CHAPTER 271 General Provisions Concerning Private Corporations [Repealed]

271.005. Definitions. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.010. Corporation — Who may establish — Laws applicable. [Repealed.]

Compiler’s Notes.

This section (538, 573) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.015. Application of chapter. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.020. Articles of incorporation — Contents. [Repealed.]

Compiler’s Notes.

This section (539) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.025. Who may form a corporation — Purposes of incorporation — Ownership of stock. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1954, ch. 33, § 1; amend. Acts 1968, ch. 100, § 5) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.030. Articles of incorporation — Filing — Fees — Statement of existence — Constitute evidence. [Repealed.]

Compiler’s Notes.

This section (540 and General Statutes, ch. 56, § 19) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.035. Articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.040. Signers of articles to direct affairs until election of directors. [Repealed.]

Compiler’s Notes.

This section (541) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.045. Corporate name. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.050. Corporation to accept Constitution. [Repealed.]

Compiler’s Notes.

This section (570) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.055. Filing and recording articles of incorporation — Issuing certificate of incorporation — Articles and statement of existence of foreign corporation — Copies of articles as evidence. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1958, ch. 51, § 1; amend. Acts 1964, ch. 149, § 1; amend. Acts 1966, ch. 153, § 1) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.060. Corporation — When considered organized — Powers. [Repealed.]

Compiler’s Notes.

This section (542) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.065. When corporate existence begins — Subscribers become shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.068. Retroactive validation of corporate existence — Continuation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1970, ch. 284, § 2, effective June 18, 1970) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.070. Failure to begin business in two years forfeits powers. [Repealed.]

Compiler’s Notes.

This section (565) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.072. Acceptance of constitutional provisions. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1970, ch. 284, § 3, effective June 18, 1970) was repealed by Acts 1972, ch. 284, § 3, effective July 1, 1972.

271.075. Subscriptions for shares before incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.080. Limitations on business and holding of land — Escheat procedure. [Repealed.]

Compiler’s Notes.

This section (567) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.085. Minimum amount of capital. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.090. Place of business and agent for process to be in state — Statements filed — Fees. [Repealed.]

Compiler’s Notes.

This section (571) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.095. Conditions precedent to beginning business — Liability in case of violation of section. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.100. Want of legal organization no defense. [Repealed.]

Compiler’s Notes.

This section (566) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.105. Validity and effect of certificate of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.110. Fifty percent of stock to be subscribed before business commenced — Collection of delinquent subscriptions. [Repealed.]

Compiler’s Notes.

This section (543) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.115. Effect of filing or recording papers required to be filed. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.120. Corporation not to hold its own capital stock — Exception. [Repealed.]

Compiler’s Notes.

This section (544) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.121. Restatement of articles of incorporation as amended — Acknowledgement — Recording — Effect. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1966, ch. 153, § 5) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.125. Corporate powers. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1952, ch. 94, § 1; amend. Acts 1964, ch. 149, § 2; amend. Acts 1970, ch. 263, § 1, effective June 18, 1970) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.130. Increase or reduction of capital stock. [Repealed.]

Compiler’s Notes.

This section (553, 564-1) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.135. Acquisition of own shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.140. Classes of stock. [Repealed.]

Compiler’s Notes.

This section (564-1) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.145. Limitations on business and holding of real estate — Escheat procedure. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1962, ch. 210, § 43) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.147. Facsimile signature and seal on debt securities. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1962, ch. 102, § 1; amend. Acts 1970, ch. 127, § 1, effective June 18, 1970) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.150. Stock without par value. [Repealed.]

Compiler’s Notes.

This section (564-2) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.155. Shares, classes and series of — Provisions for voting powers, special rights, restrictions, redemption, dividends, and priority on dissolution — Conversion or exchange — Provisions concerning division of classes into series. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1952, ch. 99, § 1; amend. Acts 1970, ch. 263, § 2, effective June 18, 1970) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.160. Stock certificates — Issuance — Transfer of stock. [Repealed.]

Compiler’s Notes.

This section (545: amend. Acts 1942, ch. 32, §§ 1 and 2) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.165. Stock certificates — Issuance, contents — Share warrants. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1964, ch. 75, § 1; amend. Acts 1966, ch. 153, § 2) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.170. Corporation books. [Repealed.]

Compiler’s Notes.

This section (546) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.175. Consideration for shares — Amount, payment. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.180. Stockholders’ liability — Effect of transfer. [Repealed.]

Compiler’s Notes.

This section (547) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.185. Payment for shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.190. Enforcement of stockholders’ liability in certain companies. [Repealed.]

