Keeping track of the changes to business entity statutes is important for the company’s managers, owners, investors, and advisers. But it can be hard to do, considering how often the laws are amended and how many judicial decisions interpreting those laws are rendered each year. To help all interested parties keep up, CT has compiled some of the significant legislative and case law developments we have tracked and reported for you in our Resource Center during 2020.
Arizona
State ex rel. Arizona Department of Revenue v. Tunberg, No. 1 CA-TX 18-0008, decided April 21, 2020. The Arizona Court of Appeals held that the member/CEO of an LLC could be held personally liable for the LLC’s unpaid transaction privilege tax where he had assumed a duty to remit what the LLC had collected from customers. The court pointed out that the member knew the CFO had stopped paying the taxes and although he had the power and authority to delegate the task to someone else he failed to do so.
JTF Aviation Holding Inc. v. CliftonLarsenAllen LLP, No. CV-19-0209, decided September 18, 2020. The Arizona Supreme Court held that an asset buyer that was not a party to an engagement agreement between the asset seller and its accountants was not bound by the engagement agreement based on the “closely related party doctrine.” The court held that the importance of the corporate form and protections afforded it weighed against Arizona adopting that doctrine under these circumstances.
Specialty Companies Group LLC v. Meritage Homes of Arizona Inc., No. 1 CA-CV 18-0708, decided February 25, 2020. The Arizona Court of Appeals held that an alter ego claim is not a separate cause of action but a means of imposing liability on an underlying cause of action and as such is governed by the statute of limitations applicable to the underlying cause of action to which the claim the piercing of the corporate veil is tied.
California
Assembly Bill 979, effective January 1, 2021, amends the General Corporation Law regarding composition of boards of directors. For more information about this bill see our article California Requires Corporate Boards to Have Directors From Underrepresented Communities.
Assembly Bill 3075, effective January 1, 2021, amends the General Corporation Law and LLC law regarding the contents of Statements of information, such changes which will be effective January 1, 2022 unless the SOS certifies that California Business Connect is complete before then.
http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB3075
Senate Bill 522, effective January 1, 2021, amends the Corporations Code regarding business entity naming requirements and amends the General Corporation Law and Nonprofit Corporation Law concerning inclusion of entity numbers on filings.
Wanke Industrial, Commercial, Residential, Inc. v. AV Builder Corp., D074392, decided February 19, 2020. The California Court of Appeal held that a judgment creditor could bring a creditor’s suit against a third party that owed the judgment debtor money even though the judgment debtor was a suspended corporation that lacked the capacity to sue the third party. The creditor’s suit statute considers whether the judgment debtor is owed a debt by the third party, not whether it has the capacity to collect the debt.
Granny Purps, Inc. v. County of Santa Cruz, H045387, decided August 5, 2020. The California Court of Appeal ruled that the plaintiff’s causes of action were time barred by the statute of limitations. The plaintiff filed within the limitations period but its corporate status was suspended at the time and it was not revived until after the limitations period. According to the court, the statute of limitations is a substantive defense and a corporation’s revivor does not retroactively validate a lawsuit filed during suspension.
Mueller v. Clarke, SACV 20-01401, decided September 28, 2020. The U.S. District Court, Central District of California held that a Texas professional corporation was not a citizen of California for diversity purposes because it qualified to do business in California as a foreign professional corporation. The court noted that this is a registration requirement for foreign corporations and “to state the obvious, because they are foreign to California they are not citizens of the state”.
