BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 653
Senator Correa
As Amended April 21, 2009
Hearing Date: April 28, 2009
Corporations Code
GMO:jd
SUBJECT
Tribal Business Entities: Limited Liability Companies
DESCRIPTION
This bill would enable limited liability companies organized and
operating under tribal law, to qualify to do intrastate business
by registering as a foreign limited liability company with the
Secretary of State.
BACKGROUND
California law allows business entities such as corporations,
limited liability companies (LLCs), limited liability
partnerships (LLPs), and limited partnerships that are organized
under the law of another state, to qualify to do intrastate
business by providing relevant information and registering first
with the Secretary of State. California law also allows these
corporations, LLPs, and limited partnerships, when organized
under the law of a "foreign jurisdiction" (meaning a
jurisdiction outside of the United States) to qualify to do
intrastate business in the same manner. The Corporations Code
treats any business entity that is organized under the law of a
jurisdiction other than the state of California, as a "foreign
corporation," a "foreign LLC," a "foreign LLP," or a "foreign
limited partnership." (Corp. Code Secs. 2100 et seq., 15909.1 et
seq., 16900 et seq., 17001, et seq.)
Indian tribes are treated as sovereign nations under federal
law, and state jurisdiction over civil and criminal matters
involving tribal members or organizations is limited absent
congressional authorization. (Cherokee Nation v. Georgia (1831)
30 U.S. (5 Pet.), United States v. Wheeler (1978) 435 U.S. 313,
(more)
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323-24.) A further discussion of sovereign immunity and the
tribes' economic activities may be found in Comment 2.
CHANGES TO EXISTING LAW
Existing law provides that, to transact business within the
state, a foreign corporation, foreign limited partnership,
foreign limited liability partnership, or foreign limited
liability company first register the business entity with the
Secretary of State and provide necessary information, such as
the entity's agent for service of process within the state.
(Corp. Code Secs. 2100 et seq., 15909.1 et seq., 16900 et seq.,
17001, et seq.)
Existing law defines a foreign corporation, foreign limited
partnership, and foreign limited liability partnership as an
entity organized under the law of a jurisdiction other than this
state. (Corp. Code Secs. 2100 et seq., 15909.1 et seq., 16900 et
seq., 17001 et seq.)
Existing law defines a foreign limited liability company as an
entity formed under the limited liability company laws of any
state other than this state or an entity organized under the
laws of any foreign country, as defined. (Corp. Code Sec. 17001
et eq.) No reference is made to a jurisdiction that is not a
state but that is within the territory of the United States in
these provisions.
This bill would replace the word "state" with "jurisdiction" in
the definition of "foreign limited liability company" and
related provisions, in order to allow a limited liability
company formed under tribal law to be treated as a limited
liability company organized under a state of the United States
other than California.
COMMENT
1. Need for the bill
According to the author, this bill is necessary in order for
limited liability companies formed under Indian tribal law to be
qualified to transact intrastate business in California.
2. Indian law: sovereign powers, sovereign immunity
Although Indian tribes are recognized to have inherent sovereign
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powers, over the years these sovereign powers have been slowly
divested through treaties, Congressional acts, executive orders,
court decisions, and the Indian tribes' own waivers. Thus,
while an Indian tribe has absolute authority to regulate conduct
of its members on the reservation, it has no authority over
non-Indians, with two exceptions: where necessary to protect
tribal self-government or to control internal relations.
(Montana v. United States (1981) 450 U.S. 544.) Indeed, there
is a recent trend, unpopular with the tribes, emerging from U.S.
Supreme Court decisions to treat Indian tribes more and more as
"associations" of a social nature rather than as sovereign
nations or even "domestic dependent nations" as first described
by Chief Justice John Marshall in 1831 (Cherokee Nation v.
Georgia (1831) 30 U.S. (5 Pet.) 1.)
Similarly, the sovereign immunity enjoyed by Indian tribes has
been explicitly abrogated in several areas by federal acts (as
in the Indian gaming and financing statutes). In general
though, unless a tribe has expressly waived its sovereign
immunity, it will be immune to a lawsuit in federal or state
court. Correspondingly, in tribal court, the tribe may claim
that it has not consented to a lawsuit or that its
administrative remedies had not been exhausted, as a state may
claim in state court.
