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Current Status Bill Number:View additional legislative information at the LPITS web site.4803 Type of Legislation:General Bill GB Introducing Body:House Introduced Date:20020226 Primary Sponsor:Lucas All Sponsors:Lucas Drafted Document Number:l:\council\bills\dka\4659mm02.doc Residing Body:House Current Committee:Judiciary Committee 25 HJ Subject:Limited liability companies; merger of corporations and partnerships into; perpetual limited liability companies; professional services limited liability companies History Body Date Action Description Com Leg Involved ______ ________ ______________________________________ _______ ____________ House 20020226 Introduced, read first time, 25 HJ referred to Committee Versions of This Bill
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING ARTICLE 15 TO CHAPTER 41, TITLE 33, AND BY ADDING SECTION 33-42-2050 TO CHAPTER 42, TITLE 33, SO AS TO PROVIDE FOR MERGER INTO A LIMITED LIABILITY COMPANY BY A GENERAL PARTNERSHIP AND A LIMITED PARTNERSHIP, RESPECTIVELY; TO AMEND SECTIONS 33-44-902 AND 33-44-903, RELATING TO CONVERSION OF A PARTNERSHIP OR LIMITED PARTNERSHIP TO A LIMITED LIABILITY COMPANY, SO AS TO PROVIDE FOR CONVERSION FROM A BUSINESS CORPORATION TO A LIMITED LIABILITY COMPANY AND TO PROVIDE FOR A FILING OF AFFIDAVIT OF NAME CHANGE PROCEDURE; BY ADDING SECTION 33-11-110 SO AS TO PROVIDE FOR MERGER OF A BUSINESS CORPORATION INTO A LIMITED LIABILITY COMPANY; TO AMEND SECTIONS 33-11-101, AS AMENDED, AND 33-31-1101, RELATING TO MERGER INTO ANOTHER ENTITY BY A BUSINESS CORPORATION AND A NONPROFIT CORPORATION, RESPECTIVELY, SO AS TO PROVIDE FOR MERGER INTO A LIMITED LIABILITY COMPANY BY A BUSINESS CORPORATION AND A NONPROFIT CORPORATION; TO AMEND SECTION 33-44-501, RELATING TO THE DISTRIBUTIONAL INTEREST OF A MEMBER OF A LIMITED LIABILITY COMPANY, SO AS TO PROVIDE FOR FIRST REFUSAL RIGHTS IN THE LIMITED LIABILITY COMPANY FOR THE TRANSFER OF A DISTRIBUTIONAL INTEREST BY A LIVING MEMBER; BY ADDING SECTION 33-44-505 SO AS TO PROVIDE FOR FIRST REFUSAL RIGHTS IN THE LIMITED LIABILITY COMPANY FOR THE TRANSFER OF THE ESTATE OF A DECEASED MEMBER; TO AMEND SECTION 33-44-101, RELATING TO DEFINITIONS FOR PURPOSES OF THE UNIFORM LIMITED LIABILITY COMPANY ACT, SO AS TO DEFINE A "PERPETUAL COMPANY"; TO AMEND SECTIONS 33-44-203 AND 33-44-208, RELATING TO ORGANIZATION OF A LIMITED LIABILITY COMPANY, BOTH SO AS TO PROVIDE FOR A COMPANY WITH PERPETUAL EXISTENCE; TO AMEND SECTIONS 33-44-603, AS AMENDED, AND 33-44-801, AS AMENDED, RELATING TO RIGHTS OF A DISSOCIATED MEMBER TO DISTRIBUTION IN A LIMITED LIABILITY COMPANY, BOTH SO AS TO PROVIDE FOR WINDING UP OF THE BUSINESS AND EFFECT OF DISSOCIATION ON A MEMBER OF A PERPETUAL LIMITED LIABILITY COMPANY; TO AMEND SECTION 33-44-301, RELATING TO AGENCY OF A MEMBER AND OF A MANAGER OF A LIMITED LIABILITY COMPANY, SO AS TO PROVIDE THAT A DESIGNEE OF EITHER MAY SIGN AND DELIVER FOR THE MEMBER OR MANAGER ANY INSTRUMENT IN THE ORDINARY COURSE OF THE COMPANY'S BUSINESS; TO AMEND SECTION 33-44-404, AS AMENDED, RELATING TO MANAGEMENT OF A LIMITED LIABILITY COMPANY, SO AS TO PROVIDE FOR THE APPOINTMENT OF COMMITTEES TO EXERCISE CERTAIN POWERS; AND BY ADDING ARTICLE 13 TO CHAPTER 44, TITLE 33, SO AS TO PROVIDE FOR A LIMITED LIABILITY COMPANY THAT RENDERS A PROFESSIONAL SERVICE.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 41 of Title 33 is amended by adding:
Section 33-41-1410. A partnership governed by this chapter may merge into a limited liability company, as provided in Section 33-44-904(a), or convert to a limited liability company, as provided in Section 33-44-902(a)."
