Senate Bill No. 128

SPONSOR: Sen. Vaughn & Rep. Wagner;
Reps. Valihura, George, Plant

 

DELAWARE STATE SENATE
142nd GENERAL ASSEMBLY
SENATE BILL NO. 128

 

AN ACT TO AMEND CHAPTER 18, TITLE 6 OF THE DELAWARE CODE RELATING TO THE CREATION, REGULATION, OPERATION AND DISSOLUTION OF DOMESTIC LIMITED LIABILITY COMPANIES AND THE REGISTRATION AND REGULATION OF FOREIGN LIMITED LIABILITY COMPANIES.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

Section 1. Amend § 18-203, Chapter 18, Title 6 of the Delaware Code by adding the following words immediately prior to the “.” at the end of the first sentence thereof: “, or upon the filing of a certificate of transfer, or upon the filing of a certificate of conversion to a non-Delaware entity”.

Section 2. Amend § 18-206(a), Chapter 18, Title 6 of the Delaware Code by inserting “any certificate of conversion to a non-Delaware entity,” immediately following “any certificate of conversion to limited liability company,” in the first sentence thereof.

Section 3. Amend § 18-206(a), Chapter 18, Title 6 of the Delaware Code by deleting the word “original” in the first sentence thereof and by inserting the following sentence immediately after the third sentence thereof: “Upon delivery of any certificate, the Secretary of State shall record the date and time of its delivery.”.

Section 4. Amend § 18-206(a)(1), Chapter 18, Title 6 of the Delaware Code by deleting the word “original” in the first sentence thereof and substituting in lieu thereof the word “signed”, by deleting the word “hour” in the first sentence thereof and substituting in lieu thereof the word “time”, by deleting the “;” at the end thereof and substituting in lieu thereof “.”, and by adding the following at the end of such subsection: “Except as provided in subsection (a)(5) or (a)(6) of this section, such date and time of filing of a certificate shall be the date and time of delivery of the certificate;”.

Section 5. Amend § 18-206(a)(1), Chapter 18, Title 6 of the Delaware Code by inserting “the certificate of conversion to a non-Delaware entity,” immediately following “the certificate of conversion to limited liability company,” in the first sentence thereof.

Section 6. Amend § 18-206(a)(3), Chapter 18, Title 6 of the Delaware Code by deleting the word “original” in each place where it appears therein, and by deleting the word “instrument” in each place where it appears therein and substituting in lieu thereof the word “certificate”.

Section 7. Amend § 18-206(a)(4), Chapter 18, Title 6 of the Delaware Code by deleting the word “Enter” at the beginning of the first sentence thereof and substituting in lieu thereof “Cause to be entered”, by inserting “and a copy of such certificate” immediately before the word “shall” in the first sentence thereof, by inserting “on a suitable medium” immediately before the “.” at the end of the first sentence thereof, and by deleting the second sentence thereof and inserting in lieu thereof the following: “The Secretary of State is authorized to grant direct access to such system to registered agents subject to the execution of an operating agreement between the Secretary of State and such registered agent. Any registered agent granted such access shall demonstrate the existence of policies to ensure that information entered into the system accurately reflects the content of certificates in the possession of the registered agent at the time of entry.”

Section 8. Amend § 18-206(a), Chapter 18, Title 6 of the Delaware Code by adding new paragraphs (5) and (6) thereto reading as follows:

“(5) Upon request made upon or prior to delivery, the Secretary of State may, to the extent deemed practicable, establish as the date and time of filing of a certificate a date and time after its delivery. If the Secretary of State refuses to file any certificate due to an error, omission or other imperfection, the Secretary of State may hold such certificate in suspension, and in such event, upon delivery of a replacement certificate in proper form for filing and tender of the required fees within five business days after notice of such suspension is given to the filer, the Secretary of State shall establish as the date and time of filing of such certificate the date and time that would have been the date and time of filing of the rejected certificate had it been accepted for filing. The Secretary of State shall not issue a certificate of good standing with respect to any limited liability company with a certificate held in suspension pursuant to this subsection. The Secretary of State may establish as the date and time of filing of a certificate the date and time at which information from such certificate is entered pursuant to subsection (a)(4) of this section if such certificate is delivered on the same date and within four hours after such information is entered.