Compiler’s Notes.

This section (547a) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.195. Valuation of consideration for shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.200. Fiduciary and pledgor may vote stock — Cumulative voting. [Repealed.]

Compiler’s Notes.

This section (552) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.205. Validity of shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.210. Officer or director issuing false statement — Liability for. [Repealed.]

Compiler’s Notes.

This section (549) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.215. Liability of incorporators, subscribers, shareholders, directors and officers. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.220. Directors of insolvent corporation declaring dividends — Liability for. [Repealed.]

Compiler’s Notes.

This section (548) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.225. Transfer of shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1962, ch. 210, § 44) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.230. Corporate directors — Qualifications — Quorum. [Repealed.]

Compiler’s Notes.

This section (551) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.235. Corporation’s lien on shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.240. Election of directors — Term — Vacancies. [Repealed.]

Compiler’s Notes.

This section (551) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.245. Indemnification of officers and directors against liabilities, costs and expenses in connection with litigation in official capacity. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1942, ch. 40, §§ 1 and 2) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.250. Consolidation of corporations — Agreement — Notice to stockholders — Consent. [Repealed.]

Compiler’s Notes.

This section (555: amend. Acts 1944, ch. 173, § 16) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.255. Paid-in surplus. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1970, ch. 263, § 9, effective June 18, 1970.

271.258. Capital, earned surplus, paid-in surplus — Handling of surplus following merger. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1970, ch. 263, § 3, effective June 18, 1970) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.260. Rights and duties taken over upon consolidation — Actions pending. [Repealed.]

Compiler’s Notes.

This section (556, 557) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.265. Dividends, authority to pay. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.270. Stockholder objecting to consolidation to be paid for his stock. [Repealed.]

Compiler’s Notes.

This section (558) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.275. Liability of directors and shareholders for dividends unlawfully paid or corporate assets otherwise unlawfully returned. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.280. Change or amendment of articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (559) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.285. Bylaws. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.290. Rights not impaired by sale or consolidation, or amendment of articles. [Repealed.]

Compiler’s Notes.

This section (560) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.295. Shareholders’ meetings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.300. Dissolution of corporation — Withdrawal from state — Procedure. [Repealed.]

Compiler’s Notes.

This section (561: amend. Acts 1944, ch. 173, § 17) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.310. Revocation of corporate powers — Causes for. [Repealed.]

Compiler’s Notes.

This section (569) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.315. Voting rights. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1966, ch. 153, § 3) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.320. Sale of corporate franchise and property. [Repealed.]

Compiler’s Notes.

This section (883b-1, 883b-3: amend. Acts 1944, ch. 173. § 18) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.325. Voting trusts. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1962, ch. 210, § 45) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.330. Corporations may purchase assets of other corporations. [Repealed.]

Compiler’s Notes.

This section (883b-2) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.335. Quorum. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.340. Organization of purchaser corporation. [Repealed.]

Compiler’s Notes.

This section (562) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.345. Directors, election, meetings, powers — Action without meeting. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1964, ch. 149, § 3; amend. Acts 1966, ch. 153, § 4) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.350. Sale of corporate property and franchise under court decree. [Repealed.]

Compiler’s Notes.

This section (563) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.355. Officers and agents. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1964, ch. 149, § 4) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.360. Receiver for corporation appointed upon insolvency or violation of law. [Repealed.]

Compiler’s Notes.

This section (616) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.365. Relation of directors and officers to corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.370. Appointment of receiver upon request of creditor or stockholder. [Repealed.]

Compiler’s Notes.

This section (576a-3, 576a-5, 576a-6) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.375. Indemnification of directors, officers against loss due to action taken in official capacity. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1970, ch. 263, § 4, effective June 18, 1970) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.380. Receiver — Powers — Duties — Jurisdiction of court. [Repealed.]

Compiler’s Notes.

This section (576a-4) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.385. Registered office and process agent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1958, ch. 51, § 2; amend. Acts 1970, ch. 284, § 1, effective June 18, 1970) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.390. Name to be on place of business — “Incorporated” to be on advertising. [Repealed.]

Compiler’s Notes.

This section (576) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.395. Corporate books and records — Share register — Right of shareholders to inspect books. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.400. Rights not to be exercised until required bond is executed. [Repealed.]

Compiler’s Notes.

This section (1873) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.405. Written consent of shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.410. Charters and grants since 1856 may be repealed. [Repealed.]

Compiler’s Notes.

This section (1987) was repealed by Acts 1946, ch. 141, § 1, effective July 1, 1946.

