April 23, 2015

Our Mini-Theme: The Uniform Business Organizations Code and Its Constituent Acts

Harry J. Haynsworth

Since the early 1990s, the Uniform Law Conference (ULC) has promulgated, or in several cases revised, eight unincorporated business entity acts: 

• Revised Uniform Partnership Act (1997)
• Revised Uniform Limited Partnership Act (2001)
• Revised Uniform Limited Liability Company Act (2006)
• Model Registered Agents Act (2006)
• Uniform Limited Cooperative Association Act (2007)
• Model Entity Transactions Act (2007)
• Revised Uniform Unincorporated Nonprofit Association Act (2008)
• Uniform Statutory Trust Entity Act (2009). 

In 2006, the ULC authorized a project to integrate all these eight acts into the Uniform Business Organization Code, using the same type of hub-and-spoke structure used in the Uniform Commercial Code. The project, known as the Harmonization of Business Entity Acts Project (Harmonization Project or "Hub”), involved four steps: (1) the creation of the Hub, which contains provisions such as definitions, filing requirements, etc., which appear in almost all of the eight statutes; (2) harmonizing and updating the eight acts, which also continue to exist as stand-alone acts; (3) making the stand-alone acts “Code-ready” by removing from each act most of the provisions contained in the Hub and all provisions contained in the Model Entity Transactions Act; and (4) compiling the Code, by converting the Code-ready harmonized acts into separate articles of the Code. 

The ULC originally approved the Hub, which is Article 1 of the Uniform Business Organizations Code (“the Code”), in 2011. The harmonization of the unincorporated entities acts phase of the Harmonization Project was completed and approved in 2013. The integration of the various Code-ready harmonized acts into the Code was completed in 2015. 

The Code, as well as all the stand-alone acts, are available on the ULC website: www.uniformlaws.org. There are two versions for each act, one with and one without the official comments. Some states that have enacted the uniform business entity acts include the comments in their code. Even if the comments are not included in the state code, they can provide useful background information and guidance to practitioners and judges. The ULC website for each act also contains other useful information, including a map showing which states have enacted an unincorporated entity act. 

Article 1 of the Code (the Hub) contains basic definitions and provisions concerning filing requirements, entity names, registered agents (based on the Model Registered Agents Act), foreign entities, and administrative dissolution. 

Article 2 is the Model Entity Transactions Act (2007) (last amended 2013) (META (2013)). It is a junction-box statute that governs intra-entity and inter-entity merger, interest exchange, conversion, and domestication transactions for all types of unincorporated as well as corporate entities. 

• Article 3 is the Uniform Partnership Act (1997) (last amended 2013) (UPA (2013)).
• Article 4 is the Uniform Limited Partnership Act (2001) (last amended 2013) (ULPA (2013)).
• Article 5 is the Uniform Limited Liability Company Act (2006) (last amended 2013) (ULLCA (2013)).
• Article 6 is the Uniform Limited Cooperative Association Act (2007) (last amended 2013) (ULCAA (2013)).
• Article 7 is the Uniform Unincorporated Nonprofit Association Act (2008) (last amended 2013) (UUNAA (2013)).
• Article 8 is the Uniform Statutory Trust Entity Act (2009) (last amended 2013) (USTEA (2013)). 

It is contemplated that in the future the ULC and the American Bar Association Business Law Section will approve the inclusion of the Model Business Corporation Act and the Model Nonprofit Corporation Act into the Code. Articles 9 and 10 of the Code are listed as “Reserved” for this purpose. 

The two corporate acts are promulgated by the American Bar Association Business Law Section. The Code has already benefitted by the ABA’s involvement with the drafting of the Hub, META, and MORAA. Because these acts cover corporate as well as unincorporated entities, their respective drafting projects were sponsored jointly by the ULC and the ABA. 

States can choose to enact the entire Code, or substantial portions of it (for example Articles 1 through 5 (Hub, META, UPA, ULPA, and ULLCA)), in a single bill, or enact the individual stand-alone harmonized entity acts. States may also choose to enact one or more of the stand-alone entity acts and then enact the Code. 