Colorado
House Bill 1013, effective September 14, 2020, provides a statutory procedure for the ratification or validation of corporate actions that may not have been properly authorized and for shares that may not have been properly issued.
https://leg.colorado.gov/sites/default/files/2020a_1013_signed.pdf
Senate Bill 86 (Laws of 2019), effective July 1, 2020, amends the Colorado Business Corporation Act and the Colorado Corporations and Associations Act regarding, among things, definitions, conversions, mergers, names, dissolution, forum selection clauses, appraisal rights, proxies, corporate opportunities, and director liability.
https://leg.colorado.gov/sites/default/files/2019a_086_signed.pdf
Connecticut
Falcigno v. Falcigno, AC 42047, decided August 25, 2020. The Connecticut Appellate Court affirmed the trial court’s ruling that a majority stockholder did not breach his fiduciary duties by buying the minority stockholder’s shares before selling the company where his desire to sell the company was known, there were no pending offers, an alleged misrepresentation did not affect the minority stockholder’s decision to sell and the majority stockholder accurately explained the minority discount.
Delaware
Senate Bill 244, effective August 1, 2020, amends the Statutory Trust Act regarding, other among things, electronic transmissions, transactions, and signatures; registered agents; conversions; divisions; mergers; certifications from the Secretary of State and judicial cancellation. https://legis.delaware.gov/BillDetail?legislationId=48137
House Bill 341, effective July 16, 2020, except as noted therein, amends the General Corporation Law regarding name; limitation or elimination of director liability; organization meetings; emergency bylaws; document form, signature, and delivery; registered agent; director and stockholder consents to action; indemnification of officers, directors, employees, and agents; stockholder proxies; record date of stockholders; notices to stockholders; merger and consolidation; stockholder appraisal rights; conversion; public benefit corporations; and the report of record search fee.
House Bill 342, effective July 16, 2020, amends the Partnership Law regarding name, registered agent, partnership interest appraisal rights, document execution, record-keeping, conversion, and transfer or continuance.
House Bill 343, effective July 16, 2020, amends the LP law regarding name; registered agent; document form, signature and delivery; partnership interest appraisal rights; transfer or continuance; conversion; division; registered series; admission of limited partners; and record-keeping.
House Bill 344, effective July 16, 2020, amends the LLC law regarding name; registered agent; document form, signature and delivery; LLC interest appraisal rights, transfer or continuance; conversion; division; registered series; admission of members; and record-keeping. https://legis.delaware.gov/json/BillDetail/GenerateHtmlDocument?legislationId=48121&legislationTypeId=1&docTypeId=2&legislationName=HB344
In re Solera Insurance Coverage Appeals, Nos. 413, 2019 and 418, 2019, decided October 23, 2020. The Delaware Supreme Court held that an appraisal action brought under GCL Sec. 262 was not a securities claim under a D&O policy that defined a securities claim to include a violation of any law regulating securities. The court held that the plain meaning of the term “violation” suggested an element of wrongdoing and that appraisal proceedings have a neutral purpose — to determine the value of the corporation.
Spanakos v. Pate, No. 532, 2019, decided July 31, 2020. The Delaware Supreme Court affirmed the Chancery Court’s denial of a stockholder’s request under Secs. 223 and 211 for a corporation to hold an annual meeting and elect directors, even though the stockholder met the requirements of those sections. Ordering a meeting is in the court’s discretion, and in this case, where the stockholder was involved in litigation in Florida impacting this case, the Chancery Court, by pointing the stockholder back to Florida for that court to clarify its orders, crafted what it believed was the clearest path to obtaining relief in Delaware.
Salzberg v. Sciabacucchi, No. 346,2019, decided March 18, 2020. The Delaware Supreme Court upheld the validity of a provision in several Delaware corporations’ certificates of incorporation requiring actions arising under the federal Securities Act of 1933 to be filed in a federal court. The court held that federal forum selection provisions fall within the broad enabling text of Sec. 102(b)(1) of the General Corporation Law and are facially valid, are not against public policy, and advance the goal of Delaware courts to achieve judicial economy and avoid duplicative efforts among courts.