(6) If:

(A) together with the actual delivery of a certificate and tender of the required fees, there is delivered to the Secretary of State a separate affidavit (which in its heading shall be designated as an affidavit of extraordinary condition) attesting, on the basis of personal knowledge of the affiant or a reliable source of knowledge identified in the affidavit, that an earlier effort to deliver such certificate and tender such fees was made in good faith, specifying the nature, date and time of such good faith effort and requesting that the Secretary of State establish such date and time as the date and time of filing of such certificate; or

(B) upon the actual delivery of a certificate and tender of the required fees, the Secretary of State in his or her discretion provides a written waiver of the requirement for such an affidavit stating that it appears to the Secretary of State that an earlier effort to deliver such certificate and tender such fees was made in good faith and specifying the date and time of such effort; and

(C) the Secretary of State determines that an extraordinary condition existed at such date and time, that such earlier effort was unsuccessful as a result of the existence of such extraordinary condition, and that such actual delivery and tender were made within a reasonable period (not to exceed two business days) after the cessation of such extraordinary condition, then the Secretary of State may establish such date and time as the date and time of filing of such certificate. No fee shall be paid to the Secretary of State for receiving an affidavit of extraordinary condition. For purposes of this subsection, an extraordinary condition means: any emergency resulting from an attack on, invasion or occupation by foreign military forces of, or disaster, catastrophe, war or other armed conflict, revolution or insurrection, or rioting or civil commotion in, the United States or a locality in which the Secretary of State conducts its business or in which the good faith effort to deliver the certificate and tender the required fees is made, or the immediate threat of any of the foregoing; or any malfunction or outage of the electrical or telephone service to the Secretary of State’s office, or weather or other condition in or about a locality in which the Secretary of State conducts its business, as a result of which the Secretary of State’s office is not open for the purpose of the filing of certificates under this chapter or such filing cannot be effected without extraordinary effort. The Secretary of State may require such proof as it deems necessary to make the determination required under clause (C) of this subsection, and any such determination shall be conclusive in the absence of actual fraud. If the Secretary of State establishes the date and time of filing of a certificate pursuant to this subsection, the date and time of delivery of the affidavit of extraordinary condition or the date and time of the Secretary of State’s written waiver of such affidavit shall be endorsed on such affidavit or waiver and such affidavit or waiver, so endorsed, shall be attached to the filed certificate to which it relates. Such filed certificate shall be effective as of the date and time established as the date and time of filing by the Secretary of State pursuant to this subsection, except as to those persons who are substantially and adversely affected by such establishment and, as to those persons, the certificate shall be effective from the date and time endorsed on the affidavit of extraordinary condition or written waiver attached thereto.”.

Section 9. Amend § 18-206(b), Chapter 18, Title 6 of the Delaware Code by inserting “or a certificate of conversion to a non-Delaware entity,” after both appearances of “or a certificate of transfer,” in the second sentence thereof.

Section 10. Amend § 18-206(d), Chapter 18, Title 6 of the Delaware Code by inserting the words “a certificate of conversion to a non-Delaware entity,” immediately following “a certificate of conversion to limited liability company,”.

Section 11. Amend § 18-213(a), Chapter 18, Title 6 of the Delaware Code by deleting “that permits the transfer to or domestication in such jurisdiction of a limited liability company”.

Section 12. Amend § 18-215(a), Chapter 18, Title 6 of the Delaware Code by inserting “1 or more” immediately following “for the establishment of” and by deleting “, to the extent provided in the limited liability company agreement,”.

