Changes to Colorado Business Organization Law 2005 - House Bill 05-1149

CHANGES TO COLORADO BUSINESS ORGANIZATION LAW 2005

House Bill 05-1149

Allen E.F. Rozansky Solomon Pearl Blum Heymann & Stich LLP 1801 Broadway, Suite 500 Denver, Colorado 80202 Tel – (303) 832-6686 Fax – (303) 832-6653 e-mail – [email protected] www.SolPearl.com www.EstateProtector.com The one major change in Colorado Business Organization Law in 2005 was the passage of House Bill 05-1149 (signed into law by Governor Owens on June 3, 2005, effective October 1, 2005), which, along with several technical corrections, amended Colorado’s LLC statute with regard to the definition of good faith and fair dealing, the requirements for a conversion of an entity to another form, the required notice received from the Secretary of State for Annual Reports, the effect on a foreign entity that is not authorized to conduct business in Colorado, and, most substantially, the elimination of Administrative Dissolution and the replacement of it with the concept of Delinquency.

I. LLCs – C.R.S. § 7-80-108(3) has been amended so that, if the Members of a Colorado limited liability company desire to reasonably define the Managers’ standard of good faith and fair dealing, it must be done in the LLC’s Operating Agreement, rather than simply by an agreement of the Members.

II. Conversions – Upon the conversion of an entity form one form to another, the new entity must now file a combined Statement of Conversion and constituent filed document for the new entity – C.R.S. § 7-90-201(5.5).

III. Annual Reports – The Secretary of State is required to provide entities with a 60-day notice of their obligation to file an annual report. However, a failure to do so does not excuse an entities obligation to so file – C.R.S. § 7-90-601.6.

IV. Foreign Entities – Under C.R.S § 7-90-802(1)(b), a Colorado court may stay a proceeding to determine if a party was required to file a Statement of Authority as a foreign entity. If the court does determine that such a filing was necessary and the filing has not been made, the court may further stay the proceedings until the failure to file has been cured. However, once the filing has been made, the matter may not be dismissed solely by reason of the foreign entities previous failure to file.

V. Administrative Dissolution/Delinquency A. The Secretary of State may no longer administratively dissolve an entity. Rather, the entity, upon the occurrence of certain events (“Delinquency Events”) may be declared “Delinquent.” - C.R.S. § 7-90-901 et al.

B. Delinquency Events – C.R.S. § 7-90-901

1. A Domestic and foreign entity may be declared Delinquent if it:

(a) fails to pay a required fee or penalty;

(b) fails to file its annual report;

(c) fails to comply with the registered agent and service of process rules. 2. In addition, a foreign entity may be declared Delinquent if:

(a) the foreign entity fails to keep its Statement of Authority up to date; or

(b) the Secretary of State receives information of the foreign entities dissolution or its merger into another entity.

C. Notice (C.R.S. § 7-90-902) – The Secretary of State must give an entity notice of the occurrence of a Delinquency Event. If the Delinquency Event is not cured within 60 days, the Secretary of State may declare the entity Delinquent and must then give it notice thereof (although a failure of the Secretary of State to so provide notice will not affect the fact that the entity is Delinquent).

D. Cure (C.R.S. § 7-90-904) – A entity may cure the Delinquency Event by:

1. curing the specific Delinquency Event;

2. paying the required fee or penalty;

3. withdrawing its Statement of Authority (in the case of a foreign entity); or

4. dissolving.

E. Appeal of Declaration of Delinquency (C.R.S. § 7-90-905) – An entity may appeal the Secretary of State’s declaration in the District Court in the county in which the entity has its principal place of business, or, if none, the county in which the entity’s registered agent has its registered agent, or, if none, in the City and County of Denver.

F. Effects of Delinquency

1. A Delinquent entity may not maintain a proceeding in the Colorado courts for the collection of its debts – C.R.S. § 7-90-903(1);

2. A Colorado court may stay a proceeding to determine if the entity is Delinquent and, if so, may further stay the proceeding until the Delinquency Event is cured. However, once the Delinquency Event is cured, the action may not be dismissed solely because of the previous delinquency – C.R.S. § 7-90- 902(2);

3. The Registered Agent of a Delinquent entity maintains its authority – C.R.S. § 7-90-902(3);

4. A domestic Delinquent entity will continue its existence – C.R.S. § 7- 90-902(4); 5. A domestic Delinquent entity may still be dissolved under the Colorado statutes (C.R.S. § 7-90-902(5)), except that, if more than three years has passed, the manger of the entity may dissolve the entity after having given 30-days notice to all of the owners of the entity and those other persons who had the authority to dissolve the entity (C.R.S. § 7-90-908); and

6. Upon the 400th day of Delinquency, the term “Delinquent 200__” is added to the entity’s name.