Where a tribe engages in commercial activities, however, the
courts of late have been less solicitous of this sovereign
immunity. (Cf. Kiowa Tribes of Oklahoma v. Manufacturing
Technologies, Inc. (1998) 523 U.S. 751, where the court stated
that it may be time to abrogate or modify this sovereign
immunity granted to Indian tribes because they now engage in
many economic activities that contribute to the national
commerce. "Tribal enterprises now include ski resorts, gambling,
and sales of cigarettes to non-Indians (citations omitted).
...In this economic context, immunity can harm those who are
unaware that they are dealing with a tribe, who do not know of
tribal immunity, or who have no choice in the matter, as in the
case of tort victims.")
3. Beverly-Killea LLC Act to permit qualification of an LLC
formed in a jurisdiction other than this state
By choosing to qualify in this state as a business entity
transacting intrastate business, a foreign corporation,
partnership, limited partnership, limited liability partnership,
or a limited liability limited partnership essentially subjects
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itself to the state's laws governing these business entities.
Thus, a tribe that qualifies to do business in the state in the
form of a corporation, partnership, or limited partnership
organized under tribal law is subject to state regulations
governing the particular business entity, and, under Kiowa
Tribes, may be deemed to have waived its claim of sovereign
immunity in the event of litigation involving liability for acts
and omissions of the business entity.
Under SB 653, a limited liability company organized under tribal
law would be able to qualify to do business within the state,
just as a limited liability company organized under the
Beverly-Killea Limited Liability Company Act does. And, as in
the case of corporations and limited partnerships organized
under tribal law, a qualified tribal limited liability company
will be deemed to have waived its sovereign immunity in so far
as its business that is transacted within the state.
4. Suggested amendments
a. Limitation to federally-recognized tribes
SB 653 would include LLCs organized under tribal law in the
definition of a "foreign limited liability company" in
California by changing the reference to LLCs formed in another
"state" to another "jurisdiction," which could then include
Indian tribes, as well as other states, and foreign countries.
However, most cross-references in federal and state laws
involving Indian tribes refer to "federally-recognized Indian
tribes," to distinguish them from other Indian tribes that may
not yet have met the standards that would trigger recognition of
certain rights and privileges accorded recognized tribes. In
order for a business entity to be qualified as an LLC, it should
exist in a form similar to an LLC formed in other states or this
state. Therefore, the tribal law under which an LLC is formed
and then accorded recognition in the state for the purposes of
doing business should exact the same or similar standards as the
state or other states. One way to assure this, for purposes of
Corporations Code provisions on limited liability companies, is
to require that the LLC be one formed under the law of a
"federally-recognized Indian tribe."
SHOULD QUALIFICATION AS A FOREIGN LIMITED LIABILITY COMPANY BE
LIMITED TO THOSE ORGANIZED UNDER THE LAWS OF A
FEDERALLY-RECOGNIZED INDIAN TRIBE?
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b. Conforming Amendments
In addition, there are other code sections that should be
amended in order to accommodate the qualification by the
Secretary of State of LLCs formed under tribal law, such as:
(1) Revenue and Taxation Code Section 17941, subdivision
(d), should be amended to read:
(d) For purposes of this section, "limited liability company"
means an organization, other than a limited liability company
that is exempt from the tax and fees imposed under this
chapter pursuant to Section 23701h or Section 23701x, that is
formed by one or more persons under the law of this state, any
other country, or any other state jurisdiction, as a "limited
liability company" and that is not taxable as a corporation
for California tax purposes.
(2) Corporations Code Section 17450 should be amended to
read:
17450. Subject to the provisions of Section 17453:
(a) The laws of the state , jurisdiction other than a state, or
foreign country under which a foreign limited liability
company is organized shall govern its organization and
internal affairs and the liability and authority of its
managers and members.
(b) ...
Support : None Known
Opposition : None Known
HISTORY
Source : Santa Ynez Band of Chumash Indians
Related Pending Legislation : None Known
Prior Legislation : None Known
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