Is AI personhood already possible under U.S. LLC laws? (Part Two: Uniform LLC Act)


This will, as it turns out, be a three-part series examining whether legal personhood is already possible under US laws governing limited liability companies (LLCs), which Shawn Bayern suggests provide an active path to personhood for autonomous systems.  Bayern relied primarily on two sources of law: New York’s LLC statute, and the Revised Uniform LLC Act (RULLCA).  Last week’s post explained why New York’s statute does not appear to provide a plausible path to AI personhood.  This week’s will take the same critical approach to RULLCA and, more importantly, the states that have adopted some variation of RULLCA.

The Revised Uniform LLC Act

RULLCA does not appear to rescue Bayern’s argument that a memberless, AI-directed LLC would be possible.  At the outset, it is important to remember that “uniform laws” like RULLCA are not actually laws.  Rather, they are blueprints for laws prepared by legal scholars and practitioners.  States can adopt, adapt, or ignore uniform laws.  The Uniform Law Commission’s (ULC’s) website includes a map showing the states that, according to the ULC, have adopted RULLCA.  According to the map, sixteen states have adopted the statute.

Bayern has implied that these RULLCA-adopting states did so without making any substantial changes, apparently assuming that the Uniform Laws website’s map represents states that adopted RULLCA without modification.  See Bayern (2014) at 1485 (citing the webpage with the Uniform Laws map).  That is not correct.  If you look at the actual enacted statutes from the states that have “adopted” RULLCA, each states made significant modifications, some of which will be examined in the next section.

In any event, if one examines RULLCA like a typical American court would examine an actual statute, it does not appear possible under RULLCA to create a memberless LLC run by an unsupervised AI.

LLCs must be run by members or managers that are “persons”

Like New York, RULLCA only allows “members” and “managers” to manage a LLC, RULLCA § 102(12) (defining a “member-managed” LLC as a LLC that “is not [] manager-managed”), and both members and managers must, by express definition, be “persons.”  Id. § 102(9) and (11).  A LLC without any members or managers would be unable to operate in compliance with RULLCA.

A LLC automatically dissolves after it becomes memberless

Second, and as Bayern recognizes, the longest a LLC can survive with zero members under RULLCA is 90 days.  RULLCA § 102(12).  Plenty can happen in 90 days, but my guess is that most courts faced with construing a statute like RULLCA would hold that the dissolution itself occurred at the time that the last member withdrew, construing the 90-day window as a period for cure rather than a period of active existence.  That is how New York structured the parallel provision in its LLC law, and how the 1996 version of RULLCA structured the predecessor to the current 90-day automatic dissolution rule.

Thus, despite Bayern’s assertion that “RULLCA clearly permits the creation of” a zero-member LLC for 90 days, I would be very surprised if a court actually adopted a reading of RULLCA (which, again, is not even an actual law) that recognized a memberless LLC as a “live” entity even during those 90 days, unless it was clear that there was an active plan to provide that LLC with a new member.

The rule requiring dissolution probably can’t be altered by an operating agreement

One could argue that the 90-day provision could be modified by a LLC’s operating agreement.  Indeed, while RULLCA’s list of things that “[a]n operating agreement may not do” does include some of the potential triggers for dissolution, it does not include § 701(c).  See RULLCA (2013) § 105(c).  One maxim of statutory construction is that when the legislature makes a list that includes some items but not others, the omission of items is presumed to be intentional.

But that logic cuts both ways in this case because RULLCA’s list of things that “the operating agreement governs” does include “relations among the members” and “the activities and affairs of the company,” but does not include anything like “the circumstances under which the LLC dissolves,” “when a LLC ceases to be a legal entity,” or “whether the LLC can be run by someone who is neither a member nor a manager.”  See id. § 105(a).  This latter omission seems to carry greater weight, given that RULLCA’s definition of “operating agreement” clearly indicates that the agreement must “concern[] the matters described in Section 105(a).”  Id. § 102(13).

