D R A F T FOR DISCUSSION ONLY Amendments to: UNIFORM PARTNERSHIP ACT (1997) UNIFORM LIMITED PARTNERSHIP ACT (2001) UNIFORM LIMITED LIABILITY COMPANY ACT (2006) UNIFORM LIMITED COOPERATIVE ASSOCIATION ACT (2007) NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS FOR RECORD OWNERS OF BUSINESS ACT NOVEMBER 18, 2007 DRAFTING COMMITTEE MEETING Without Prefatory Notes and With Comments Copyright 82007 By NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS ____________________________________________________________________________________________ The ideas and conclusions set forth in this draft, including the proposed statutory language and any comments or reporter=s notes, have not been passed upon by the National Conference of Commissioners on Uniform State Laws or the Drafting Committee. They do not necessarily reflect the views of the Conference and its Commissioners and the Drafting Committee and its Members and Reporter. Proposed statutory language may not be used to ascertain the intent or meaning of any promulgated final statutory proposal. November 5, 2007 DRAFTING COMMITTEE ON RECORD OWNERS OF BUSINESS ACT The Committee appointed by and representing the National Conference of Commissioners on Uniform State Laws in preparing this Act consists of the following individuals: HARRY J. HAYNSWORTH, IV, 2200 IDS Center, 80 S. 8th St., Minneapolis, MN 55402, Chair BRUCE A. COGGESHALL, One Monument Sq., POrtland, ME 04101 DAVID G. NIXON, 2340 Green Acres Rd., Suite 12, Fayetteville, AR 72703 STEVE WILBORN, 306 Tower Dr., Shelbyville, KY 40065 NORA WINKELMAN, Office of General Counsel, 333 Market St., 17th Flr., Harrisburg, PA 17101 WILLIAM H. CLARK, JR., One Logan Square, 18th and Cherry Streets, Philadelphia, PA 19103-6996, Reporter EX OFFICIO MARTHA LEE WALTERS, Oregon Supreme Court, 1163 State St., Salem, OR 97301-2563, President WILLIAM H. HENNING, University of Alabama, Box 870382, Tuscaloosa, AL 35487-0382, Division Chair AMERICAN BAR ASSOCIATION ADVISOR ALLAN G. DONN, Willcox & Savage, Suite 1800, Norfolk, VA 23510, ABA Advisor EXECUTIVE DIRECTOR JOHN A. SEBERT, 211 E. Ontario St., Suite 1300, Chicago, IL 60611, Executive Director Copies of this Act may be obtained from: NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS 211 E. Ontario Street, Suite 1300 Chicago, Illinois 60611 312/915-0195 www.nccusl.org RECORD OWNERS OF BUSINESS ACT TABLE OF CONTENTS AMENDMENTS TO UNIFORM PARTNERSHIP ACT (1997) SECTION 103. EFFECT OF PARTNERSHIP AGREEMENT; NONWAIVABLE PROVISIONS.......................................................................................................................1 SECTION 403. PARTNER’S RIGHTS AND DUTIES WITH RESPECT TO INFORMATION. .................................................................................................................5 SECTION 1003. ANNUAL REPORT ...........................................................................................8 AMENDMENTS TO UNIFORM LIMITED PARTNERSHIP ACT (2001) SECTION 110. EFFECT OF PARTNERSHIP AGREEMENT; NONWAIVABLE PROVISIONS.....................................................................................................................11 SECTION 111. REQUIRED INFORMATION ...........................................................................14 SECTION 210. ANNUAL REPORT FOR [SECRETARY OF STATE]. ...................................17 AMENDMENTS TO UNIFORM LIMITED LIABILITY COMPANY ACT (2006) SECTION 110. OPERATING AGREEMENT; SCOPE, FUNCTION, AND LIMITATIONS. .19 SECTION 209. ANNUAL REPORT FOR [SECRETARY OF STATE]. ...................................28 SECTION 410. RIGHT OF MEMBERS, MANAGERS, AND DISSOCIATED MEMBERS TO INFORMATION......................................................................................30 SECTION 502. TRANSFER OF TRANSFERABLE INTEREST. .............................................34 AMENDMENTS TO UNIFORM LIMITED COOPERATIVE ASSOCIATION ACT (2007) 1 AMENDMENTS TO 2 UNIFORM PARTNERSHIP ACT (1997) 3 4 SECTION 103. EFFECT OF PARTNERSHIP AGREEMENT; NONWAIVABLE 5 PROVISIONS. 6 (a) Except as otherwise provided in subsection (b), relations among the partners and 7 between the partners and the partnership are governed by the partnership agreement. To the 8 extent the partnership agreement does not otherwise provide, this [Act] governs relations among 9 the partners and between the partners and the partnership. 