SB657: Bill Text

As under current law, the provisions of this bill afford the partners in an LLP a certain level of immunity from liability, although the bill includes some modifications to current law relating to LLP liability. Under current law, all partners in a partnership are generally liable as follows: 1) jointly and severally for loss or injury caused to a person who is not a partner by any wrongful act or omission of a partner acting in the ordinary course of the partnership business or with partnership authority; and 2) jointly for all other debts and obligations of the partnership. However, a partner in an LLP is not personally liable for any debt, obligation, or liability of the LLP, except that the partner may be liable for the partner's own actions or the actions of a person under the partner's supervision and control and for debts, obligations, and liabilities resulting from the partner's acts or conduct other than as a partner.

Under this bill, a partnership is liable for loss or injury caused to a person as a result of a wrongful act or omission of a partner acting in the ordinary course of the partnership's business or with the actual or apparent authority of the partnership. In a partnership that is not an LLP, all partners are generally liable jointly and severally for all debts, obligations, and other liabilities of the partnership. However, subject to an exception, in an LLP, a debt, obligation, or other liability of the LLP is solely the debt, obligation, or other liability of the LLP, not of the partners, and a partner is not personally liable for the debt, obligation, or other liability of the LLP solely by reason of being a partner. Under the exception, an LLP can make an election that this provision (under which a debt, obligation, or other liability of the LLP is solely that of the LLP and a partner is not personally liable) does not affect the liability of a partner in an LLP for the partner's own negligence or wrongful acts or for the negligence or wrongful acts of a person under the partner's supervision and control. The bill also specifies that an LLP's failure to observe formalities relating to the exercise of its powers or management of its business is not a ground for imposing liability on a partner for a debt, obligation, or other liability of the LLP.

The bill includes restrictions on an LLP in making distributions to partners, or to transferees of partners, under certain circumstances. An LLP may not make a distribution if, after the distribution, the LLP would not be able to pay its debts as they become due in the ordinary course of business or the LLP's assets would be less than its liabilities. If a partner of an LLP consents to a distribution that violates these restrictions and, in consenting to the distribution, fails to comply with the partner's duties of loyalty and care (as described above), the partner is personally liable to the partnership for the amount of the distribution that exceeds the amount that could have been distributed without the violation.

Mergers, conversions, and other business combinations

This bill specifies procedures for domestic or foreign partnerships, including LLPs, to engage in business-structure transactions in the form of mergers, conversions, interest exchanges, and domestications. In an interest exchange, a domestic partnership acquires interests of another domestic or foreign business entity, or has its own interests acquired by another domestic or foreign business entity. In a domestication, an entity governed by the law of a foreign country (a non-US entity) may domesticate as a domestic partnership under Wisconsin law while continuing to be subject to the foreign country's law and a domestic partnership may domesticate as a non-US entity subject to a foreign country's law while continuing to be a domestic partnership. The bill allows mergers, conversions, interest exchanges, and domestications to involve a diverse array of business entities, including business corporations, nonprofit corporations, limited liability companies, limited partnerships, LLPs, cooperative associations, and unincorporated nonprofit associations. Certain requirements apply to these business-structure transactions, including approval of a plan of merger, conversion, interest exchange, or domestication and filing with DFI articles of merger, conversion, interest exchange, or domestication, although the terms of the partnership agreement generally govern mergers, conversions, interest exchanges, and domestications. When the merger, conversion, interest exchange, or domestication becomes effective, certain results occur automatically, as a matter of law, with respect to such matters as assets, obligations, continued existence, and organizational documents of the parties involved in the transaction.

The bill also repeals a tax reporting requirement under current law that applies to corporations, LLCs, and limited partnerships. Under current law, if an acquired business entity in a merger or the converted business entity in a conversion owned a fee simple ownership interest in any Wisconsin real estate immediately prior to the merger or conversion, the surviving business entity must submit a report to the Department of Revenue within 60 days of the merger or conversion containing specified information relating to the merger or conversion and the Wisconsin real estate.

This bill eliminates this reporting requirement.

Partnership records and information

Under current law, subject to the provisions of the partnership agreement, partnership books must be kept at the principal place of business of the partnership and, at all times, each partner must have access to them and may inspect and copy them. Partners must also render, on demand, to any other partner true and full information of all things affecting the partnership.