And regardless, the omission of certain items from these sorts of lists is not necessarily apropos of anything.  As noted in the previous post, courts recognize that “some things ‘go without saying'” in legislation just as they do in everyday life, and legislatures thus legislate “against the backdrop of certain unexpressed presumptions.”  Bond v. United States, 134 S. Ct. 2077, 2088 (2014).  In my view, the idea that an artificial legal entity must have at least one owner, shareholder, member, etc, is sufficiently engrained that there is no real need to spell it out in every statute.  Particularly given the numerous provisions in RULLCA that clearly assume the existence of at least one member (see below), there really isn’t any pressing need to specify that an operating agreement cannot override the rule that a LLC must dissolve once it has no remaining members.

At best, the ability of an operating agreement to alter § 701(c) is ambiguous.  Faced with that ambiguity, a court would no doubt note that even in RULLCA’s hyper-flexible framework, numerous provisions clearly imply that a LLC will be run by members or managers, and/or have at least one member.  See, e.g., §§ 102(13) (defining “operating agreement,” in part, as “the agreement . . . of all the members of a limited liability company, including a sole member”); 105(a)(1) (the operating agreement governs “relations among the members as members and between the members and the LLC”); 108(a) (“A limited liability company is an entity distinct from its member or members.”). Consequently, I doubt a court would read RULLCA as permitting a memberless member-managed LLC.

A Sample of Actual Statutes in RULLCA States

As previously noted, RULLCA is not a law in and of itself.  It is instead a “model law” that states can adopt or adapt.  I’ve skimmed through the laws of a sampling of the 16 states that have adapted RULLCA in some form (as far as I can tell, no state has adopted RULLCA without making any substantive modifications).  I arbitrarily decided to include in my sample the RULLCA states in which I have practiced law (Pennsylvania and Washington), the three largest RULLCA states (California, Florida, Illinois), and South Dakota, which is a popular state for the formation of companies (ever notice how much of your Business Reply Mail from banks and credit card companies is addressed to South Dakota?).

Each of the seven states have the three features listed in my above analysis of RULLCA that lead me to believe that it’s unlikely a court would recognize a “memberless LLC” as a legal entity.  That is:

  • Rule 1: Each state requires a LLC to be member- or manager-managed, and requires both “members” and “managers” to be persons;
  • Rule 2: Each state has a provision that a LLC automatically dissolves 90 days (180 days in Pennsylvania) after the death or departure of its last member.  (Illinois and South Dakota are still operating under variations of the 1996 version of RULLCA, under which a LLC automatically dissolves upon the occurrence of any event that makes it impossible for the LLC to be operated lawfully–which would include having no members or managers–unless the illegality is cured within 90 days.); and
  • Rule 3: Each state’s LLC statute includes the RULLCA provisions defining and governing operating agreements that (in my opinion) make it unlikely that a court would permit an operating agreement to modify Rule 1 or Rule 2.

Also, like RULLCA, various other provisions in adopting states’ statutes necessarily assume or imply that a LLC must have at least one member.

I did not examine these states’ statutes with anything near the rigor with which I examined New York’s.  Instead, I skimmed the statutes looking for provisions that directly or indirectly make a LLC’s existence and/or operation contingent on the presence of “persons,” generally in the form of members or managers.

California and Pennsylvania’s laws do not appear to have any additional provisions beyond three rules listed above that jump out at me as precluding the existence of memberless LLCs or providing an obvious trigger for dissolving a memberless LLC.  But the other four states do have additional provisions that would make a memberless LLC an even more questionable proposition than it is under RULLCA itself.

Florida

In Florida, a LLC must file an annual report with the Department of State that includes “[t]he name, title or capacity, and address of at least one person who has the authority to manage the company.”  Fla. Stat. Ann. § 605.0212(1)(e).  As everywhere, a Florida LLC can only be managed by members or managers, both of which must be persons.  Fla. Stat. Ann. § 605.0102(38)-(41).  Failure to file such a report effectively ends the LLC’s legal personhood, since such a LLC “may not maintain or defend any action in a court of this state until the report is filed and all fees and penalties due under this chapter are paid, and shall be subject to dissolution or cancellation of its certificate of authority to transact business.”  Id. § 605.0212(6).

