In our exploration of the Uniform Protected Series Act, we have finally reached the last substantive rules for the UPSA, which relate to how the UPSA treats Series LLCs that are domiciled in other states. Article 7 sets out the rules for “Foreign Protected Series”, which means a Series LLC created in another U.S. jurisdiction (an entity created by a foreign country would be known as an “alien” entity).
The primary reason for adopting the UPSA was that over a dozen jurisdictions had enacted their own Series LLC legislation and those statutes were all over the board. Those other jurisdictions should adopt the UPSA and thus unify the law generally, but whether they will or not is anybody’s guess. Thus, there had to be a mechanism for coordinating the treatment of non-UPSA entities under the UPSA. Also, Uniform Acts are always subject to certain state variances, and how those variances were to be resolved is part of Article of 7.
Section 701. Governing Law
Section 701 sets forth which jurisdiction’s laws apply to particular aspects of series organizations and protected series under the Act.
Paragraph (1) of § 701 says that the law where the foreign series LLC was created (the “law of the jurisdiction of formation”) governs the internal affairs of a protected series of that company. In other words, the formation state law will govern the relations, rights and duties between associated members and their transferees, and protected series managers. Formation state law will also apply to governance issues and admitting new members and transferees of the protected series.
Relations among the series organization and its members and managers, and the protected series and their members and managers, are governed by formation state law under Paragraph (2) of § 701. This paragraph also applies to transferees of series organization members and protected series members.
Formation state law will also govern liability issues for those persons associated with a foreign series organization and its protected series under § 701(3), to the extent that such liability arises solely from their status as a member, associated member, transferee or manager.
Formation state law will similarly govern the liabilities of foreign series organizations and foreign protected series so long as they arise from acting as a manager of or owning an interest in a foreign series organization or a foreign protected series, per § 701(4).
There are two giant exceptions in § 701(4), however, which is that formation state law will not apply “except as otherwise provided Section 402 and 404”, the former which involves alter ego and veil piercing claims to disregard the form of the entity, and the latter which relates to property which hasn’t been properly associated with a protected series. In those two cases, local law will usually control, not the law of the formation state.
Section 702. No Attribution Of Activities Constituting Doing Business Or For Establishing Jurisdiction.
What if a foreign protected series is doing business in-state; does that drag the rest of the foreign series organization and other foreign protected series into the state for jurisdictional purposes? Section 702 answers that question in the negative.
Section 703. Registration Of Foreign Protected Series.
If a foreign protected series seeks to register to conduct business in a UPSA state, then § 703 will govern that registration.
Paragraph (a) of § 703 is another extrapolation provision, which basically says that a foreign protected series should be treated like a foreign LLC for purposes of registering to do in-state business, including the consequences of not registering if it should register. As happened with § 701(4), there are again exceptions to this extrapolated rule, those exceptions being § 402 (alter ego and veil piercing) and § 404 (non-associated assets).
Under ¶ (b)(1) of § 703, the application for registration of a foreign protected series must include its name and identify the jurisdiction where it was formed. Common enough. But we find a unique requirement in ¶ (b)(2) of that section, which additionally requires the registration to include the name of some individual (i.e., not another company) who knows both the name, street address, mailing address, manager, and service of process agent for each and every other foreign protected series of that same series organization.
Section 703(c) says that the name the foreign protected series uses to register to do business in-state must also comply with § 202, but can use a fictitious business name (popular known as a “d/b/a”) so long as that name complies with § 202.
Paragraph (d) of § 703 is another extrapolation provision which basically says that a state’s ULLCA controls amendments to registrations by a foreign protected series.
Section 704. Disclosure Required When Foreign Series Limited Liability Company Or Foreign Protected Series Party To Proceeding.
One of the biggest concerns of the Drafting Committee was to protect litigants who were suing series organizations or protected series from being subjected to a “you didn’t sue the right party” shell game. Thus, § 704 provide special protection to such litigants.
Paragraph (a) of § 704 says that within 30 days after becoming a party to an in-state proceeding, a foreign series organization or a foreign protected series must disclose to the adverse party the names, street addresses, mailing addresses, managers and service of process agents for the foreign series organization and each of its protected series.
Section 704(b) says that if there is a question of personal jurisdiction over the foreign series organization or a foreign protected series, then this 30-day period is tolled until that issue has been resolved.
What if a foreign series organization or foreign protected series fails to comply within the 30 days? In that event, under § 704(c), the litigant seeking the information can either ask the court to treat the nondisclosure as a discovery violation or bring a separate proceeding before that court to enforce § 704(a).
In the final segment of these articles on the UPSA, we will look at a few procedural rules found in Article 8 and then look back upon the Act as a whole.
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This is the eighth installment on my articles about the Uniform Protected Series Act (UPSA), which was passed by the Uniform Law Commission in July, 2017, and on which I was an American Bar Association Adviser to the Drafting Committee. Previous installments were:
Understanding The Protected Series Act: What Is A Protected Series? (June 18, 2018);
Understanding the Protected Series Act: The Framework of UPSA (July 18, 2018);
Understanding The Protected Series Act: Creating A Protected Series And Service Of Process (August 28, 2018); and
Understanding The Protected Series Act: Assets, Members And Management (August 30, 2018).
Understanding The Protected Series Act: Liability Limitations And Claims (October 21, 2018).
Understanding The Protected Series Act: Dissolution And Winding Up Of Protected Series (October 29, 2018).
Understanding The Protected Series Act: Mergers (November 18, 2018).
This article at https://goo.gl/kBkTDo