This bill provides for a partnership to keep its books and records at its principal office. On reasonable notice, a partner may inspect and copy, during regular business hours and at a reasonable location specified by the partnership, any record maintained by the partnership regarding the partnership's business, financial condition, and other circumstances, to the extent the information is material to the partner's rights and duties under the partnership agreement or the statutes. The bill specifies information that the partnership must furnish to each partner, without demand by the partner, as well as information that the partnership must furnish to a partner upon demand by the partner. The duty to furnish information also applies to each partner, not just to the partnership. The bill also specifies the rights to information of a person dissociated as a partner. The bill allows a partnership to impose reasonable restrictions and conditions on access to and use of information furnished by the partnership.

Other changes

This bill includes numerous other substantive and stylistic changes from current law. The bill eliminates existing provisions, and creates new provisions, as to when a person is considered to have notice or knowledge of a fact, and also specifies when a person is considered to have given another person notice of a fact. The bill also modifies certain terms used in connection with partnerships, such as changing the term "registration statement" for an LLP to "statement of qualification" and changing the term "articles of dissolution" to "statement of dissolution."

The bill also includes numerous modifications from, or additions to, the model language of RUPA, including provisions relating to DFI procedures and fees.

Phase-in

The changes in this bill apply to a partnership formed on or after January 1, 2018, and apply, on January 1, 2018, to a partnership formed before that date unless 1) the partnership elects to be governed earlier by the new provisions of the bill, or 2) the partnership elects to be governed by the existing law applicable before enactment of the bill. When the provisions of the bill become applicable to a partnership, provisions of prior law relating to liability and legal actions continue to apply to obligations incurred prior to enactment of the bill and any provision of a partnership agreement that was valid before enactment of the bill remains valid.

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:

SB657,1 Section 1. 13.69 (1) of the statutes is amended to read:

SB657,9,6 13.69 (1) Except as provided in sub. (2m), any principal violating ss. 13.61 to 13.68 or a rule of the board promulgated under those sections may be required to forfeit not more than $5,000. In the case of a partnership other than a foreign or domestic limited liability partnership, each of the partners is jointly and severally liable for any forfeiture imposed under this subsection.

SB657,2 Section 2. 70.21 (2) of the statutes is amended to read:

SB657,9,10 70.21 (2) The personal property of a limited liability partnership shall be assessed in the name of the partnership, and each partner shall be liable for the taxes levied thereon only to the extent permitted under s. 178.12 178.0306.

SB657,3 Section 3. 71.80 (21) of the statutes is amended to read:

SB657,9,16 71.80 (21) Business entity conversion. Notwithstanding any provision of ss. 178.1141 to 178.1145, 179.76, 180.1161, 181.1161, and 183.1207, the conversion of a business entity to another form of business entity under s. 178.1141, 179.76, 180.1161, 181.1161, or 183.1207 shall be treated for state tax purposes in the same manner as the conversion is treated for federal tax purposes.

SB657,4 Section 4. 71.80 (21m) of the statutes is created to read:

SB657,10,4 71.80 (21m) Business entity interest exchange. Notwithstanding any provision of ss. 178.1131 to 178.1135, an interest exchange under s. 178.1131 shall be treated for state tax purposes in the same manner as the interest exchange is treated for federal tax purposes.

SB657,5 Section 5. 71.80 (22) of the statutes is amended to read:

SB657,10,10 71.80 (22) Business entity merger. Notwithstanding any provision of ss. 178.1121 to 178.1125, 179.77, 180.1101, 180.1104, 181.1101, 181.1104, and 183.1201, the merger of a business entity with one or more business entities under s. 178.1121, 179.77, 180.1101, 180.1104, 181.1101, 181.1104, or 183.1201 shall be treated for state tax purposes in the same manner as the merger is treated for federal tax purposes.

SB657,6 Section 6. 71.80 (22m) of the statutes is created to read:

SB657,10,15 71.80 (22m) Business entity domestication. Notwithstanding any provision of ss. 178.1151 to 178.1155, a domestication under s. 178.1151 shall be treated for state tax purposes in the same manner as the domestication is treated for federal tax purposes.