Enacting the Code is not difficult, particularly by a state that already has one or more of the major stand-alone entity acts, such as the ULLCA. The issues warranting specific review are basically the same in all the articles of the Code. Thus, one bar association or legislative study review committee can review all the articles of the Code that are included in the proposed act. This review process is much more efficient than having separate review committees for each act. 

Moreover, because the language in parallel provisions is the same in all the articles of the Code dealing with specific entities, it is a simple process to make sure that amendments to one provision are made in all the articles with similar provisions. Similarly, if a state has enacted the Code, an amendment can be made in the filing provisions or in the other provisions in Article 1 and it will no longer be necessary to make sure that the amendment is made in all the state’s other entity acts – a process that often does not occur, leading to unintended, inconsistent provisions in the state’s entity acts. 

The three articles in this mini-series discuss only a few of the issues that are covered in the Code and the stand-alone acts.

Garth Jacobson’s article describes some of the major issues and innovative features of the Hub (Article 1 of the Code) and META (2013) (Article 2 of the Code). 

Professor Kleinberger’s article deals with the critically important issue of how the UPA (2013), ULPA (2013), and ULLCA (2013) protect and enforce the agreement between the participants in a partnership and limited liability company. 

Professor Bishop’s article provides an overview of the provisions in the UPA (2013), ULPA (2013), and ULLCA (2013) concerning the rights of creditors of a partner in a partnership and a member of an LLC, a topic that has not received the attention it should have given recent statutory and case law developments, particularly in the bankruptcy courts. 

While there are no articles on ULLCA (2013), UUNAA (2013), or USTEA (2013), and these acts have not been as widely enacted as UPA (2013), ULPA (2013), and ULLCA (2013), these acts should not be overlooked in considering revisions of a state’s business entity acts. 

ULCAA (2013) is a “new generation” cooperative act that allows a cooperative to engage in any type of activity, whether or not for-profit, and authorizes non-patron investors to have management and voting rights. ULCAA (2013) does not replace more traditional limited activity agriculture and utility cooperative acts. Rather, it authorizes an additional alternative form of cooperative. 

Like ULCAA (2013), USTEA (2013) is an alternative act to the more traditional common law and statutory business trusts. Statutory entity trusts are widely used in Delaware and several other states for series organizations of mutual funds, and sophisticated securitization transactions. 

UUNAA (2013) provides entity status, vicarious liability protection, and basic default governance rights for unincorporated nonprofit associations. Under common law principles, UNAs are considered as aggregates rather than entities, and the members are jointly and severally liable for the debts, obligations, and other liabilities of the UNA. Every nonprofit organization that is not incorporated is a UNA. There are thousands of UNAs in every state. Examples include churches that cannot or have not incorporated, educational, scientific, and literary clubs and associations, trade associations, little league teams, and unincorporated community condominiums and homeowners associations. The existing statutory framework covering UNAs in most states is very fragmentary. Having a uniform act that provides basic protections and governance rights for the members of a UNA is an important development.

Additional Resources

For other materials on this topic, please refer to the following.

ABA Web Store

How Recent Harmonization Efforts Will Affect Your State’s Unincorporated Business Entity Statutes and Your Clients

Recording date: Thursday, November 20, 2014
ABA CLE – 1.5 Hours CLE 

Over the past 20 years, the Uniform Law Commission (ULC) has developed a broad range of unincorporated business entity acts. In 2013, the ULC completed a major project revising all of the unincorporated business entity acts, harmonizing the language in them, updating the official comments, and integrating the acts into a single statute known as the Uniform Business Organizations Code (UBOC). 

In this program, our esteemed panelists discuss the Uniform Law Commission's Harmonization Project and:

  • Explore the rationale for the project
  • Discuss the most significant changes made in the various unincorporated entity Acts
  • Review the content of the Uniform Business Organizations Code

Harry J. Haynsworth

Harry J. Haynsworth is Dean Emeritus of William Mitchell College of Law. He was Chair of the Harmonization of Business Entities Harmonization Project and is Chair of the ULC Enactment Committee for Unincorporated Entity Acts.