Spurred on by comments from those in the industry that the current laws affecting business organizations are “incomplete,” “disorganized,” and a “mess,” the District of Columbia is considering a comprehensive update to its business organizations laws. The current business organizations laws were enacted in piecemeal fashion between 1870 and 1962 without any regard for organization or consistency. The result is an out of date patchwork of laws and regulations that acts to deter business owners from establishing business in the District.
The new act, “District of Columbia Official Code Title 29 (Business Organizations) Enactment Act of 2009” (Bill 18-0500), consists of 12 chapters, ten of which are based uniform or model acts, that attempt to incorporate best practices in entity laws. Updated chapters include: Chapter 1 (General Provisions); Chapter 2 (Entity Transactions); Chapter 3 (Business Corporations); Chapter 4 (Nonprofit Corporations); Chapter 6 (General Partnerships); Chapter 7 (Limited Partnerships); Chapter 8 (Limited Liability Companies); Chapter 10 (Limited Cooperative Associations); Chapter 11 (Unincorporated Nonprofit Associations); and Chapter 12 (Statutory Trusts).
The new act proposes numerous improvements, including:
- Broader authorization and flexibility for all business entities to conduct mergers, conversions, interest exchanges, and domestications;
- Provisions covering such topics as implementing standards of conduct for directors and officers, more clearly describing the role and responsibilities of directors, the functions of officers, conflict of interest transactions by directors, and other corporate governance issues;
- Extensive changes to the laws affecting non-profit entities, specifically charitable corporations and religious nonprofit corporations, and indemnification, limitation of liability, voting, and directors;
- Elimination of liability for a limited partner for the partnership’s debts where a limited partner participates in the management and control of the limited partnership;
- Clear guidance on the extent to which a limited liability company’s operating agreement can modify certain fiduciary duties and authorize exoneration of members and managers from liability for damages arising from breach of certain duties;
- Statutory provisions for the formation of series limited liability companies and for the formation of business trusts; and
- Recognition of the Internet, e-mail and current technology.
Amendments to the new act are expected to be more easily undertaken, as the new act is based on uniform and model acts, which will be easy for the Council of the District of Columbia to keep up to date. This should enable the Council to maintain the code with minimal burden by adopting officially proposed amendments.
The bill is currently in committee hearings, with the next hearing scheduled on February 11, 2010.