Section 13. Amend § 18-215(b), Chapter 18, Title 6 of the Delaware Code by deleting from the first sentence thereof the word “creates” and by substituting in lieu thereof “establishes or provides for the establishment of”, by inserting the word “if” immediately following “if the limited liability company agreement so provides, and” in the first sentence thereof, by deleting from the first sentence thereof “debts, liabilities and obligations incurred” and by substituting in lieu thereof “debts, liabilities, obligations and expenses incurred”, and by inserting immediately prior to the last sentence thereof a new sentence thereto reading as follows:

“Notice in a certificate of formation of the limitation on liabilities of a series as referenced in this subsection shall be sufficient for all purposes of this subsection whether or not the limited liability company has established any series when such notice is included in the certificate of formation, and there shall be no requirement that any specific series of the limited liability company be referenced in such notice.”.

Section 14. Amend § 18-216, Chapter 18, Title 6 of the Delaware Code by striking said section in its entirety and substituting in lieu thereof the following:

Ҥ 18-216. Approval of conversion of a limited liability company.

(a) Upon compliance with this section, a domestic limited liability company may convert to a corporation, statutory trust, business trust or association, a real estate investment trust, a common-law trust or any other unincorporated business, including a partnership (whether general (including a limited liability partnership) or limited (including a limited liability limited partnership)) or a foreign limited liability company.

(b) If the limited liability company agreement specifies the manner of authorizing a conversion of the limited liability company, the conversion shall be authorized as specified in the limited liability company agreement. If the limited liability company agreement does not specify the manner of authorizing a conversion of the limited liability company and does not prohibit a conversion of the limited liability company, the conversion shall be authorized in the same manner as is specified in the limited liability company agreement for authorizing a merger or consolidation that involves the limited liability company as a constituent party to the merger or consolidation. If the limited liability company agreement does not specify the manner of authorizing a conversion of the limited liability company or a merger or consolidation that involves the limited liability company as a constituent party and does not prohibit a conversion of the limited liability company, the conversion shall be authorized by the approval by the members or, if there is more than 1 class or group of members, then by each class or group of members, in either case, by members who own more than 50 percent of the then current percentage or other interest in the profits of the domestic limited liability company owned by all of the members or by the members in each class or group, as appropriate.

(c) Unless otherwise agreed, the conversion of a domestic limited liability company to another business form pursuant to this section shall not require such limited liability company to wind up its affairs under § 18-803 of this title or pay its liabilities and distribute its assets under § 18-804 of this title.

(d) In connection with a conversion of a domestic limited liability company to another business form pursuant to this section, rights or securities of or interests in the domestic limited liability company which is to be converted may be exchanged for or converted into cash, property, rights or securities of or interests in the business form into which the domestic limited liability company is being converted or, in addition to or in lieu thereof, may be exchanged for or converted into cash, property, rights or securities of or interests in another business form.

(e) If a limited liability company shall convert in accordance with this section to another business form organized, formed or created under the laws of a jurisdiction other than the State of Delaware, a certificate of conversion to non-Delaware entity executed in accordance with § 18-204 of this title, shall be filed in the office of the Secretary of State in accordance with § 18-206 of this title. The certificate of conversion to non-Delaware entity shall state:

(1) The name of the limited liability company and, if it has been changed, the name under which its certificate of formation was originally filed;

(2) The date of filing of its original certificate of formation with the Secretary of State;

(3) The jurisdiction in which the business form, to which the limited liability company shall be converted, is organized, formed or created;

(4) The future effective date or time (which shall be a date or time certain) of the conversion if it is not to be effective upon the filing of the certificate of conversion to non-Delaware entity;

(5) That the conversion has been approved in accordance with this section;

(6) The agreement of the limited liability company that it may be served with process in the State of Delaware in any action, suit or proceeding for enforcement of any obligation of the limited liability company arising while it was a limited liability company of the State of Delaware, and that it irrevocably appoints the Secretary of State as its agent to accept service of process in any such action, suit or proceeding;

(7) The address to which a copy of the process referred to in subsection (e)(6) of this section shall be mailed to it by the Secretary of State. In the event of service hereunder upon the Secretary of State, the procedures set forth in § 18-911(c) of this title shall be applicable, except that the plaintiff in any such action, suit or proceeding shall furnish the Secretary of State with the address specified in this subsection (e)(7) and any other address that the plaintiff may elect to furnish, together with copies of such process as required by the Secretary of State, and the Secretary of State shall notify the limited liability company that has converted out of the State of Delaware at all such addresses furnished by the plaintiff in accordance with the procedures set forth in § 18-911(c) of this title.