AB Stable VIII LLC v. MAPS Hotels and Resorts One LLC, CA No. 2020-0310, decided November 30, 2020. The Chancery Court held that a company that agreed – pre-COVID 19 – to buy a company that owned 15 luxury hotels was relieved of the obligation to close on the deal because the seller, among things, closed two of the hotels, severely restricted operations at all the others, and laid off thousands of employees due to the pandemic. The court ruled that the seller breached the covenant that required it to operate in the ordinary course of business consistent with past practice in all material respects. The court also found that the buyer could not terminate based on the Material Adverse Effect clause, because an MAE was defined to exclude adverse effects caused by a “calamity” and a pandemic meets the definition of calamity.
Mad Investors GRMD, LLC v. GR Companies, Inc., CA No. 2020-0589, decided October 28, 2020. The Delaware Chancery Court, in a case of first impression, held that a “business day” for the purposes of Sec. 220(c) of the General Corporation Law expires at 12 midnight and not 5 pm. Sec. 220(c) provides that a stockholder who has demanded an inspection of books and records may not file a lawsuit to compel the inspection until the expiration of 5 five business days after the corporation does not reply to the demand (unless the corporation refuses earlier). The court based its holding in part of the fact that dictionaries indicate that a business day refers to a full calendar day and not a subset of hours and because other sections of the Delaware code define “business day” as a “day” and not limited to hours. The court also distinguished business day from the term “usual hours of business” as found in Sec. 220(b).
Sylebra v. Perelman, C.A. No. 2019-0843, decided October 9, 2020. The Delaware Chancery Court dismissed claims brought by a stockholder in a corporation that was incorporated in Delaware when the stockholder invested but that had since reincorporated in Nevada, seeking to hold provisions of the Delaware bylaws invalid as the bylaws ceased to exist upon the reincorporation. The court also held that the internal affairs doctrine prevented it from declaring provisions of the Nevada corporation’s bylaws invalid under Delaware law, and dismissed the remaining claims under Nevada law because the corporation’s bylaws had an enforceable forum selection clause.
JUUL Labs, Inc. v. Grove, CA No. 2020-0005, decided August 13, 2020. The Delaware Chancery Court held that a stockholder seeking an inspection of records of a Delaware corporation with its principal place of business in California cannot rely on Sec. 1601 of the California Corporations Code – which grants inspection rights to stockholders of corporations with their principal executive offices in California regardless of the state of incorporation. Under principles articulated by the US and Delaware Supreme Courts, Delaware law governs the internal affairs of its corporations and the scope of a stockholder’s inspection rights is a matter of internal affairs. Therefore, Delaware law applies.
District of Columbia
B582, “The Fiscal Year 2020 Budget Support Clarification Second Emergency Amendment Act of 2019”, enacted January 22, 2020, amended the provisions regarding entity formation, registration and report filings to require that the following information we be required, as of January 1, 2020: the names, residence and business addresses of each person whose aggregate share of direct or indirect, legal or beneficial ownership of a governance or total distributional interest of the entity exceeds 10 percent; or does not exceed 10 percent, provided, that the person controls the financial or operational decisions of such entity or has the ability to direct the day-to-day operations of such entity.
Florida
Senate Bill 838, effective June 19, 2020, makes clarifying, conforming, and mostly non-substantive revisions to the Business Corporation Act and reinstates the Department of State’s ability to direct interrogatories to a corporation to determine its compliance with the Act. https://www.flsenate.gov/Session/Bill/2020/838/BillText/er/PDF
UBS Financial Services, Inc. v. Efron, Nos. 3D19-1410 & 3D18-2612, decided August 5, 2020. The Florida Court of Appeal ruled that relying on the fact that domestic and foreign affiliated corporations were part of the same extended corporate family and shared a brand fell short of meeting the burden to establish the domestic corporation’s control of and legal right to obtain the foreign affiliate’s records.
Hock v. Triad Guaranty Insurance Corp., Case No. 16-4008, decided March 4, 2020. The Florida Court of Appeal held that an administratively dissolved corporation can commence a lawsuit if it is appropriate to wind up and liquidate.
