AB923: Bill Text

LRB-5199/1

KSH:skg:jlb

1995 - 1996 LEGISLATURE

1995 Assembly BILL 923

February 21, 1996 - Introduced by Representatives Albers, Porter, Baldus, Green, La Fave, Vrakas, Foti and Grothman, cosponsored by Senators Petak, Huelsman, Fitzgerald, Rude, Buettner, Cowles, Farrow, Burke, Darling, George, Panzer and Grobschmidt. Referred to Committee on Insurance, Securities and Corporate Policy.

AB923,2,8 An Act to repeal 183.0107 (1) (b), 183.0901 (3), 183.0908 (4), 183.1101 (1) (b), 215.02 (15) (e), 215.26 (1), chapter 776, 813.02 (3) and 813.09; to renumber 180.1602 (1); to renumber and amend 180.1915, 183.0403 (1) and 452.09 (1) (d); to consolidate, renumber and amend 183.0107 (1) (intro.) and (a) and 183.1101 (1) (intro.) and (a); to amend 20.575 (1) (gb), 20.865 (1) (a), 20.865 (1) (g), 20.865 (1) (q), 71.07 (7) (b), 93.06 (4), 133.12, 180.0640 (6), 180.0706 (1), 180.1604 (1), 183.0105 (3) (intro.), 183.0201, 183.0301 (1) (b), 183.0301 (2) (b), 183.0304 (2), 183.0401 (2) (c), 183.0402 (3), 183.0403 (2), 183.0403 (3), 183.0403 (4), 183.0403 (5) (b), 183.0405 (1) (b), 183.0405 (1) (e) (intro.), 183.0405 (1) (e) 4., 183.0601, 183.0602, 183.0702 (2) (b), 183.0706 (2) (a), 183.0707, 183.0801 (1) (b), 183.0801 (2) (a), 183.0801 (2) (b), 183.0802 (1) (h), 183.0802 (3), 183.0901 (4) (a), 183.0907 (2) (intro.), 183.0907 (2) (c), 183.0908 (1), 183.0908 (3) (intro.), 183.1008 (1) (intro.), 183.1101 (2), 183.1101 (3), 183.1101 (4), 183.1102, 183.1203 (2) (c), 185.95, 188.26, 452.09 (1) (b), 452.09 (1) (e), 452.10 (1), 452.12 (2) (title), 452.12 (2) (c), 452.14 (4), 452.22 (2), 551.02 (13) (b), 551.02 (13) (c), 628.04 (1) (b) 1., 891.20 and 972.085; and to create 77.25 (15w), 180.1602 (1), 180.1915 (1) and (2), 183.0202 (6), 183.0403 (1) (b), 183.0802 (1) (k), 183.0909, 452.09 (1) (d) 1. to 5. and 452.12 (2) (bm) of the statutes; relating to: business corporation law and limited liability company law revisions, creating a real es tate transfer fee exemption for certain business entity transfers, extending the other state tax credit to members of a limited liability company, permitting a limited liability company to obtain a real estate brokers license, repealing pro visions for bringing legal actions and for filing injunctions against corporations or limited liability companies, the liability of service corporations and their shareholders, directors, officers and employes and making an appropriation.

Analysis by the Legislative Reference Bureau

This bill makes a number of changes relating to business corporations, service corporations (SCs) and limited liability companies (LLCs), including the following:

1. The bill limits the liability of SCs and their shareholders, directors, officers and employes. Under current law, organization as an SC does not alter any contract, tort or other legal relationship between a person receiving professional services and one or more persons rendering those professional services who are shareholders in an SC. Any legal liability that may arise out of the professional service is joint and several among those shareholders of the SC. A shareholder, director, officer or em ploye of an SC is not personally liable for the SC's debts or other contractual obliga tions. Under the bill, a shareholder, director, officer or employe of an SC is not liable for the omissions, negligence, wrongful acts, misconduct and malpractice of any per son who is not under his or her actual supervision and control in the specific activity in which the omissions, negligence, wrongful acts, misconduct and malpractice oc curred. The bill does not affect the liability of the SC for the acts of a shareholder, director, officer or employ while the person provides professional services on behalf of the SC or the liability of a person for his or her own acts or the acts of a person under his or her actual supervision and control.