(f) Upon the filing in the office of the Secretary of State of the certificate of conversion to non-Delaware entity or upon the future effective date or time of the certificate of conversion to non-Delaware entity and payment to the Secretary of State of all fees prescribed in this chapter, the Secretary of State shall certify that the limited liability company has filed all documents and paid all fees required by this chapter, and thereupon the limited liability company shall cease to exist as a limited liability company of the State of Delaware. Such certificate of the Secretary of State shall be prima facie evidence of the conversion by such limited liability company out of the State of Delaware.

(g) The conversion of a limited liability company out of the State of Delaware in accordance with this section and the resulting cessation of its existence as a limited liability company of the State of Delaware pursuant to a certificate of conversion to non-Delaware entity shall not be deemed to affect any obligations or liabilities of the limited liability company incurred prior to such conversion or the personal liability of any person incurred prior to such conversion, nor shall it be deemed to affect the choice of law applicable to the limited liability company with respect to matters arising prior to such conversion.”

Section 15. Amend Subchapter VIII of Chapter 18, Title 6 of the Delaware Code by adding thereto, immediately following § 18-804, a new § 18-805 reading as follows:

Ҥ 18-805 Trustees or receivers for limited liability

companies; appointment; powers; duties.

When the certificate of formation of any limited liability company formed under this chapter shall be canceled by the filing of a certificate of cancellation pursuant to § 18-203 of this chapter, the Court of Chancery, on application of any creditor, member or manager of the limited liability company, or any other person who shows good cause therefor, at any time, may either appoint one or more of the managers of the limited liability company to be trustees, or appoint one or more persons to be receivers, of and for the limited liability company, to take charge of the limited liability company’s property, and to collect the debts and property due and belonging to the limited liability company, with the power to prosecute and defend, in the name of the limited liability company, or otherwise, all such suits as may be necessary or proper for the purposes aforesaid, and to appoint an agent or agents under them, and to do all other acts which might be done by the limited liability company, if in being, that may be necessary for the final settlement of the unfinished business of the limited liability company. The powers of the trustees or receivers may be continued as long as the Court of Chancery shall think necessary for the purposes aforesaid.”.

Section 16. Amend § 18-1105(a)(3), Chapter 18, Title 6 of the Delaware Code by inserting “a certificate of conversion to a non-Delaware entity under § 18-216 of this title,” immediately following “a certificate of conversion to limited liability company under § 18-214 of this title,”.

Section 17. This Act shall become effective August 1, 2003.

SYNOPSIS

This bill continues the practice of amending periodically the Delaware Limited Liability Company Act (the “Act”) to keep it current and to maintain its national preeminence. The following is a section-by-section review of the proposed amendments of the Act.

Section 1, 2, 5, 9, 10, 14 and 16. These amendments permit conversion of a Delaware limited liability company to a non-Delaware entity.

Sections 3, 4, and 6-8. These amendments clarify the general rule that the date and time of filing of a certificate filed with the Secretary of State is the date and time of delivery of the certificate and the limited exceptions to this rule.

Section 11. This amendment clarifies the language of § 18-213(a) of the Act to be consistent with language used in other analogous sections of the Act.

Sections 12 and 13. These sections amend § 18-215 of the Act to confirm the ability to provide for the establishment of 1 or more series and the sufficiency of a general notice of the limitation on liabilities of a series without referring to any specific series.

Section 15. This section amends the Act to add a new § 18-805 to provide, under certain circumstances, for the appointment of trustees and receivers for limited liability companies after the cancellation of the certificate of formation upon the application of a creditor, a person who was a member or manager at the time of the cancellation of the certificate of formation or any person who shows good cause .

Section 17. This section provides that the proposed amendments of the Act shall become effective on August 1, 2003.

Author: Delaware Bar Association