Georgia
LFR Investments LLC v. Van Sant, A20A0142, decided May 1, 2020. The Georgia Court of Appeals held that an LLC that did not have a license to build houses could not enforce a contract to build the defendant’s house. Although its sole member held a license he did not hold it as an agent of the LLC and thus his license could not be imputed to the LLC.
Saks Mgmt. & Assocs. v. Sung General Contracting, Inc., A20A1085, decided August 21, 2020. The Georgia Court of Appeals ruled that a property owner that entered into a construction contract with a corporate general contractor was entitled to summary judgment on the contractor’s counterclaims because the contractor did not have a valid license at the time of entering into the contract.
Idaho
Hollingsworth v. Thompson, No. 47488, decided December 23, 2020. The Idaho Supreme Court held that the plaintiff in a medical malpractice suit could rely on the Secretary of State’s records that indicated the defendant hospital was owned and operated by a private nonprofit corporation. The defendants admitted a nonprofit corporation was formed to help what had been a county-owned hospital obtain a loan.
However, they argued that the corporation was never actively operated and that the hospital was also county owned — which meant a notice of claim had to be filed. The court disagreed, noting that even if the corporation was not active and was allowed to be administratively dissolved, it still existed on paper and in the public records. The plaintiff was not required to investigate its ownership further and was not required to file a notice of claim.
Illinois
Commonwealth Edison Co. v. Carlisle Utility Contractors, Inc., 2020 IL App. 200178-U, decided September 18, 2020. The Illinois Appellate Court upheld the default judgment entered against an Indiana corporation who appointed its president as its registered agent in Illinois and an Illinois address as the registered office. The plaintiff’s process server made numerous attempts to serve the registered agent at the Illinois address but each time was told he was not there. The plaintiff then obtained substituted service on the Secretary of State. In upholding service of process the court ruled that the plaintiff complied with the service provisions of the Illinois corporation law by mailing a copy of process to the Illinois registered office and was not required to also mail copies to addresses for the corporation in Indiana that it was aware of.
Doherty v. Country Faire Conversion, LLC, 2020 IL App. (1st) 192385, decided November 2, 2020. The Illinois Appellate Court held that the purchaser of an interest in an LLC lacked standing to bring claims for breach of fiduciary duty, to obtain an accounting, and to challenge the indemnification of a manager. The purchaser did not obtain the unanimous consent of the members needed to become a member and as an economic interest holder only, lacked standing under the operating agreement and LLC Act to maintain a derivative suit or seek an accounting.
Iowa
House Bill 2402, effective July 1, 2020, revises provisions relating to resignations of registered agents serving certain business entities.
Senate Bill 569 (Laws of 2019), effective July 1, 2020, enacts the Uniform Protected Series Act, governing a series limited liability company formed, or a protected series established, on or after July 1, 2020 and a limited liability company that is a series limited liability company before July 1, 2020, that elects, in the manner provided in its operating agreement or by law for amending the operating agreement, to be subject to this Act. On and after July 1, 2021, this Act governs all series limited liability companies and protected series.
Homeland Energy Solutions, LLC v. Retterath, No. 18-0950, decided February 7, 2020. The Iowa Supreme Court held that an LLC’s action to enforce an agreement to repurchase the defendant’s membership interests had to be tried in equity as the purpose of the agreement was to extinguish the member’s interest and influence, and money damages would not be an adequate remedy.
Kansas
House Bill 2039 (Laws of 2019) amends sections of the LLC law, effective July 1, 2020, on such issues as series LLCs, cancellations, mergers and consolidations, and reinstatements.
Louisiana
Senate Bill 33, effective October 16, 2020, revises the Business Corporation Act regarding shareholders’ meetings held solely by means of remote communication, changing a corporation’s name, and parent-subsidiary mergers.
Senate Bill 54, effective June 5, 2020, amends the corporation law regarding registered agents and the revocation of articles of incorporation and the indemnification of directors and officers of cooperatives.