SECTION 2. Chapter 42 of Title 33 is amended by adding:
"Section 33-42-2050. A limited partnership governed by this chapter may merge into a limited liability company, as provided in Section 33-44-904(a), or convert to a limited liability company, as provided in Section 33-44-902(a)."
SECTION 3. Section 33-44-902 of the 1976 Code, as added by Act 343 of 1996, is amended to read:
"Section 33-44-902. (a) A partnership, or limited partnership, or corporation may be converted to a limited liability company pursuant to this section.
(b) The terms and conditions of a conversion of a partnership, or limited partnership, or corporation to a limited liability company must be approved by all of the partners or by a number or percentage of the partners or shareholders required for conversion in the partnership agreement or the corporation's by laws.
(c) An agreement of conversion must set forth provide the terms and conditions of the conversion of the interests of partners of a partnership or of a limited partnership, or share of the shareholder, as the case may be, into interests in the converted limited liability company or the cash or other consideration to be paid or delivered as a result of the conversion of the interests of the partners, or a combination thereof shareholders.
(d) After a conversion is approved under pursuant to subsection (b), the partnership, or limited partnership, or corporation shall file articles of organization in the office of the Secretary of State which satisfy the requirements of Section 33-44-203 and contain:
(1) a statement that the partnership, or limited partnership, or corporation was converted to a limited liability company from a partnership or limited partnership, as the case may be;
(2) its former name;
(3) a statement of the number of votes cast by the partners or shareholders entitled to vote for and against the conversion and, if the vote is less than unanimous, the number or percentage required to approve the conversion under pursuant to subsection (b); and
(4) in the case of a limited partnership or corporation, a statement that the certificate of limited partnership or corporate charter is to be canceled as of the date the conversion took effect.
(e) In the case of a limited partnership or corporation, the filing of articles of organization under provided by subsection (d) cancels its certificate of limited partnership or corporate charter as of the date the conversion took effect.
(f) A conversion takes effect when the articles of organization are filed in the office of the Secretary of State or at any later date specified in the articles of organization.
(g) A general partner who becomes a member of a limited liability company as a result of a conversion remains liable as a partner for an obligation incurred by the partnership or limited partnership before the conversion takes effect.
(h) A general partner's liability for all obligations of the limited liability company incurred after the conversion takes effect is that of a member of the company. A limited partner or shareholder who becomes a member as a result of a conversion remains liable only to the extent the limited partner or shareholder was liable for an obligation incurred by the limited partnership or corporation before the conversion takes effect.
(i) When a partnership, limited partnership, or corporation, which owns real property in South Carolina converts to a limited liability company pursuant to this section, the new limited liability company shall file a notice reflecting the required name change in the office of the register of deeds of the county in South Carolina in which the real property is situate. If there is no such office in that county, a notice of name change must be filed with the clerk of court of the county in which that real property is situate. The filing must be by affidavit that is executed in accordance with the filing requirements of Section 33-1-200 and containing the name of the old partnership and the new limited liability company, which affidavit also may describe the real property owned by that limited liability company, and that is indexed in the index of deeds. This procedure establishes record notice pursuant to Chapter 7 of Title 30. Failure to make the required filing of the name change does not affect the legality, force, effect, or enforceability as between the parties of any conveyance or other transaction involving the real estate owned by the affected limited liability company that is made after the change in name."
SECTION 4. Section 33-44-903 of the 1976 Code, as added by Act 343 of 1996, is amended to read:
"Section 33-44-903. (a) A partnership, or limited partnership, or corporation that has been converted pursuant to this article is for all purposes the same entity that existed before the conversion.
(b) When a conversion takes effect:
(1) all property owned by the converting partnership, or limited partnership, or corporation vests in the limited liability company;
(2) all debts, liabilities, and other obligations of the converting partnership, or limited partnership, or corporation continue as obligations of the limited liability company;
(3) an action or proceeding pending by or against the converting partnership, or limited partnership, or corporation may be continued as if the conversion had not occurred;
(4) except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of the converting partnership, or limited partnership, or corporation vest in the limited liability company, except as prohibited by other law; and
(5) except as otherwise provided in the agreement of conversion under Section 33-44-902(c), all of the partners of the converting partnership or shareholder of the converting corporation continue as members of the limited liability company, except as otherwise provided in the agreement of conversion pursuant to Section 33-44-902(c)."
