GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

H	3 

HOUSE BILL 473
Second Edition Engrossed 5/2/95
Senate Judiciary I/Constitution Committee Substitute Adopted 5/31/95

Short Title:  Ltd. Liab. Co./Foreign Prof. Corp.	(Public)

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Sponsors:

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Referred to:  

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March 15, 1995

A BILL TO BE ENTITLED
AN ACT TO MAKE PROCEDURAL CHANGES AND TECHNICAL CORRECTIONS TO THE NORTH CAROLINA LIMITED LIABILITY COMPANY ACT, TO ALLOW RETROACTIVE INDEMNIFICATION OF A MANAGER OR MEMBER OF A LIMITED LIABILITY COMPANY, TO EXTEND THE USURY EXEMPTION TO LIMITED LIABILITY COMPANIES AND PARTNERSHIPS, AND AMEND THE PROFESSIONAL CORPORATION ACT.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 57C-1-03(14) reads as rewritten:
"(14)	Member. – A person who has been admitted to membership in the limited liability company as provided in G.S. 57C-3-01 until the person's membership ceases as provided in G.S. 57C-3-02 or G.S. 57C-5-02."
Sec. 2.  G.S. 57C-1-03(17) reads as rewritten:
"(17)	Person. – An individual, a trust, an estate, or a domestic or foreign corporation, a domestic or foreign professional corporation, a domestic or foreign partnership, a domestic or foreign limited partnership, a domestic or foreign limited liability company, an unincorporated association, or another entity."
Sec. 3.  G.S. 57C-2-30(e) reads as rewritten:
"(e)	Neither the reservation nor registration of a name, the organization of a limited liability company, nor the obtaining by a foreign limited liability company of a certificate of authority shall authorize the use in this State of a name in violation of the rights of any third party under the federal trademark act, the trademark act of this State, or other statutory or common law, or be a defense to an action for violation of those rights."
Sec. 4.  G.S. 57C-2-41 is amended by adding a new subsection to read:
"( c)	A limited liability company may change its registered office or registered agent by including in its annual report required by G.S. 57C-2-23 the information and any written consent required by subsection (a) of this section."
Sec. 5.  G.S. 57C-3-02(7) reads as rewritten:
"(7)	Unless otherwise provided in the articles of organization or a written operating agreement or with the consent of all other members, in the case of a member that is a domestic or foreign partnership, a domestic or foreign limited partnership, or another domestic or foreign limited liability company, the dissolution and commencement of winding up of the partnership, limited partnership, or limited liability company;".
Sec. 6.  G.S. 57C-3-02(8) reads as rewritten:
"(8)	Unless otherwise provided in the articles of organization or a written operating agreement or with the consent of all other members, in the case of a member that is a domestic or foreign corporation, the dissolution of the corporation or the revocation of its charter; or".
Sec. 7.  G.S. 57C-3-21(3) reads as rewritten:
"(3)	Upon designation as manager in a written operating agreement and the person's consent to such designation, the designated person shall serve as manager until the earliest to occur of (i) the person's resignation, (ii) any event described in G.S. 57C-3-02 with respect to the manager, (iii) any event specified in the articles of organization or written operating agreement that results in a manager ceasing to be a manager, or (iv) the amendment of the written operating agreement removing the person's designation as a manager."
Sec. 8.  G.S. 57C-3-32(a)(2) reads as rewritten:
"(2)	Provide for indemnification of a manager or member for judgments, settlements, penalties, fines, or expenses incurred in a proceeding to which the member or manager is a party because he is or was a manager or member.  For purposes of this subdivision, the words 'expenses', 'proceeding', and 'party' shall have the meanings set forth in G.S. 55-8-50(b)."
Sec. 9.  G.S. 57C-3-32(b) reads as rewritten:
"(b)	No provision permitted under subsection (a) of this section shall limit, eliminate, or indemnify against the liability of a manager for (i) acts or omissions that the manager knew at the time of the acts or omissions were clearly in conflict with the interests of the limited liability company, (ii) any transaction from which the manager derived an improper personal benefit, or (iii) acts or omissions occurring prior to the date the provision became effective, except that indemnification pursuant to subdivision (2) of subsection (a) of this section may be provided if approved by all the members.  As used in this subsection, 'improper personal benefit' does not include reasonable compensation or other reasonable incidental benefit for or on account of service as a manager, an officer, an employee, an independent contractor, an attorney, or a consultant of the limited liability company.
No provision permitted under subsection (a)	of this section shall limit or eliminate the liability of a member or manager for any taxes owed by the limited liability company under Chapter 105 of the General Statutes or Article 3 of Chapter 119 of the General Statutes."
Sec. 10.  Article 5 of Chapter 57C of the General Statutes is amended by adding a new section to read:
"§ 57C-5-07.  Distribution upon withdrawal.
Except as provided in this Article, upon withdrawal, any withdrawing member is entitled to receive any distribution to which he is otherwise entitled under the articles of organization or a written operating agreement, or, if not otherwise provided in the articles of organization or a written operating agreement, upon a reasonable time after withdrawal, the fair value of the member's interest in the limited liability company as of the date of withdrawal based upon the member's right to share in distribution from the limited liability company."
Sec. 11.  G.S. 57C-6-02(a) reads as rewritten:
"(a)	On application by or for a member, the court may decree dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or an operating agreement.  The clerk of court shall deliver a certified copy of the decree to the Secretary of State, who shall file it."
Sec. 12.  G.S. 57C-6-01(4) reads as rewritten:
"(4)	Unless otherwise provided in the articles of organization or a written operating agreement, the happening of any event of withdrawal described in G.S. 57C-3-02 (cessation of membership) with respect to any member, unless at the time of the event of withdrawal (i) there is at least one remaining member, (ii) the provisions of the articles of organization or a written operating agreement permit the business of the limited liability company to be carried on by the remaining member or members, and (iii) the remaining member or members elect to do so pursuant to such vote, to procedures prescribed in the articles of organization or a written operating agreement, or, in the absence of prescribed voting requirements or procedures, by a unanimous vote of the remaining member or members taken after the event of withdrawal.  The foregoing to the contrary notwithstanding, a limited liability company shall not be dissolved and is not required to be wound up by reason of any event of withdrawal if, within 90 days after the event of withdrawal, all remaining members agree in writing that the business of the limited liability company may be continued; or".
Sec. 13.  G.S. 24-9 reads as rewritten:
"§ 24-9.  Loans to certain entities organized for profit not subject to claim or defense of usury.
Notwithstanding any other provision of this Chapter or any other provision of law, any foreign or domestic corporation, limited liability company, or partnership substantially engaged in commercial pursuits for pecuniary gain may agree to pay, and any lender or other person may charge and collect from the entity, interest, fees, and other charges at any rate which the entity may agree or be required to pay and as to any such transaction the claim or defense of usury by the entity and its  successors or anyone else in its behalf is prohibited."
Sec. 14.  G.S. 24-9.2 is repealed.
Sec. 15.  G.S. 55B-4(2) reads as rewritten:
"(2)	All of the shares of stock of the corporation shall be owned and held by a licensee, or licensees, as hereinabove defined in G.S. 55B-2(2), except as otherwise permitted in G.S. 55B-6."
Sec. 16.  G.S. 55B-6(a) reads as rewritten:
"(a)	Except as provided in subsection (b), a professional corporation may issue shares of its capital stock only to a licensee as defined in G.S. 55B-2, and a shareholder may voluntarily transfer such shares of stock issued to him only to another such licensee.  No share or shares of any stock of such corporation shall be transferred upon the books of the corporation unless the corporation has received a certification of the appropriate licensing board that the transferee of such shares is a licensee.  Provided, it shall be lawful in the case of professional corporations rendering services as defined in Chapters 83A, 89A, 89C, and 89E, for non-licensed employees of such corporation to own not more than one-third of the total issued and outstanding shares of such corporation.  Provided further, subject to any additional conditions that the appropriate licensing board may by rule or order impose in the public interest, it shall be lawful for individuals who are not licensees but who perform professional services on behalf of a professional corporation in another jurisdiction in which the corporation maintains an office, and who are duly licensed to perform professional services under the laws of the other jurisdiction, to be shareholders of the corporation so long as there is at least one shareholder who is a licensee as defined in G.S. 55B-2, and the corporation renders its professional services in the State only through those shareholders that are licensed in North Carolina.  Upon the transfer of any shares of such corporation to a non-licensed employee of such corporation, the corporation shall inform the appropriate licensing board of the name and address of the transferee and the number of shares issued to such nonprofessional transferee.  Any share of stock of such corporation issued or transferred in violation of this section shall be null and void.  No shareholder of a professional corporation shall enter into a voting trust agreement or any other type of agreement vesting in another person the authority to exercise the voting power of any or all of his stock."
Sec. 17.  G.S. 55B-13 reads as rewritten:
"§ 55B-13.  Suspension or revocation of certificate of registration.
A licensing board may suspend or revoke a certificate of registration issued by it to a domestic or foreign professional corporation for any of the following reasons:
(1)	Upon the failure of such corporation to promptly remove or discharge an officer, director, shareholder or employee who becomes disqualified by reason of the revocation or suspension of his license to practice; or
(2)	Upon a finding by the licensing board that the professional corporation has failed to comply with the provisions of this Chapter or the regulations of the licensing board.
Upon the suspension or revocation of a certificate of registration issued to a professional corporation, such corporation shall cease forthwith to render professional services, and the Secretary of State shall be notified to the end that the corporation may be removed from active status and remain as such until reinstatement."
Sec. 18.  Chapter 55B of the General Statutes is amended by adding a new section to read:
"§ 55B-16.  Foreign professional corporations.
A corporation for profit incorporated under a law other than the law of this State and engaged in rendering a professional service as specified and defined in G.S. 55B-2(6)	may apply for a certificate of authority to transact business in this State pursuant to the provisions of this Chapter and Chapter 55 of the General Statutes provided that:
(1)	The corporation obtains a certificate of registration from the appropriate licensing board or boards in this State;
(2)	With respect to each professional service practiced through the corporation in this State, at least one director and one officer are licensees of the licensing board which regulates the profession in this State;
(3)	Each shareholder who will provide professional services to persons in this State, or who will provide professional services from a base of operations in this State, is a licensee of the appropriate licensing board in this State;
(4)	The corporation shall be subject to the applicable rules and regulations adopted by, and all the disciplinary powers of, the appropriate licensing board or boards in this State;
(5)	The corporation's activities in this State shall be limited to providing those professional services permitted by G.S. 55B-14; and
(6)	The corporation's application for a certificate of authority shall designate the professional services to be rendered by the corporation and shall be accompanied by a certification from the appropriate licensing board or boards that the licensure of the corporation's shareholders is in compliance with this section."
Sec. 19.  This act becomes effective October 1, 1995.