Aok Property Investments, LLC v. Boudreaux, No. 20-C-237, decided December 9, 2020. The Louisiana Court of Appeal ruled that the charging order provision of Louisiana’s LLC law, which provides that a judgment creditor shall have only the rights of an assignee of the membership interest, applies to single-member LLCs.
Maryland
House Bill 668 and Senate Bill 469, effective October 1, 2020, provide, among things, that certain articles of incorporation may contain a future effective date, and makes changes regarding the approval of transactions of corporations registered as open-end investment companies under the Investment Company Act.
House Bill 983 and Senate Bill 888, effective October 1, 2020, amend the LLC law to provide, among other things, for a personal representative or guardian of the last member being admitted as a new member, to provide for winding up of the affairs of the LLC under certain circumstances, and to provide that an application for registration of a foreign LLC that is a series company must state that it is a series company. http://mgaleg.maryland.gov/2020RS/bills/hb/hb0983T.pdf
Plank v. Cherneski, Misc. No. 3, decided July 14, 2020. The Maryland Court of Appeals, in answering a certified question from the Court of Special Appeals, held that it recognizes an independent cause of action for breach of fiduciary duty. To establish a breach, a plaintiff must demonstrate the existence of a fiduciary relationship, a breach of the duty owed by the fiduciary to the beneficiary and harm to the beneficiary.
Mayor & City Council of Baltimore v. Prime Realty Associates, LLC, No. 53, decided March 12, 2020. The Maryland Court of Appeals upheld service on an LLC pursuant to Rule 3-124(o), which provides that service of process may be made on an LLC required to maintain a resident agent by serving the State Department of Assessments and Taxation (SDAT) if the LLC does not have a resident agent, or the resident agent is no longer at the statutory address maintained by the SDAT.
Michigan
Sterling Heights Pain Management, PLC v. Farm Bureau General Insurance Co. of Michigan, No. 350979, decided December 22, 2020. The Michigan Court of Appeals held that only the attorney general has standing to challenge whether a professional LLC was validly formed. Under the Michigan LLC Act, the filing of the formation document is conclusive evidence that the conditions precedent to formation have been met. Therefore, an insurance company, which claimed the PLLC was not validly formed because it had members and managers who lacked the necessary license, lacked standing to make that challenge.
Domestic Uniform Rental v. Falcon Transport Co., No. 350112, decided November 12, 2020. The Michigan Court of Appeals held that a foreign corporation, not registered to do business in Michigan, had standing to intervene in a garnishment proceeding. The appellant was moving to intervene to protect its security interest and collect a debt. Those activities do not constitute doing business under the Michigan corporation law and therefore the appellant was not required to obtain a certificate of authority.
Daoud v. Michigan Dep’t of Treasury, No. 351087, decided December 3, 2020. The Michigan Court of Appeals held that the sole member of an LLC could be held liable for the LLC’s unpaid withholding and sales taxes. The court stated that the tax law provides an exemption to the general immunity provided members by the LLC Act and imposes personal liability on responsible officers. The member here was found to be responsible based on the fact he was the sole member, listed himself as president on the tax registration, and executed the agreement directing his brother to pay the LLC’s taxes.
Mississippi
Senate Bill 2510, effective June 23, 2020, revises the grounds for administrative revocation of the registration of a foreign limited liability company.
Missouri
Sherrer v. Boston Scientific Corporation, No. SC97465, decided October 13, 2020. The Missouri Supreme Court held that Sec. 491.50 of the Missouri Statutes, which provides that any criminal convictions may be proven to challenge the credibility of witnesses in a criminal or civil trial does not apply to corporations.