SECTION 5. The 1976 Code is amended by adding:
"Section 33-11-110. A business corporation governed by this chapter may convert to a limited liability company as provided in Section 33-44-902(a)."
SECTION 6. Section 33-11-101(a) of the 1976 Code, as last amended by Act 384 of 1994, is further amended to read:
"(a) Business corporations may merge into,
(i) another business corporation; or
(ii) a nonprofit corporation, to the extent permitted by Section 33-31-1101, if the board of directors of each corporation adopts and its shareholders, of a business corporation, and members, of a nonprofit corporation, if required by Section 33-11-103 for business corporations and Section 33-31-1103 for nonprofit corporations, approve a plan of merger; or
(iii) a limited liability company as provided in Section 33-44-904(a)."
SECTION 7. Section 33-31-1101(a) of the 1976 Code, as added by Act 384 of 1994, is amended to read:
"(a) Subject to the limitations set forth as provided in Section 33-31-1102, one or more nonprofit corporations may merge into a business, or nonprofit corporation, or limited liability company, as provided in Section 33-43-904(a), and one or more business corporations may merge into a nonprofit corporation or limited liability company, as provided in Section 33-43-904(a), to the extent permitted in Section 33-11-101, if the plan of merger is approved as provided in Section 33-31-1103."
SECTION 8. Section 33-44-501(b) of the 1976 Code, as added by Act 343 of 1996, is amended to read:
"(b) A distributional interest in a limited liability company is personal property and, subject to Sections 33-44-502, and 33-44-503, and 33-44-505, may be transferred in whole or in part."
SECTION 9. The 1976 Code is amended by adding:
"Section 33-44-505. (A) A person desiring to transfer a distributional interest in a limited liability company subject to the transfer prohibition of Section 33-44-501 first must offer it to the limited liability company by obtaining an offer to purchase the interest for cash from a third person who is eligible to purchase the shares pursuant to item (1). The offer by the third person must be in writing and state the offeror's name and address, the offering price for the interest, and the other terms of the offer.
(1) A third person is eligible to purchase the shares if he is eligible to become a qualified member of the limited liability company and he agrees in writing not to terminate his qualification without the approval of the remaining members, and his purchase of the interest does not impose a tax or other penalty on the limited liability company.
(2) The person desiring to transfer shares shall deliver the offer to the limited liability company, and by doing so offers to sell the interest to the limited liability company on the terms of the offer. Within twenty days after the limited liability company receives the offer, it shall call a special members' meeting, to be held not more than forty days after the call, to decide whether to purchase the entire distributional interest offered. The offer must be approved by the affirmative vote of a majority of the members, excluding those of the vote offering member.
(3) The limited liability company shall deliver to the offering member written notice of acceptance within seventy-five days after receiving the offer or the offer is rejected. If the limited liability company makes a counteroffer, the member must deliver to the limited liability company written notice of acceptance within fifteen days after receiving the counteroffer or the counteroffer is rejected. If the limited liability company accepts the original offer or the member accepts the counteroffer, the member shall deliver to the limited liability company an endorsed certificate for the interest, or instruct the limited liability company in writing to transfer the interest if uncertificated, within twenty days after the effective date of the notice of acceptance. The limited liability company specifically may enforce the member's delivery or instruction obligation pursuant to this item.
(4) A limited liability company accepting an offer to purchase a distributional interest pursuant to this subsection may allocate some or all of the interest to one or more of its members or to other persons if all the members voting in favor of the purchase approve the allocation.
(5) If an offer to purchase a distributional interest pursuant to this section is rejected, the offering member, for a period of one hundred twenty days after the limited liability company received the offer, may transfer to the third person offeror the entire offered distributional interest in accordance with the terms of his offer to the limited liability company.
(B) The executor or the administrator of the estate of a deceased member of a limited liability company must offer to the company the opportunity to make an offer to purchase at a fair market value the entire distributional interest of the deceased member.
(1) A person entitled and desiring to make the offer must deliver a written notice to the limited liability company, within one hundred twenty days after the death of the member, describing the distributional interest by the decedent and requesting the company to purchase the interest.
(2) Within twenty days after the effective date of the notice, the company shall call a special members' meeting, held not more than forty days after the call, to decide whether to offer to purchase the shares. A purchase offer must be approved by the affirmative vote of the majority of members at the meeting, excluding a vote representing the decedent's interest.