2. The bill extends the income tax credit for income and franchise taxes paid in other states to members of an LLC. Under current law, income and franchise taxes paid to another state by a tax-option corporation may be claimed as a credit on Wis consin income taxes by that corporation's shareholders. This bill provides the same treatment to members of LLCs.

3. The bill exempts from the real estate transfer fee transfers between a part nership and LLC if all of the members of the LLC are partners of the partnership, all of the partners of the partnership are members of the LLC and the transfer is for no consideration other than the assumption of debt or an interest in the LLC or the partnership.

4. The bill repeals a requirement in current law that corporations and LLCs show, in their annual reports filed with the secretary of state, whether the corpora tion or LLC has entered into any contract, combination or conspiracies in restraint of trade.

5. The bill includes references to LLCs in the secretary of state's appropriation for processing requests for expedited services and taking requests to reserving a name.

6. The bill clarifies the status of indebtedness to a shareholder incurred by a corporation because of a distribution to its shareholders. Under current law, this in debtedness is at parity with the corporation's indebtedness to its general, unsecured creditors, except to the extent subordinated by agreement. This bill provides that this provision does not affect the validity or priority of a security interest in corpora tion property created to secure indebtedness incurred because of a shareholder dis tribution.

7. The bill amends the provisions dealing with a waiver, by a shareholder of a corporation, of notice requirements under state law, the articles of incorporation or bylaws. Under current law, the shareholder may waive these requirements only be fore or after the date and time stated in the notice. This bill permits the waiver to occur at any time.

8. The bill defines shareholder, for purposes of shareholder inspection of corpo rate records, to include beneficial owners whose shares are held in a voting trust or by a nominee on the beneficial owner's behalf.

9. The bill deletes the requirement that an LLC have 2 or more members.

10. The bill allows articles of organization of an LLC to include a delayed effec tive date and time.

11. The bill deletes a requirement that LLCs maintain, at their principal place of business, executed copies of any powers of attorney used for executing articles of organization and amendments to them.

12. The bill allows an LLC to be licensed as a real estate broker or salesperson and specifies how the license application requirements are to be applied to LLCs.

13. The bill changes the situations in which a member's interest in an LLC is either not a "security" or is presumed to be a "security".

14. The bill eliminates the ability of managers of an LLC to bring a derivative suit.

15. The bill adds a definition of liabilities to the indemnification provisions and allows indemnification of the LLC of liabilities of members in certain circumstances.

This bill repeals a number of provisions that relate to actions and proceedings by and against corporations. These provisions are located outside of the general busi ness corporations chapter of the statutes and, in certain cases, they conflict with the provisions contained in that chapter. The provisions that are repealed by this bill include the following:

1. Certain provisions relating to injunctions against corporations. These provi sions allow a court to restrain a corporation from assuming or exercising a corporate right or from transacting business not authorized by its charter. The provisions also impose certain requirements on a court in granting an injunction to suspend the gen eral and ordinary business of a corporation. The bill does not repeal the provisions in the business corporations chapter of the statutes that permit a court to enjoin un lawful corporate acts in certain cases and to order the dissolution of a corporation.

2. Certain provisions regarding injunctions and suits against corporations with banking powers. These provisions permit an injunction to be issued by the Wisconsin supreme court whenever a banking corporation becomes insolvent, neglects or re fuses to pay its debts or violates any law. These provisions do not specifically address the powers of the banking commissioner or the role of federal bank regulators. Provi sions in the banking chapter of the statutes, not repealed by the bill, permit the com missioner of banking to bring an action in circuit court to enjoin banks to enforce com pliance with the law and with rules and orders of the commissioner.