(That, by the way, points to the key reason a memberless LLC could not keep operating in a practical sense.  The second a memberless LLC tried to sue someone to enforce a contract or obtain other legal relief, the opposing party could challenge the LLC’s capacity on the basis it was no longer a legal person.  More on this in Part Three.)

In addition, Florida gives its Department of State broad powers to “administer [the LLC act] efficiently” and “perform the duties imposed on it,” id. § 605.0214, and explicitly requires the Department of State to serve a notice of dissolution if it determines that grounds for dissolution exist.  Id. § 605.0714(3).

Florida also includes a provision that imposes the fiduciary duties of LLC managers on the “person winding up the limited liability company activities as the legal representative of the last surviving member . . . .”  Id. § 605.04091(9).  That strongly suggests that a LLC must wind up upon the loss of its last remaining member.  (This appears to be a vestige of the 1996 version of RULLCA; it was replaced in the 2006 revision by the current “90 days with no members” provision.)

Illinois

Similar to Florida, Illinois imposes fiduciary duties on the “legal representative of the last surviving member” and requires each LLC to file an annual report listing “[t]he names and addresses of its managers or, if none, the members.”  805 ILCS 180/50-1(a)(4).  Failure to file the report (or filing a false report) is grounds for dissolution.  805 ILCS 180/35-25(1) & (2.5).

Illinois’s automatic dissolution section also includes a provision stating that a LLC must wind up “upon the occurrence of . . . [a]n event that makes it unlawful for all or substantially all of the business of the company to be continued.”  805 ILCS 180/35-1(3).  A memberless member-managed LLC could not be managed in compliance with Illinois law, and thus the withdrawal of the last remaining member would trigger dissolution, although “any cure of illegality within 90 days after notice to the company of the event” can revive the LLC, and that revival would be “effective retroactively to the date of the event” that presumptively triggered dissolution.  Id.  Like the “legal representative of the last surviving member,” this is a vestige of RULLCA’s 1996 predecessor.

Also, the Illinois Secretary of State can serve any LLC with “such interrogatories as may be reasonably necessary and proper to enable the Secretary of State to ascertain whether the limited liability company has complied with all the provisions of this Act.”  Id. 180/5-60.  Failure to answer such interrogatories is further grounds for dissolution.  Id. 180/35-25(4).

South Dakota

Like Illinois, South Dakota includes the automatic dissolution provision that appeared in the 1996 predecessor to RULLCA.  See SDCL § 47-34A-801(c).  In addition (and similar to Florida), South Dakota requires that records filed with Secretary of State be signed by a member or manager. SDCL § 47-34A-205. One such record is an annual report that must be filed with the Secretary of State. Id. § 47-34A-211. Failure to file such a report is grounds for the Secretary of State to dissolve the LLC. Id. § 47-34A-809(1).

Washington

Washington’s statute defines a LLC as “a limited liability company having one or more members or transferees that is formed under this chapter.”  RCW 25.15.006(6) (emphasis added).  (A “transferee” is someone who has the right to receive distributions owed to a LLC member; like a member a transferee must be a “person.”) Washington’s statute does give managers and members of LLCs the ability to delegate their powers and duties–but only to other “persons.”  RCW 25.15.157.

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The final post, which will come in the next 2-3 weeks (there’s other stuff I want to write about in the near future as well), will examine a few other states’ LLC statutes to ascertain whether a “memberless LLC” directed by an AI system would be legally possible elsewhere.

It will also explain why all this matters and how the continued vitality of an AI-driven memberless LLC could be challenged in court.  (I obviously should have started by explaining those things, but I did not expect this series of posts to be dissertation-length.).

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