(3) The company must deliver a purchase offer to the person requesting it within seventy-five days after the effective date of the request notice. A purchase offer must be accompanied by the company's balance sheet as of the end of a fiscal year ending not more than sixteen months before the effective date of the request notice, an income statement for that year, a statement of changes in members' distributional interests for that year, and the latest available interim financial statements, if any. The person must accept the purchase offer in writing within fifteen days after receiving it or the offer is rejected.
(4) A company agreeing to purchase a distributional interest pursuant to this section may allocate some or all of the interest to one or more of its members or to other persons if all the members voting in favor of the purchase offer approve the allocation.
(5) If price and other terms of a purchase of a distributional interest are fixed or are determined to be by the articles of organization, bylaws, or a written agreement, the price and terms so fixed or determined govern the purchase.
(C) This section applies to a limited liability company only if provided in its articles of organization.
(D) The provisions of this section may be modified only if the modification is permitted expressly in the articles of incorporation. An amendment to the articles of organization to provide for application of this section or to modify or delete the provisions of the section, must be approved by at least two-thirds of the members of the limited liability company.
(E) A member may waive his and his estate's rights pursuant to this section by a signed writing.
(F) This section does not prohibit another agreement providing for the purchase of an interest upon the member's death nor does it prevent a member from enforcing a remedy he has independently of this section."
SECTION 10. Section 33-44-101(2), (14), (15), (16), (17), (18), (19), and (20) of the 1976 Code, as added by Act 343 of 1996, are amended to read:
"(2) 'At-will company' means a limited liability company other than a term company whose existence is dependent on the continued consensus of the members that it continue to exist.
(14) 'Perpetual company' means a limited liability company whose existence is not dependent upon a certain term specified in the articles of incorporation nor upon the continued consensus of the members that it continue to exist.
(15) 'Person' means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.
(15)(16) 'Principal office' means the office, whether or not in this State, where the principal executive office of a domestic or foreign limited liability company is located.
(16)(17) 'Record' means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
(17)(18) 'Sign' means to identify a record by means of a signature, mark, or other symbol, with intent to authenticate it.
(18)(19) 'State' means a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or insular possession subject to the jurisdiction of the United States.
(19)(20) 'Term company' means a limited liability company in which its members have agreed to remain members until the expiration of a term specified in the articles of organization.
(20)(21) 'Transfer' includes an assignment, conveyance, deed, bill of sale, lease, mortgage, security interest, encumbrance, and gift."
SECTION 11. Section 33-44-203(a) of the 1976 Code, as added by Act 343 of 1996, is amended to read:
"(a) Articles of organization of a limited liability company must set forth provide:
(1) the name of the company;
(2) the address of the initial designated office;
(3) the name and street address of the initial agent for service of process;
(4)(3) the name and address of each organizer;
(5)(4) whether the company is to be a term company and, if so, the term specified;
(5) whether the company is an at-will company or a perpetual company;
(6) whether the company is to be manager-managed, and, if so, the name and address of each initial manager; and
(7) whether one or more of the members of the company are to be liable for its debts and obligations under Section 33-44-303(c)."
SECTION 12. Section 33-44-208(b)(2) of the 1976 Code, as added by Act 343 of 1996, is amended to read:
"(2) that it is duly organized under the laws of this State, the date of organization, whether its duration is perpetual, at-will, or for a specified term, and, if the latter, the period specified;"
SECTION 13. Section 33-44-603 of the 1976 Code, as last amended by Act 442 of 1998, is further amended to read:
"Section 33-44-603. Upon a member's dissociation:
(1) in an at-will company, the company must shall cause the dissociated member's distributional interest to be purchased under Article 7;
(2) in a term company, if the company:
(a) dissolves and winds up its business on or before the expiration of its specified term, Article 8 applies to determine the dissociated member's rights to distributions;
(b) does not dissolve and wind up its business on or before the expiration of its specified term, the company must shall cause the dissociated member's distributional interest to be purchased under Article 7 on the date of the expiration of the term specified at the time of the member's dissociation;
(3) in a perpetual company, Article 8 applies to determine the dissociated member's rights to distributions;
(4) the member's right to participate in the management and conduct of the company's business terminates, except as otherwise provided in Section 33-44-803, and the member ceases to be a member and is treated the same as a transferee of a member;
(4)(5) the member's duty of loyalty under as provided by Section 33-44-409(b)(3) terminates; and
(5)(6) the member's duty of loyalty under as provided by Section 33-44-409(b)(1) and (2) and duty of care under as provided by Section 33-44-409(c) continue only with regard to matters arising and events occurring before the member's dissociation, unless the member participates in winding up the company's business pursuant to Section 33-44-803."
SECTION 14. Section 33-44-801(5)(b) of the 1976 Code, as last amended by Act 442 of 1998, is further amended to read:
"(b) at any time, if the company existed at will or perpetually at the time the applicant became a transferee by way of member dissociation, transfer, or entry of a charging order that gave rise to the transfer."