3. Certain procedural provisions relating to actions by creditors against corpo rations and their officers, directors and stockholders. Separate provisions in the business corporations chapter of the statutes, not repealed by the bill, specifically ad dress the substantive liability of these parties and special procedures for derivative actions by shareholders.

4. A general provision providing that, after final judgement against a corpora tion or against a corporation's directors, trustees, officers or stockholders, the court must cause the just and fair distribution of the corporation's property. The bill does not repeal any of the specific provisions in the business corporations chapter of the statutes that govern the process of winding up and liquidating a domestic corpora tion's business and affairs.

5. General provisions granting courts "jurisdiction" over certain causes of ac tion against directors, managers, trustees and other officers of corporations. The causes of action covered by these provisions include actions to suspend or remove any director, trustee or other officer from exercising their office; and to direct new elec tions of a corporate board. The provisions also authorize the governor to fill vacan cies on corporate boards if all members of the board are removed by a court. The pro visions appear to conflict in certain ways with specific provisions contained in the business corporations chapter of the statutes, not repealed by the bill.

6. Certain procedural and substantive provisions dealing with the dissolution of a corporation and with vacating or annulling an act of incorporation or a corpora tion's charter. Under these provisions, a judgment that a corporation has forfeited its corporate rights, privileges and franchises results in the dissolution of the corpo ration. These provide for a specific order of priority in distributing the assets of the corporations, the payment of the attorney general's costs in bringing dissolution ac tions, and the filing of judgements dissolving a corporation. The business corpora tion chapter contains specific provisions that govern the judicial dissolution of corpo rations, although these provisions do not provide for a specific order of priority in distributing the assets of the dissolved corporation.

7. A specific provision allowing courts to compel discovery with respect to a cor poration and its officers, agents and stockholders.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB923, s. 1 Section 1. 20.575 (1) (gb) of the statutes is amended to read:

AB923,5,13 20.575 (1) (gb) Expedited service and telephone application for reservation of name. The amounts in the schedule for processing of a document, request for in formation or certification in an expeditious manner under s. 14.38 (9), 179.16 (5), 180.0122 (4), 181.68 (1) (k), 183.0114 (1) (u) or 185.83 (1) (h) and for taking telephone applications to reserve a name under s. 179.03 (2), 180.0402, 181.07 (2), 183.0104 or 185.045. All expedited service fees collected under ss. 14.38 (9), 179.16 (5), 180.0122 (4), 181.68 (1) (k), 183.0114 (1) (u) and 185.83 (1) (h) and all fees for telephone applica tion to reserve a name collected under s. 179.03 (2), 180.0122 (1) (e) or (f), 181.68 (1) (g), 183.0114 (1) (e) or (f) or 185.045 shall be credited to this appropriation. Notwith standing s. 20.001 (3) (a), any unencumbered balance at the close of a fiscal year ex ceeding 10% of the previous fiscal year's expenditures under this appropriation shall lapse to the general fund.

AB923, s. 2 Section 2. 20.865 (1) (a) of the statutes is amended to read:

AB923,6,2 20.865 (1) (a) Judgments and legal expenses. A sum sufficient to pay for legal expenses under ss. s. 59.31 and 776.43, for costs under ss. 227.485 and 814.245 and for the costs of judgments, orders and settlements of actions, appeals and complaints under subch. II of ch. 111 or subch. II or III of ch. 230, and those judgments, awards, orders and settlements under ss. 21.13, 165.25 (6), 775.04 and 895.46 that are not otherwise reimbursable as liability costs under par. (fm). Release of moneys under this paragraph pursuant to any settlement agreement, whether or not incorporated into an order, is subject to approval of the attorney general.