Green v. Paz, 4:16 CV 1900, decided February 4, 2020. The federal court in Missouri enforced a Delaware corporation’s forum selection bylaw and transferred a shareholder derivative suit alleging state and federal claims to the federal court in Delaware. The suit could not be transferred to the state court because the bylaw required selection of a forum for an action as a whole and not for discrete claims and the Delaware state court did not have jurisdiction over the federal claim
Montana
Senate Bill 325 (Laws of 2019), effective June 1, 2020, enacts a new corporation law. The new Montana Business Corporation Act governs corporations incorporated or registered as a foreign corporation on or after June 1 and pre-existing domestic and registered foreign corporations. The old corporation law is repealed as of June 1, 2020. For more information on the new law see our article Montana Enacts a New Corporation Law.
Nevada
Israyelyan v. Chavez, No. 78415, decided July 2, 2020. The Nevada Supreme Court held that Nevada’s LLC statute does not set out fiduciary duties owed by and between its members. While members can contract to fiduciary duties such duties do not necessarily exist otherwise.
Chur v. Eighth Judicial District Court of Nevada, No. 7801, decided February 27, 2020. The Nevada Supreme Court held that a corporate director or officer may not be held individually liable for breaching his or her fiduciary duty of care through gross negligence. Statutorily a director or officer is not individually liable for harm resulting from official actions unless the director or officer engages in intentional misconduct, fraud or a knowing violation of law.
New Jersey
Innoas, Inc. v. Genesis BBQ USA, LLC, No. A-1039-19T, decided November 12, 2020. The New Jersey Superior Court, Appellate Division, affirmed the dismissal of a lawsuit against two corporations that were the direct and indirect members of an LLC that the plaintiff entered into agreements with. The plaintiff failed to present evidence of formation of the LLC to perpetuate a fraud or injustice. The plaintiff was a sophisticated company that understood the agreements were with an LLC and if the plaintiff wanted to protect itself it could have required the parent to be part of the contract or guarantee the obligation of the LLC.
New Mexico
House Bill 118, effective May 20, 2020, amends the Business Corporation Act by authorizing corporations to become benefit corporations with the purpose of creating a general public benefit. A benefit corporation may also have as a purpose the creating of a specific public benefit. A corporation electing to become a benefit corporation must include a statement in its articles of incorporation that it is a benefit corporation and must prepare and provide its shareholders an annual benefit report.
Reynolds v. Landau, No. A-1-CA-37135, decided April 21, 2020. The New Mexico Court of Appeals held that a corporation that had been administratively dissolved ten years before filing a suit to foreclose on a mortgage could maintain the suit. The New Mexico corporation law does not have a time limit in which a dissolved corporation may file a suit on a claim existing before it was dissolved and it is not for the court to second guess the legislature.
New York
Senate Bill 7508, effective April 3, 2020 and deemed to be in effect on and after March 31, 2020, amends the Executive Law by extending authorization for the Department of State to provide multiple levels of expedited service. See Part R.
Senate Bill 7195, signed by the Governor on February 3, 2020, delayed the effective date of legislation requiring board-of-director gender-diversity information to be included in business corporation Biennial Statements by 180 days making the effective date June 27, 2020.
Assembly Bill 453, effective February 10, 2020, amended Sec. 609 of the New York Limited Liability Company Law to provide that the ten largest members of foreign LLCs may be held jointly and severally personally liable for all debts, wages, or salaries due and owing to any of its laborers, servants, or employees for services performed by them for the LLC. The employee (or laborer or servant) must try to recover from the LLC first. Only if a judgment is obtained against the LLC and the execution remains unsatisfied can the employee (or laborer or servant) try to recover from the member.
Celauro v. 4C Foods Corporation, 2020 NY Slip Op 05716, decided October 14, 2020. The New York Court of Appeals, Appellate Division held that majority shareholders in a closely held corporation with feuding shareholders did not breach their fiduciary duty to the minority shareholder by declining to consent to a transfer of stock that would have given him enough stock to seek judicial dissolution of the corporation. The majority was acting to protect the corporation’s day to day operations.