10 (b) The partnership agreement may not: 11 (1) vary the rights and duties under Section 105 except to eliminate the duty to 12 provide copies of statements to all of the partners; 13 (2) unreasonably restrict the right of access to books and records under Section 14 403(b); 15 (3) eliminate the duty of loyalty under Section 404(b) or 603(b)(3), but: 16 (i) the partnership agreement may identify specific types or categories of 17 activities that do not violate the duty of loyalty, if not manifestly unreasonable; or 18 (ii) all of the partners or a number or percentage specified in the 19 partnership agreement may authorize or ratify, after full disclosure of all material facts, a specific 20 act or transaction that otherwise would violate the duty of loyalty; 21 (4) unreasonably reduce the duty of care under Section 404(c) or 603(b)(3); 22 (5) eliminate the obligation of good faith and fair dealing under Section 404(d), 23 but the partnership agreement may prescribe the standards by which the performance of the 1 1 obligation is to be measured, if the standards are not manifestly unreasonable; 2 (6) vary the power to dissociate as a partner under Section 602(a), except to 3 require the notice under Section 601(1) to be in writing; 4 (7) vary the right of a court to expel a partner in the events specified in Section 5 601(5); 6 (8) vary the requirement to wind up the partnership business in cases specified in 7 Section 801(4), (5), or (6); 8 (9) vary the law applicable to a limited liability partnership under Section 106(b); 9 or 10 (10) restrict rights of third parties under this [Act]; or 11 (11) vary the requirements of section 403(d). 12 Comment 13 14 1. The general rule under Section 103(a) is that relations among the partners and between 15 the partners and the partnership are governed by the partnership agreement. See Section 101(5). 16 To the extent that the partners fail to agree upon a contrary rule, RUPA provides the default rule. 17 Only the rights and duties listed in Section 103(b), and implicitly the corresponding liabilities 18 and remedies under Section 405, are mandatory and cannot be waived or varied by agreement 19 beyond what is authorized. Those are the only exceptions to the general principle that the 20 provisions of RUPA with respect to the rights of the partners inter se are merely default rules, 21 subject to modification by the partners. All modifications must also, of course, satisfy the general 22 standards of contract validity. See Section 104. 23 24 2. Under subsection (b)(1), the partnership agreement may not vary the requirements for 25 executing, filing, and recording statements under Section 105, except the duty to provide copies 26 to all the partners. A statement that is not executed, filed, and recorded in accordance with the 27 statutory requirements will not be accorded the effect prescribed in the Act, except as provided in 28 Section 303(d). 29 30 3. Subsection (b)(2) provides that the partnership agreement may not unreasonably 31 restrict a partner or former partner’s access rights to books and records under Section 403(b). It 32 is left to the courts to determine what restrictions are reasonable. See Comment 2 to Section 403. 33 Other information rights in Section 403 can be varied or even eliminated by agreement. 34 35 4. Subsection (b)(3) through (5) are intended to ensure a fundamental core of fiduciary 2 1 responsibility. Neither the fiduciary duties of loyalty or care, nor the obligation of good faith and 2 fair dealing, may be eliminated entirely. However, the statutory requirements of each can be 3 modified by agreement, subject to the limitation stated in subsection (b)(3) through (5). 4 5 There has always been a tension regarding the extent to which a partner’s fiduciary duty 6 of loyalty can be varied by agreement, as contrasted with the other partners’ consent to a 7 particular and known breach of duty. On the one hand, courts have been loathe to enforce 8 agreements broadly “waiving” in advance a partner’s fiduciary duty of loyalty, especially where 9 there is unequal bargaining power, information, or sophistication. For this reason, a very broad 10 provision in a partnership agreement in effect negating any duty of loyalty, such as a provision 11 giving a managing partner complete discretion to manage the business with no liability except 12 for acts and omissions that constitute willful misconduct, will not likely be enforced. See, e.g., 13 Labovitz v. Dolan, 189 Ill. App. 3d 403, 136 Ill. Dec. 780, 545 N.E.2d 304 (1989). On the other 14 hand, it is clear that the remaining partners can “consent” to a particular conflicting interest 15 transaction or other breach of duty, after the fact, provided there is full disclosure. 16 17 RUPA attempts to provide a standard that partners can rely upon in drafting exculpatory 18 agreements. It is not necessary that the agreement be restricted to a particular transaction. That 19 would require bargaining over every transaction or opportunity, which would be excessively 20 burdensome. The agreement may be drafted in terms of types or categories of activities or 21 transactions, but it should