to 181.1175, and 183.1051 to 183.1055, a domestication under s. 178.1151, 179.1151, 180.1171, 181.1171, or 183.1051 shall be treated for state tax purposes in the same manner as the domestication is treated for federal tax purposes.

AB566,9 Section 9 . 73.03 (58) of the statutes is amended to read:

AB566,27,21 73.03 (58) (a) Notwithstanding any provision of ss. 178.1141 to 178.1145, 179.76 179.1141 to 179.1145, 180.1161, 181.1161, and 183.1207 183.1041 to 183.1045, to treat, for state tax purposes, the conversion of a business entity to another form of business entity under s. 178.1141, 179.76 179.1141, 180.1161, 181.1161, or 183.1207 183.1041 in the same manner as the conversion is treated for federal tax purposes.

AB566,28,2 (b) Notwithstanding any provision of ss. 178.1121 to 178.1125, 179.77 179.1121 to 179.1125, 180.1101, 180.1104 180.11012, 180.11031 to 180.1106, 181.1101, 181.1104 to 181.11055, and 183.1201 183.1021 to 183.1025, to treat, for state tax purposes, the merger of a business entity with one or more business entities under s. 178.1121, 179.77 179.1121, 180.1101, 180.1104, 181.1101, 181.1104, or 183.1201 183.1021 in the same manner as the merger is treated for federal tax purposes.

AB566,28,7 (c) Notwithstanding any provision of ss. 178.1131 to 178.1135, 179.1131 to 179.1135, 180.1102, 180.11021, 180.11032, 180.1105, 180.1106, 181.1131 to 181.1135, and 183.1031 to 183.1035, to treat, for state tax purposes, an interest exchange under s. 178.1131, 179.1131, 180.1102, 181.1131, or 183.1031 in the same manner as the interest exchange is treated for federal tax purposes.

AB566,28,12 (d) Notwithstanding any provision of ss. 178.1151 to 178.1155, 179.1151 to 179.1155, 180.1171 to 180.1175, 181.1171 to 181.1175, and 183.1051 to 183.1055, to treat, for state tax purposes, a domestication under s. 178.1151 , 179.1151, 180.1171, 181.1171, or 183.1051 in the same manner as the domestication is treated for federal tax purposes.

AB566,10 Section 10 . 77.25 (6m) of the statutes is amended to read:

AB566,28,18 77.25 (6m) Pursuant to the conversion of a business entity to another form of business entity under s. 178.1141, 179.76 179.1141, 180.1161, 181.1161, or 183.1207 183.1041, if, after the conversion, the ownership interests in the new entity are identical with the ownership interests in the original entity immediately preceding the conversion.

AB566,11 Section 11 . 77.25 (6q) of the statutes is amended to read:

AB566,28,21 77.25 (6q) Pursuant to an interest exchange under s. 178.1131, 179.1131, 180.1102, 181.1131, or 183.1031.

AB566,12 Section 12 . 77.25 (6t) of the statutes is amended to read:

AB566,28,24 77.25 (6t) Pursuant to a domestication under s. 178.1151, 179.1151, 180.1171, 181.1171, or 183.1051.

AB566,13 Section 13 . 77.61 (15) of the statutes is amended to read:

AB566,29,6 77.61 (15) Notwithstanding any provision of ss. 178.1141 to 178.1145, 179.76 179.1141 to 179.1145, 180.1161, 181.1161 to 181.1165, and 183.1207 183.1041 to 183.1045, a business entity that converts to another business entity under s. 178.1141, 179.76 179.1141, 180.1161, 181.1161, or 183.1207 183.1041 shall be subject to the provisions under this subchapter applicable to liquidations, reorganizations, and business entity formations.

AB566,14 Section 14. 97.605 (4) (a) 1. of the statutes is amended to read:

AB566,29,9 97.605 (4) (a) 1. “Business entity" has the meaning given in s. 179.70 (1) 180.1100 (1g).

AB566,15 Section 15. 97.67 (2) (c) (intro.) of the statutes is amended to read:

AB566,29,16 97.67 (2) (c) (intro.) A sole proprietorship that reorganizes as a business entity, as defined in s. 179.70 (1) 180.1100 (1g), or a business entity that reorganizes as a sole proprietorship or a different type of business entity may transfer a license issued under this section for a campground, camping resort, recreational or educational camp, or public swimming pool to the newly formed business entity or sole proprietorship if all of the following conditions are satisfied:

AB566,16 Section 16 . 108.025 (1) (b) of the statutes is amended to read:

AB566,29,21 108.025 (1) (b) An individual named as who is a member of a limited liability company that is treated as a corporation under this chapter in the records of the company required to be kept under s. 183.0405 as of the date of an election under this section.

