The Kansas Revised Limited Liability Company Act

JurisdictionKansas,United States
CitationVol. 69 No. 11 Pg. 1
Pages1
Publication year2000
Kansas Bar Journals
Volume 69.

69 J. Kan. Bar Assn. November-December, 1 (2000). THE KANSAS REVISED LIMITED LIABILITY COMPANY ACT

Journal of the Kansas Bar Association
Vol. 69, November-December, 2000

THE KANSAS REVISED LIMITED LIABILITY COMPANY ACT

By Edwin W. Hecker, Jr.

Introduction

The limited liability company (LLC) form of business organization has become a popular alternative to incorporation(fn1) because it offers participants limited liability for business obligations; broad flexibility with regard to ownership and management structure; and classification as a partnership for tax purposes, with resultant conduit treatment of items of income, gain, loss, deduction, or credit.(fn2) Kansas was the fourth state in the nation to adopt legislation authorizing LLCs when it enacted the Kansas Limited Liability Company Act (KLLCA) in 1990.(fn3) During the period from 1991 through 1998, the legislature amended the KLLCA in every year except 1992.(fn4) The result was a statute with a diverse ancestry, consisting principally of the Florida and Wyoming LLC statutes,(fn5) the Uniform Partnership Act, the Uniform Limited Partnership Act, the Revised Uniform Limited Partnership Act, and various corporate sources.

In 1999, Kansas replaced the KLLCA with completely new legislation, the Kansas Revised Limited Liability Company Act (KRLLCA),(fn6) effective January 1, 2000.(fn7) The KRLLCA is patterned on the Delaware Limited Liability Company Act (DLLCA),(fn8) thus continuing the parallelism in the business laws of the two states begun with their corporation codes. This article will provide an overview of the KRLLCA, comparing and contrasting, where appropriate, the prior law under the KLLCA. It will consider the following general topics: organization; operation; organic changes; dissolution and winding up; and foreign LLCs.

I. ORGANIZATION

A. General Requirements

1. Who May Form

Any person may form a Kansas LLC by executing and filing articles of organization with the Secretary of State.(fn9) An LLC need only have one member,(fn10) and there is no requirement that the person forming the LLC be a member. "Person," as used throughout the KRLLCA, is broadly defined as a natural person, a partnership (general or limited, domestic or foreign), limited liability company (domestic or foreign), trust, estate, association, corporation, custodian, nominee, or any other individual or entity, either in its own or in a representative capacity.(fn11)

2. Name

The name of an LLC must include the words "limited liability company" or "limited company" or the abbreviation or designation "LLC" or "LC."(fn12) Under prior law, if such a designator was not used, actively participating or knowingly acquiescing members were personally liable for any loss caused by the omission.(fn13) This provision was out of step with the law governing other business organizations,(fn14) and has been eliminated by the KRLLCA.

An LLC's name also must be distinguishable from the names of other business entities organized or qualified to do business in Kansas. This requirement, however, may be waived in writing by the other business entity.(fn15)

Finally, the KRLLCA explicitly validates a practice that is especially, but not exclusively, useful to professional LLCs by permitting a name to include the name of a member or manager.(fn16) The statute also authorizes the use of "company," "association," "club," "foundation," "fund," "institute," "society," "union," "syndicate," "limited," "trust," or their abbreviations.(fn17)

3. Registered Office and Resident Agent

The KRLLCA continues the requirement that each LLC maintain in Kansas a registered office (which need not be a place of its business) and a resident agent at that office.(fn18) However, it liberalizes the class of persons who may serve as resident agent to include the following: an individual Kansas resident; a Kansas corporation, limited partnership, limited liability company, or business trust; a foreign corporation, limited partnership, or limited liability company authorized to do business in Kansas; or the limited liability company itself.(fn19)

The KRLLCA also replicates, with only minor stylistic changes, the KLLCA's provisions concerning a change of the registered office by the resident agent; resignation of the resident agent, with or without appointing a successor; and the death or move of a resident agent.(fn20) The only substantive change is the addition of a provision permitting a resident agent to change its name, as well as the registered office, by filing a certificate to that effect with the Secretary of State.(fn21)

4. Permitted Businesses or Activities

Under prior law there was some doubt whether an LLC could be organized on a nonprofit basis, or whether it could be organized to engage in nonbusiness activities.(fn22) The KRLLCA removes this doubt by clearly providing that an LLC "may carry on any lawful business, purpose or activity, whether or not for profit . . . ."(fn23) Thus, for example, charitable organizations, unions, and social groups all are free to utilize the LLC form.

