Indiana Business Entity Harmonization: Part IV

iStock-621263016-300x97[This started out to be a three-part series, but it now has five parts. The first three parts are here, here, and here.]

In writing the first three parts of this series, we ran across several issues that Senate Enrolled Act 443 either raised or left unresolved. This Part IV describes some minor flaws that are unlikely to be consequential but that, nonetheless, we hope the General Assembly will address, either in the 2018 session or another.

Relationship to ESIGN

I.C. § 23‑0.6‑6‑2 contains a curious provision:

[Article 0.6 of the Uniform Business Organization Transactions Act] modifies, limits, and supersedes the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7001, et seq., but does not modify, limit, or supersede Section 101(c) of that act, 15 U.S.C. 7001(c), or authorize electronic delivery of any of the notices described in Section 103(b) of that act, 15 U.S.C. 7003(b).

The federal statute described above, usually called ESIGN, has the general effect of rendering electronic records and electronic signatures valid for most purposes that paper records and manual signatures are valid, with certain exceptions, including those described in 15 U.S.C. §§ 7001(c) (relating to disclosures under consumer laws) and 7003(b) (relating to court orders, documents related to hazardous materials, and a few other specific documents), referenced above.

ESIGN permits state laws to supersede its provision (with certain exceptions) in two situations:  (1) the law constitutes an enactment of the Uniform Electronic Transactions Act (known as UETA) or (2) the law provides alternative procedures or requirements to substitute for the procedures set forth in ESIGN. I.C. § 23‑0.6‑6‑2 appears to be written to invoke the second method of superseding the provisions of ESIGN.

The curious part is that Indiana has already superseded ESIGN very broadly through the first method — by enacting its version of UETA at I.C. ch. 26‑2‑8. The provision is even more curious in that it applies only to Article 0.6, not to Article 0.5, which has far more requirements for records and signatures than Article 0.6.

The question arises, if there are differences between Article 0.6 and Indiana’s enactment of UETA, which controls? If one follows the usual rule that a specific statute controls over a conflicting general statute, UETA does not apply to Article 0.6, but it does control records and signatures under Article 0.5 — hardly a logical results. A better approach would be to provide that UETA controls records and signatures required or permitted under either Article 0.5 or Article 0.6.

“Company” or “Co.” in Assumed Business Names for LLCs, LPs, and LLPs

I.C. § 23‑0.5‑3‑4(f) retains the following language from previous versions of the statute:

A filing entity may not include an entity indicator, such as “Inc.”, “Corp.”, “LLC”, “LP”, or “LLP” or a similar description in an assumed business name filing, that is inconsistent with the entity type for which the assumed business name is being filed.

The obvious goal is to prevent an assumed business name from presenting a misleading impression that an entity has one form when it actually has another. An issue that predates the Business Entity Harmonization Bill is that “company” and “Co.,” both entity indicators for corporations, are historically common in the names of businesses that are not corporations. It seems unlikely that people would be misled into assuming the business is a corporation based solely on the word “company” or “Co.” in its name, as evidenced by the fact that the statute does not prohibit general partnerships or sole proprietorships from using an assumed business name with “Company” or “Co.” (or any other entity indicator, for that matter). I.C. § 23‑0.5‑3‑4(a)-(d)  In fact, the Secretary of State appears to recognize as much because the Secretary of State’s website lists many LLCs, LPs, and LLPs with assumed business names that include one of those words.

“LP” is Not an Approved Entity Indicator for Limited Partnerships

I.C. § 23‑0.5‑3‑2(b) retains the requirement that the name of a limited partnership must contain the words “limited partnership” or the abbreviation “L.P.” Even though LLC names and LLP names may include the abbreviation either with or without the periods, “LP” (without the periods) is not a permissible entity indicator for limited partnerships. Again, the Secretary of State has apparently recognized the statutory flaw by permitting LP names to include “LP” without the periods.

Nonprofit Corporation Names Omitted

In an apparent oversight, SEA 443 repeals the previous sections of the Nonprofit Corporation Act addressing naming requirements with no replacement provision in the section that addresses the names of other types of entities, I.C. § 23‑0.5‑3‑2.

Incorrect Citations to the Nonprofit Corporation Act

New Article 0.6 of Title 23 contains two citations obviously incorrect citations to I.C. ch. 23‑17‑9, one in I.C. § 23‑0.6‑1.5‑19 (the Article 0.6 definition of organic law) and one in I.C. § 23‑0.6‑2‑1(d) (excluding nonprofit corporations from the merger provisions of Article 0.6). At least the second citation, and likely both of them, should instead refer to I.C. ch. 23‑17‑19, dealing with mergers of nonprofit corporations.

 

Part V will address some more substantial issues related to SEA 443.

[Revised January 3, 2018 to include the paragraph on incorrect citations to the Nonprofit Corporation Act.]