Garcia v. Garcia, 2020 NY Slip Op 05725, decided October 14, 2020. The New York Court of Appeals, Appellate Division held that the expulsion of a member by the vote of 2 of the LLC’s 3 members was proper where the LLC’s operating agreement established that members could be expelled and required a majority vote to take any action on behalf of the LLC.
Chen v. Dunkin Brands Inc., 954 F.3d 492 (2d Cir. 2020), decided March 31, 2020. The U.S. Court of Appeals, 2nd Circuit held that a foreign corporation was not subject to general personal jurisdiction in New York merely because it registered to do business as a foreign corporation under Sec. 1301 of the New York Business Corporation Law.
Favourite Limited v. Cico, 2020 NY Slip Op 01463, decided March 3, 2020. The New York Supreme Court, Appellate Division held that a Delaware LLC whose certificate of formation was canceled lacked standing or capacity to commence a lawsuit. A member claimed to have obtained a certificate of revival.
However, the operating agreement provided that no member had a right to bind the LLC, and no member acting solely had authority to act on the LLC’s behalf. Therefore the certificate of revival was unauthorized.
Ohio
Reister v. Gardner, 2020 Ohio 5484, decided December 3, 2020. The Ohio Supreme Court ruled that the Court of Appeals erred when it held the litigation privilege shielded the business decisions made by directors regarding corporate litigation. The court distinguished the litigation privilege - which protects participants in litigation from suits over statements made during litigation, with the business judgment rule - which provides deference to decisions by the board while managing the corporation, including decisions regarding litigation.
Red Foot Racing Stables v. Brewer, 2020 Ohio 5201, decided November 5, 2020. The Ohio Court of Appeals upheld the dismissal of a lawsuit filed by a horse racing stable based on the Ohio statute stating that no person doing business under a fictitious name shall commence or maintain an action in the fictitious name or on account of any contracts made or transactions had in the fictitious name until it has registered the fictitious name with the Secretary of State. The court rejected the plaintiff’s argument that the registration requirement does not apply to horse racing stables.
810 Properties VIII LLP v. Sukenik, No. 108922, decided April 23, 2020. The Ohio Court of Appeals held that two limited liability partnerships had standing to enforce partnership agreements entered into before filing their statements of qualification to become limited liability partnerships. The filing of the statements of qualification did not create new partnerships. The partnerships continued to be the same entities as before the filings.
Oregon
Kinzua Resources, LLC v. Oregon Department of Environmental Quality, SC S066676, decided July 9, 2020. The Oregon Supreme Court held that members of an LLC that owned a landfill could be penalized under a statute imposing liability on persons controlling an improperly closed landfill. The statute did not conflict with the provision of the LLC Act limiting the liability of members for the LLC’s debts, obligations, and liabilities. The LLC Act limits vicarious liability.
However, in this case, the members’ liability was based on their own acts in controlling the landfill.
Rhode Island
House Bill 5646/Senate Bill 719 (Laws of 2017) effective July 1, 2020 amends the business corporation act and limited liability company act to remove the requirement of obtaining a certificate of good standing from the division of taxation with respect to dissolution, merger, conversion, and withdrawal filings.
House Bill 5646
Senate Bill 719
South Dakota
House Bill 1179, effective November 15, 2020 amends the LLC law to provide that an operating agreement may establish or provide for the establishment of a series of members, managers, or limited liability company interests having separate rights, powers, or duties with respect to specified property or obligations of the limited liability company or profits and losses associated with specified property or obligations. If certain requirements are met then the debts, liabilities, and obligations incurred, contracted for, or otherwise existing with respect to a particular series shall be enforceable against the assets of such series only, and not against the assets of the limited liability company generally or any other series thereof.
House Bill 1109, effective July 1, 2020, amends the LLC law regarding the liabilities of members and managers.
House Bill 1114, effective July 1, 2020, authorizes additional abbreviations in naming corporations, limited liability companies, and limited liability partnerships.