Banking and insurance are excepted from this broad authorization, as are any other businesses or activities "specifically prohibited by law."(fn24) Chief among the latter are the restrictions, and exceptions thereto, on ownership or leasing of agricultural land.(fn25)

Finally, the KRLLCA carries over, nearly verbatim, 1998 amendments to the KLLCA that were enacted to eliminate confusion about the ability of licensed professionals to practice in the LLC form.(fn26) These provisions make clear the ability of an LLC to exercise all powers exercisable by a professional association or corporation, including specifically the power to employ professionals to practice a profession, and subject to the restrictions applicable thereto.(fn27)

5. Powers

The KRLLCA replaces prior law's exhaustive list of specific LLC powers(fn28) with a general statement that an LLC has and may exercise all powers and privileges granted by the KRLLCA, any other law, or its operating agreement, along with any incidental powers, insofar as necessary or convenient for its business, purposes, or activities.(fn29)

6. General Filing and Signature Requirements

The original signed copy and a duplicate copy (which may be either signed or conformed) of an LLC's articles of organization or any other certificate to be filed pursuant to the KRLLCA must be filed with the Secretary of State. If the document conforms to law, and if the required filing fees are paid, the Secretary of State must certify that the document has been filed by endorsing the word "filed" and the date and hour of filing on the original; file and index the original; and certify and return the duplicate to the person who filed it. Absent actual fraud, the Secretary of State's endorsement is conclusive evidence of the date and time of the document's filing.(fn30)

Unless otherwise provided in an LLC's operating agreement, the operating agreement and any filed document may be signed by an attorney-in-fact or other agent, whose power of attorney or other authorization need not be in writing; need not be sworn to, verified or acknowledged; and need not be exhibited or filed with the document. A written power or authority, however, must be retained by the LLC.(fn31) Moreover, any signature on a filed document may be a facsimile, a conformed, or an electronically transmitted signature.(fn32) Although no filed document need be sworn to, execution constitutes an oath or affirmation under penalty of perjury that, to the best of the person's knowledge and belief, the facts stated in the document are true.(fn33)

Any document may be filed by "telefacsimile communication," which is broadly defined as the use of electronic equipment to send or transfer a document.(fn34) Any document properly so filed is effective on its filing date.(fn35) The KRLLCA eliminates the requirement of prior law that a telefacsimile filing be followed by an original paper filing within seven days,(fn36) a requirement that had become nothing more than a trap for the unwary.(fn37)

B. Articles of Organization

1. Content

An LLC is formed by filing with the Secretary of State articles of organization, a document similar to a corporation's articles of incorporation or a limited partnership's certificate of limited partnership.(fn38) The required contents of the articles have been reduced to a bare minimum, consisting only of the following: (a) the LLC's name; (b) its resident agent and registered office; and (c) if the LLC is organized to engage in a licensed profession or professions, each such profession.(fn39) Thus, it is no longer necessary, as it was under prior law, to include a statement of when the LLC will dissolve; identification of its business or activities (unless it is a professional LLC); provisions regarding the admission of additional members; a statement regarding management structure; and a list of members or managers, as the case may be.(fn40)

The prior law also expressly permitted the articles of organization to include:

any other provisions, not inconsistent with law, which the members elect to set out in the articles of organization for the regulation of . . . internal affairs . . . , including any provisions which . . . are required or permitted to be set out in the operating agreement . . . .(fn41)

Although the KRLLCA does not specifically address inclusion in the articles of matters that otherwise would appear in the operating agreement, its permission to set forth in the articles "any other matters the members determine to include therein"42 certainly is broad enough to support that result.

2. Execution and Filing

The articles of organization may be signed by any "one or more authorized persons,"(fn43) with no requirement that the person be either a member or manager of the...

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