SB657,7 Section 7. 73.03 (58) (a) and (b) of the statutes are amended to read:

SB657,10,21 73.03 (58) (a) Notwithstanding any provision of ss. 178.1141 to 178.1145, 179.76, 180.1161, 181.1161, and 183.1207, to treat, for state tax purposes, the conversion of a business entity to another form of business entity under s. 178.1141, 179.76, 180.1161, 181.1161, or 183.1207 in the same manner as the conversion is treated for federal tax purposes.

SB657,11,2 (b) Notwithstanding any provision of ss. 178.1121 to 178.1125, 179.77, 180.1101, 180.1104, 181.1101, 181.1104, and 183.1201, to treat, for state tax purposes, the merger of a business entity with one or more business entities under s. 178.1121, 179.77, 180.1101, 180.1104, 181.1101, 181.1104, or 183.1201 in the same manner as the merger is treated for federal tax purposes.

SB657,8 Section 8. 73.03 (58) (c) and (d) of the statutes are created to read:

SB657,11,6 73.03 (58) (c) Notwithstanding any provision of ss. 178.1131 to 178.1135, to treat, for state tax purposes, an interest exchange under s. 178.1131 in the same manner as the interest exchange is treated for federal tax purposes.

SB657,11,9 (d) Notwithstanding any provision of ss. 178.1151 to 178.1155, to treat, for state tax purposes, a domestication under s. 178.1151 in the same manner as the domestication is treated for federal tax purposes.

SB657,9 Section 9. 73.14 of the statutes is repealed.

SB657,10 Section 10. 77.21 (1e) of the statutes is amended to read:

SB657,11,15 77.21 (1e) "Mergers of corporations entities" means the merger or combination of 2 or more corporations, nonstock corporations, limited liability companies, or limited partnerships, or other entities, or any combination thereof, under a plan of merger or a plan of consolidation permitted by the laws that govern the entities.

SB657,11 Section 11. 77.25 (6) of the statutes is amended to read:

SB657,11,17 77.25 (6) Pursuant to mergers of corporations entities.

SB657,12 Section 12. 77.25 (6d) of the statutes is amended to read:

SB657,11,21 77.25 (6d) Pursuant to partnerships registering as limited liability partnerships filing or cancelling a statement of qualification under s. 178.40 178.0901 or a corresponding statement under the law of another jurisdiction.

SB657,13 Section 13. 77.25 (6m) of the statutes is amended to read:

SB657,12,2 77.25 (6m) Pursuant to the conversion of a business entity to another form of business entity under s. 178.1141, 179.76, 180.1161, 181.1161, or 183.1207, if, after the conversion, the ownership interests in the new entity are identical with the ownership interests in the original entity immediately preceding the conversion.

SB657,14 Section 14. 77.25 (6q) of the statutes is created to read:

SB657,12,4 77.25 (6q) Pursuant to an interest exchange under s. 178.1131.

SB657,15 Section 15. 77.25 (6t) of the statutes is created to read:

SB657,12,6 77.25 (6t) Pursuant to a domestication under s. 178.1151.

SB657,16 Section 16. 77.61 (15) of the statutes is amended to read:

SB657,12,12 77.61 (15) Notwithstanding any provision of ss. 178.1141 to 178.1145, 179.76, 180.1161, 181.1161, and 183.1207, a business entity that converts to another business entity under s. 178.1141, 179.76, 180.1161, 181.1161, or 183.1207 shall be subject to the provisions under this subchapter applicable to liquidations, reorganizations, and business entity formations.

SB657,17 Section 17. 108.02 (20r) of the statutes is amended to read:

SB657,12,15 108.02 (20r) Partnership. "Partnership" has the meaning given in s. 178.03 178.0102 (11).

SB657,18 Section 18. Chapter 178 of the statutes is repealed and recreated to read:

SB657,12,17 CHAPTER 178

SB657,12,18 UNIFORM PARTNERSHIP LAW

SB657,12,19 subchapter I

SB657,12,20 general provisions

SB657,12,22 178.0101 Short title. This chapter may be cited as the "Wisconsin Uniform Partnership Law."

SB657,12,23 178.0102 Definitions. In this chapter:

SB657,12,24 (1) "Business" includes every trade, occupation, and profession.

