HB19.DOC

SECTION 1. Chapter 428, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§428- Low-profit limited liability company. (a) A low-profit limited liability company shall at all times significantly further the accomplishment of one or more charitable or educational purposes within the meaning of section 170(c)(2)(B) of the Internal Revenue Code of 1986, title 26 United States Code section 170(c)(2)(B), or its successor provision, and would not have been formed but for the relationship to the accomplishment of such charitable or educational purposes.

(b) A limited liability company that intends to qualify as a low-profit limited liability company pursuant to this section shall so indicate in its articles of organization and shall further state that:

(1) No significant purpose of the company is the production of income or the appreciation of property; provided that the fact that the company actually produces significant income or capital appreciation shall not, in the absence of other factors, be conclusive evidence of a significant purpose involving the production of income or the appreciation of property; and

(2) No purpose of the company is to accomplish one or more political or legislative purposes within the meaning of section 170(c)(2)(D) of the Internal Revenue Code of 1986, title 26 United States Code section 170(c)(2)(D), or its successor provision.

(c) A company that no longer satisfies the requirements of this section shall continue to exist as a limited liability company and shall promptly amend its articles of organization so that its name and purpose no longer identify it as a low-profit limited liability company or L3C.

(d) Any company operating or holding itself out as a low-profit limited liability company in this State, any company formed as a low-profit limited liability company pursuant to this section, and any chief operating officer, director, or manager of any such company shall be a fiduciary subject to chapter 556, the uniform fiduciaries act.

(e) Nothing in this section shall prevent a limited liability company that is not organized as a low-profit limited liability company from electing a charitable or educational purpose in whole or in part for doing business under this chapter."

SECTION 2. Section 428-101, Hawaii Revised Statutes, is amended by adding a new definition to be appropriately inserted and to read as follows:

""Low-profit limited liability company" or "L3C" means a for-profit limited liability company that satisfies the requirements of section 428- and does not have as a significant purpose the production of income or the appreciation of property."

SECTION 3. Section 428-103, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) The operating agreement may not:

(1) Unreasonably restrict a right to information or access to records under section 428-408;

(2) Eliminate the duty of loyalty under section 428-409(b) or 428-603(b)(3), but the agreement may:

(A) Identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable; and

(B) Specify the number or percentage of members or disinterested managers that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty;

(3) Unreasonably reduce the duty of care under section 428-409(c) or 428-603(b)(3);

(4) Eliminate the obligation of good faith and fair dealing under section 428-409(d), but the operating agreement may determine the standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable;

(5) Vary the right to expel a member in an event specified in section 428-601(5);

(6) Vary the requirement to wind up the limited liability company's business in a case specified in section 428-801(3) or 428-801(4); [or]

(7) Restrict rights of third parties under this chapter, other than managers, members, or their transferees[.]; or

(8) Eliminate or reduce the obligations or purposes undertaken by a low-profit limited liability company organized pursuant to section 428- ."

SECTION 4. Section 428-105, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The name of a [~~limited~~]:

(1) Limited liability company must contain "limited liability company" or the abbreviation "L.L.C." or "LLC"[.]; and

(2) Low-profit limited liability company must contain "low-profit limited liability company" or the abbreviation "L3C".

"Limited" may be abbreviated as "Ltd.", and "company" may be abbreviated as "Co.". The letters in the name of a limited liability company, other than the abbreviation "L3C", must be letters of the English alphabet."

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	19
TWENTY-NINTH LEGISLATURE, 2017
STATE OF HAWAII