SECTION 15. Section 33-44-301(c) of the 1976 Code, as added by Act 343 of 1996, is amended to read:
"(c) Unless the articles of organization limit their authority, any a member of a member-managed company, or his designee, or a manager of a manager-managed company, or his designee, may sign and deliver any an instrument transferring or affecting the for apparently carrying out, or in the ordinary course of, the company's interest in real property business. The instrument is conclusive in favor of a person who gives value without knowledge of the lack of the authority of the person signing and delivering the instrument."
SECTION 16. Section 33-44-404(b) of the 1976 Code, as last amended by Act 442 of 1998, is further amended to read:
"(b) In a manager-managed company:
(1) each manager has equal rights in the management and conduct of the company's business;
(2) except as otherwise provided in subsection (c), any a matter relating to the business of the company may be decided exclusively by the manager exclusively or, if there is more than one manager, by a majority of the managers, except as otherwise provided in subsection (c); and
(3) a manager:
(i) must be designated, appointed, elected, removed, or replaced by a vote, approval, or consent of a majority of the members; and
(ii) holds office until a successor has been elected and qualified, unless the manager sooner resigns or is removed.; and
(4) unless the articles of organization provide otherwise, a manager may create one or more committees and appoint members of the board of managers to serve on them. Each committee must have two or more members who serve at the pleasure of the board of managers. To the extent specified by the board of managers or in the articles of organization, each committee may exercise the authority of the board of managers, except a committee may not exercise a power described in subsection (c) of this section."
SECTION 17. Chapter 44 of Title 33 is amended by adding:
Section 33-44-1310. (A) A domestic or foreign limited liability company may render a professional service in this State only through an individual licensed or otherwise authorized in this State to render the service.
(B) Subsection (A) does not:
(1) require an individual employed by a limited liability company to be licensed to perform a service for the limited liability company if a license is not required otherwise;
(2) prohibit a licensed individual from rendering a professional service in his individual capacity although he is a member or manager of a domestic or foreign limited liability company which also renders a professional service; or
(3) prohibit an individual licensed in another state from rendering a professional service for a domestic or foreign limited liability company in this State if not prohibited by the licensing authority.
Section 33-44-1320. (A) The relationship between an individual rendering a professional service as a member, manager, agent, or employee of a domestic or foreign limited liability company that renders a professional service and his client or patient, is the same as if the individual renders the service as a sole practitioner.
(B) The relationship between a domestic or foreign limited liability company that renders a professional service and the client or patient for whom its employees, members, managers, or agents render a professional service is the same as that between the client or patient and the person providing the service.
Section 33-44-1330. A privilege applicable to communications between an individual rendering a professional service and the person receiving the service recognized pursuant to the statutory or common law of this State is not affected by this chapter. The privilege applies to a domestic or foreign professional limited liability company which renders a professional service and to its employees, members, managers, and agents in all situations in which it applies to communications between an individual rendering a professional service on behalf of the limited liability company that renders a professional service and the person receiving the service.
Section 33-44-1340. (A)(1) Except as authorized by subsection (B), a South Carolina limited liability company whose purpose is to render a professional service, may render only a:
(a) professional services within a single profession; and
(b) service ancillary to the professional service.
(2) A limited liability company may not engage in other business activities except as authorized by subsection (B).
(B) A limited liability company may render a professional service in two or more professions and engage in any lawful business authorized by Section 33-44-112, to the extent the combination of professional purposes or of professional and business purposes is authorized by the licensing law of this State applicable to each profession in the combination. A limited liability company whose purpose is to render a professional service may invest its funds in real estate, mortgages, securities, or other type of investment.
Section 33-44-1350. The Attorney General may commence a proceeding to dissolve a limited liability company that renders a professional service if the:
(1) Secretary of State or a licensing authority with jurisdiction over the limited liability company that renders a professional service serves written notice on the limited liability company that it has violated or is violating a provision of this chapter, other than the provisions specified in Section 33-44-809, a violation of which gives the Secretary of State authority administratively to dissolve the limited liability company;
(2) limited liability company does not correct each alleged violation, or demonstrate to the reasonable satisfaction of the Secretary of State or licensing authority that this did not occur, within sixty days after service of the notice is perfected; and
(3) Secretary of State or licensing authority certifies to the Attorney General a description of the violation and that it notified the limited liability company of the violation and the limited liability company did not correct it, or demonstrate that it did not occur, within sixty days after service of notice."
SECTION 18. This act takes effect upon approval by the Governor.
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