SB657,13,3 (2) "Contribution," except in the phrase "right of contribution," means property or a benefit described in s. 178.0403 which is provided by a person to a partnership to become a partner or in the person's capacity as a partner.

SB657,13,5 (3) "Debtor in bankruptcy" means a person that is the subject of any of the following:

SB657,13,7 (a) An order for relief under Title 11, USC, or a comparable order under a successor statute of general application.

SB657,13,9 (b) A comparable order under federal, state, or foreign law governing insolvency.

SB657,13,10 (3m) "Department" means the department of financial institutions.

SB657,13,13 (4) (a) Except as provided in par. (b), "distribution" means a transfer of money or other property from a partnership to a person on account of a transferable interest or in the person's capacity as a partner. The term includes all of the following:

SB657,13,14 1. A redemption or other purchase by a partnership of a transferable interest.

SB657,13,18 2. A transfer to a partner in return for the partner's relinquishment of any right to participate as a partner in the management or conduct of the partnership's business or have access to records or other information concerning the partnership's business.

SB657,13,23 (b) "Distribution" does not include amounts constituting reasonable compensation for present or past service, payments made in the ordinary course of business under a bona fide retirement plan or other bona fide benefits program, or other payments made to partners for good and valuable consideration other than in their capacity as partners.

SB657,13,25 (4c) "Domestic" means, with respect to an entity, an entity whose governing law is the law of this state.

SB657,14,2 (4j) "Electronic" means relating to technology having electronic, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

SB657,14,3 (4p) "Entity" means a person other than an individual.

SB657,14,5 (4t) "Foreign" means, with respect to an entity, an entity whose governing law is other than the law of this state.

SB657,14,8 (5) "Foreign limited liability partnership" means a foreign partnership whose partners have limited liability for the debts, obligations, or other liabilities of the foreign partnership under a provision similar to s. 178.0306 (3).

SB657,14,11 (6) "Foreign partnership" means an association that would be a partnership subject to this chapter but for the fact that its governing law is not the law of this state. The term includes a foreign limited liability partnership.

SB657,14,13 (6g) "General cooperative association" means, with respect to a Wisconsin cooperative, a cooperative organized under ch. 185.

SB657,14,18 (6m) "Governing law" means, with respect to an entity, the law of the jurisdiction that collectively governs its internal affairs and the liability of the persons associated with the entity for a debt, obligation, or other liability of the entity under s. 178.0104 or the corresponding applicable law with respect to entities other than domestic partnerships.

SB657,14,20 (7) "Jurisdiction," used to refer to a political entity, means the United States, a state, a foreign country, or a political subdivision of a foreign country.

SB657,14,22 (8m) "Limited cooperative association" means, with respect to a Wisconsin cooperative, a cooperative organized under ch. 193.

SB657,15,2 (9) "Limited liability partnership," except in the phrase "foreign limited liability partnership," or "domestic limited liability partnership" means a partnership that has filed a statement of qualification under s. 178.0901 and does not have a similar statement in effect in any other jurisdiction.

SB657,15,3 (10) "Partner" means a person that satisfies all of the following:

SB657,15,5 (a) The person has become a partner in a partnership under s. 178.0402 or was a partner in a partnership when the partnership became subject to this chapter.

SB657,15,6 (b) The person has not dissociated as a partner under s. 178.0601.

SB657,15,11 (11) "Partnership" or "domestic partnership" means an association of 2 or more persons, except to the extent provided in s. 178.0801 (6), to carry on as co-owners a business for profit whose governing law is the law of this state, and which is subject to this chapter, including an association that has become and is still subject to this chapter. The term includes a limited liability partnership.

SB657,15,16 (12) "Partnership agreement" means the agreement, whether or not referred to as a partnership agreement and whether oral, implied, in a record, or in any combination thereof, of all the partners of a partnership concerning the matters described in s. 178.0105 (1). The term includes the agreement as amended or restated.

SB657,15,19 (13) "Partnership at will" means a partnership in which the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking.

SB657,15,25 (14) "Person" means an individual, business corporation, nonprofit corporation, partnership, limited partnership, limited liability company, general cooperative association, limited cooperative association, unincorporated nonprofit association, statutory trust, business trust, common-law business trust, estate, trust, association, joint venture, public corporation, government or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.