AB566,17 Section 17 . 139.34 (9) of the statutes is amended to read:

AB566,30,13 139.34 (9) The applicant for a permit, if a nonresident, foreign corporation or foreign limited liability company, shall file proof that the applicant has appointed the department of financial institutions as agent for the service of process on any matter arising under ss. 139.30 to 139.44. A foreign corporation without a place of business in this state need not obtain a certificate of authority under ss. 180.1501 to 180.1505. If a foreign corporation has a certificate of authority under ss. 180.1501 to 180.1505, the foreign corporation satisfies this subsection by filing the address of its registered office in this state and the name and e-mail address of its registered agent at that office and by promptly filing any changes to this information. A foreign limited liability company without a place of business in this state need not obtain a certificate of registration under ss. 183.1002 to 183.1007 s. 183.0902. If a foreign limited liability company has a certificate of registration under ss. 183.1002 to 183.1007 s. 183.0902, the foreign limited liability company satisfies this subsection by filing the address of its registered office in this state and the name and address, and e-mail address, of its registered agent at that office in this state and by promptly filing any changes to this information.

AB566,18 Section 18. 157.62 (1) (b) and (2) (b) 1., 2. and 7. of the statutes are amended to read:

AB566,30,17 157.62 (1) (b) Paragraph (a) does not apply to any person required to file a report under s. 180.1622 or 181.1622 181.0214.

AB566,30,19 (2) (b) 1. A copy of any report required under sub. (1) (a) or s. 180.1622 or 181.1622 181.0214.

AB566,30,21 2. If the cemetery authority is required to file a report under s. 180.1622 or 181.1622 181.0214, the information specified in sub. (1) (a) 3.

AB566,30,24 7. The information specified in sub. (1) (a), to the extent applicable, if the cemetery is not required to file a report under sub. (1) (a) or s. 180.1622 or 181.1622 181.0214.

AB566,19 Section 19. 165.68 (5) (f) 1. of the statutes is amended to read:

AB566,31,3 165.68 (5) (f) 1. If a program participant is the sole member of a limited liability company, the limited liability company may list the department as its registered agent and registered office under s. 183.0105 (1) 183.0115 (1m).

AB566,20 Section 20 . 178.0102 (11) of the statutes is amended to read:

AB566,31,10 178.0102 (11) “Partnership" or “domestic partnership" means an association of 2 or more persons, except to the extent provided in s. 178.0801 (6) or organized under another chapter, to carry on as co-owners a business for profit whose governing law is the law of this state, and which is subject to this chapter, including an association that has become and is still subject to this chapter. The term includes a limited liability partnership.

AB566,21 Section 21 . 178.0102 (14) of the statutes is amended to read:

AB566,31,18 178.0102 (14) “Person" means an individual, business corporation, nonprofit or nonstock corporation, partnership, limited partnership, limited liability company, general cooperative association, limited cooperative association, unincorporated nonprofit association, statutory trust, business trust, common-law business trust, estate, trust, association, joint venture, public corporation, government or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.

AB566,22 Section 22 . 178.0103 (6) (d) of the statutes is created to read:

AB566,31,21 178.0103 (6) (d) For notices from the department, upon successful transmission by e-mail as provided in this chapter.

AB566,23 Section 23 . 178.0104 of the statutes is renumbered 178.0104 (1m).

AB566,24 Section 24 . 178.0104 (2m) and (3m) of the statutes are created to read:

AB566,32,3 178.0104 (2m) The fact that one or more of the partners of a partnership are, or are not, subject to tax on the income of the partnership shall have no effect on the application of the law of this state under sub. (1m).

AB566,32,7 (3m) The partnership agreement may require, consistent with applicable jurisdictional requirements, that any or all claims involving the application of the law of this state under sub. (1m) shall be brought solely and exclusively in the courts of this state.

AB566,25 Section 25. 178.0105 (3) (a) of the statutes is amended to read:

AB566,32,10 178.0105 (3) (a) Vary the law applicable under ss. 178.0104 (1) (1m) (a) and 178.0110.

AB566,26 Section 26 . 178.0105 (3) (b) of the statutes is repealed.