AB923, s. 3 Section 3. 20.865 (1) (g) of the statutes is amended to read:

AB923,6,12 20.865 (1) (g) Judgments and legal expenses; program revenues. From the ap propriate program revenue and program revenue-service accounts, a sum sufficient to pay for legal expenses under ss. s. 59.31 and 776.43, for costs under ss. 227.485 and 814.245 and for the cost of judgments, orders and settlements of actions, appeals and complaints under subch. II of ch. 111 or subch. II or III of ch. 230, and those judg ments, awards, orders and settlements under ss. 21.13, 165.25 (6), 775.04 and 895.46 that are not otherwise reimbursable as liability costs under par. (fm). Release of mo neys under this paragraph pursuant to any settlement agreement, whether or not incorporated into an order, is subject to approval of the attorney general.

AB923, s. 4 Section 4. 20.865 (1) (q) of the statutes is amended to read:

AB923,6,22 20.865 (1) (q) Judgments and legal expenses; segregated revenues. From the appropriate segregated funds, a sum sufficient to pay for legal expenses under ss. s. 59.31 and 776.43, for costs under ss. 227.485 and 814.245 and for the cost of judg ments, orders and settlements of actions, appeals and complaints under subch. II of ch. 111 or subch. II or III of ch. 230, and those judgments, awards, orders and settle ments under ss. 21.13, 165.25 (6), 775.04 and 895.46 that are not otherwise reim bursable as liability costs under par. (fm). Release of moneys under this paragraph pursuant to any settlement agreement, whether or not incorporated into an order, is subject to approval of the attorney general.

AB923, s. 5 Section 5. 71.07 (7) (b) of the statutes is amended to read:

AB923,7,12 71.07 (7) (b) If a resident individual, estate or trust pays a net income tax to another state, that resident individual, estate or trust may credit the net tax paid to that other state on that income against the net income tax otherwise payable to the state on income of the same year. The credit may not be allowed unless the income taxed by the other state is also considered income for Wisconsin tax purposes. The credit may not be allowed unless claimed within the time provided in s. 71.75 (2), but s. 71.75 (4) does not apply to those credits. For purposes of this paragraph, amounts declared and paid pursuant to the income tax law of another state shall be deemed a net income tax paid to that other state only in the year in which the income tax re turn for that state was required to be filed. Income and franchise taxes paid to anoth er state by a tax-option corporation or limited liability company may be claimed as a credit under this paragraph by that corporation's shareholders or that limited li ability company's members who are residents of this state and who otherwise qualify under this paragraph.

AB923, s. 6 Section 6. 77.25 (15w) of the statutes is created to read:

AB923,7,18 77.25 (15w) Between a partnership and a limited liability company if all of the members of the limited liability company are partners of the partnership and all of the partners of the partnership are members of the limited liability company and if the transfer is for no consideration other than the assumption of debt or an interest in the limited liability company or the partnership.

AB923, s. 7 Section 7. 93.06 (4) of the statutes is amended to read:

AB923,7,23 93.06 (4) Law enforcement. At the request of the attorney general or of any district attorney, assist in the enforcement of any of the following statutes relating to trade: ss. 133.03 to 133.07, 133.10, 133.12 to 133.15, 133.17, 134.01, 185.94, 776.32, 776.36, 784.04 and 939.31.

AB923, s. 8 Section 8. 133.12 of the statutes is amended to read:

AB923,8,12 133.12 Domestic and foreign corporations and limited liability compa nies; cancellation of charters or certificates of authority for restraining trade; affidavit. Any corporation or limited liability company organized under the laws of this state or foreign corporation or foreign limited liability company autho rized to transact business in this state pursuant to a certificate of authority from the secretary of state which violates any provision of this chapter, may, upon proof there of, in any circuit court have its charter or authority to transact business in this state suspended, canceled or annulled. Every corporation or limited liability company shall, in its annual report filed with the secretary of state, show whether it has en tered into any contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce. The department of justice shall enforce this sec tion.