Tennessee
Senate Bill 1754, effective June 22, 2020, clarifies the requirements regarding the form and filing of documents with the Secretary of State. http://www.capitol.tn.gov/Bills/111/Bill/SB1754.pdf
Texas
Donica Group, LP v. Thompson Excavating, Inc., No. 05-19-00235, decided January 6, 2020. The Texas Court of Appeals held that a corporation whose charter was forfeited and not reinstated lacked standing to file a bill of review challenging a default judgment.
Pike v. Texas EMC Management, LLC, No. 17-0557, decided June 19, 2020. The Texas Supreme Court held that a limited partner has constitutional standing to sue for an alleged loss in the value of its interest in the limited partnership. A challenge to a limited partner’s ability to recover the lost value of its interest in the limited partnership is a challenge to capacity, not standing.
Anemelu v. Iraheta, No. 14-19-00018 – CV, decided July 7, 2020. The Texas Court of Appeals held that an LLC whose charter was terminated could pursue its claims because Sec. 11.356 of the Texas Business Organizations Code provides that terminated entities continue to exist for three years for certain purposes including prosecuting an action or proceeding brought in the entity’s name.
Utah
Senate Bill 171, effective May 12, 2020, enacts a chapter entitled Government Interaction with Nonprofit Entities regarding the regulation of nonprofit entities. https://le.utah.gov/~2020/bills/static/SB0171.html
Vermont
Vermont National Telephone Company v. Department of Taxes, 2020 VT 83, decided October 9, 2020. The Vermont Supreme Court held that the Commissioner of Taxes did not err in determining that a corporation’s commercial domicile was in Vermont because that is where it conducted business operations and received the most benefits. Specifically, the Commissioner found its CFO filed all of its tax returns and paid its taxes from its Vermont office, its business records were kept in its Vermont office and it had over 50 employees residing or working in Vermont.
Virginia
House Bill 55, effective July 1, 2020, permits a corporation to be governed as a worker cooperative. A worker cooperative may be formed for any lawful purpose, provided that it shall be organized and shall conduct its business primarily for the mutual benefit of its members.
House Bill 1149 delays the effective date of amendments to the Virginia Stock Corporation Act enacted in 2019, and to the section of the LLC law that authorizes the formation of a series LLC until July 1, 2021.
https://lis.virginia.gov/cgi-bin/legp604.exe?201+ful+CHAP1226
Washington
Senate Bill 6028, effective June 11, 2020, adopts the Uniform Electronic Transactions Act with authorization for electronic signatures and notarizations with conforming amendments to the business entity laws and enacts certain further amendments to the business corporation law.
Senate Bill 6037, effective June 11, 2020, amends the Business Corporation Act regarding gender diversity on the boards of directors of public companies; contents of Articles of Incorporation and Bylaws; dependency of plans or filed records on external ascertainable facts; capital shares; share options; business opportunities; conversion, merger and share exchange; domestic amendment; voting shares; and shareholder action without a meeting.
Wisconsin
Arrowhead Systems, Inc. v. Grant Thornton LLP, No. 2019AP2268, decided October 15, 2020. The Wisconsin Court of Appeals held that the rule that denies standing to shareholders to bring direct claims seeking redress for injuries to the corporation applies even where the corporation was an S corporation with a sole shareholder who was claiming harm due to the corporation’s accountant’s tax strategy.
Prince v. Appleton Auto, LLC, No. 20-1106, decided October 21, 2020. The U.S. Court of Appeals, Seventh Circuit, held that it would not pierce the veils of five affiliated LLCs in order to aggregate the number of employees such that Title VII would apply. Although there was a substantial overlap of operations between the LLCs – all of which owned car dealerships in Wisconsin – a plaintiff must show more than a degree of integration of corporate operations for aggregation purposes as it is legitimate for affiliated small businesses to share some operational efficiencies. Furthermore, each LLC had a separate existence and there was no evidence that respecting their separate existence would allow them to accomplish a fraudulent purpose.