271.415. Voluntary transfer of corporate assets. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1948, ch. 206, § 1; amend. Acts 1952, ch. 84, § 59, effective July 1, 1953) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.420. Right of burial association or corporation to condemn land for cemetery — Procedure. [Renumbered KRS 416.210.]

Compiler’s Notes.

This section (199a-8, 199a-9), was recompiled as KRS 416.210 by Acts 1946, ch. 141, § 3.

271.425. Power to purchase assets of other corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.430. Board of incorporated cemetery to make annual report. [Renumbered as KRS 273.150.]

Compiler’s Notes.

This section (202, 208a) was recompiled as KRS 273.150 by Acts 1946, ch. 141, § 4.

271.435. Organization of purchaser corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.440. Sale of corporate assets under court decree. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.445. Amendment of articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1948, ch. 206, § 2; amend. Acts 1952, ch. 26, § 1, effective June 19, 1952) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.450. Articles of amendment — Contents — Subscription — Recording. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.455. Provisions relating to certain amendments. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.460. Reduction of capital. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1948, ch. 206, § 3) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.461. Limited application of KRS 271.445, 271.455, and 271.460. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 206, § 4) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.465. Merger and consolidation authorized. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1970, ch. 263, § 5, effective June 18, 1970) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.468. Merger or consolidation of domestic and foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1970, ch. 263, § 6, effective June 18, 1970) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.470. Merger or consolidation, joint agreement for. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1970, ch. 263, § 7, effective June 18, 1970) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.475. Consolidation, articles of incorporation for. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.480. When merger or consolidation effective. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1970, ch. 263, § 8, effective June 18, 1970) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.485. Effect of merger or consolidation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.490. Rights of dissenting shareholders on merger or consolidation — Inapplicable when — Abandonment of merger or consolidation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1948, ch. 206, § 5; amend. Acts 1966, ch. 222, § 1) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.495. Voluntary dissolution by incorporators. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.500. Election to dissolve by act of the corporation or by consent of the shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1948, ch. 206, § 7) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.505. Recording of statement of intent to dissolve. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.510. Effect of statement of intent to dissolve. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.515. Proceedings after recording of statement of intent to dissolve. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.520. Method of revoking voluntary dissolution proceedings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.525. Recording statement of revocation of voluntary dissolution proceedings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.530. Effect of statement of revocation of vountary dissolution proceedings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.535. Articles of dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.540. Filing articles of dissolution — Satisfaction of tax liabilities — Recording of articles, issuance of certificate of dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.545. Recording fees in connection with dissolution proceedings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.550. Venue of receivership suits — Parties. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.555. Procedure in receivership suits. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.560. Qualifications of receivers — Bond. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.565. Filing of claims in receivership suits. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.570. Decree of involuntary dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1; amend. Acts 1952, ch. 116, § 1, effective June 19, 1952) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.575. Filing and recording of decree of dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.580. Disposition of distributive portions due shareholders who are unknown or cannot be found. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.585. Survival of remedy after dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.590. Revocation of corporate powers. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.595. Requirements as to bond. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.600. Charters and grants since 1856 may be repealed. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.605. Secondary action by shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.610. Service of process on foreign corporation after withdrawal from state, or in case of unauthorized doing of business in state. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.615. Application of chapter to corporations in existence on June 30, 1946. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 1, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

271.990. Penalties. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1946, ch. 141, § 2, effective July 1, 1946) was repealed by Acts 1972, ch. 274, § 165, effective July 1, 1972.

CHAPTER 271A Private Corporations [Repealed]

Preliminary Provisions

271A.005. Title. [Renumbered as KRS 271B.1-010.]

Compiler’s Notes.

This section was renumbered and became KRS 271B.1-010 effective January 1, 1989.

271A.010. Definitions. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 2; amend. Acts 1986, ch. 202, § 1, effective March 28, 1986) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989

271A.015. Application and purposes. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 3) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.020. General powers. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 4) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.025. Indemnification of officers, directors, employees and agents. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 5) was repealed by Acts 1982, ch. 185, § 2, effective July 15, 1982. For present law, see KRS 271B.8-500 to 271B.8-580 .

271A.026. Indemnification of directors. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1982, ch. 185, § 1) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.030. Right of corporation to acquire and dispose of its own shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 6) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.035. Defense of ultra vires. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 7) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.040. Corporate name. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 8) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.045. Reserved name. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 9) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.050. Registered name. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 10) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.055. Renewal of registered name. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 11) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.060. Registered office and registered agent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 12) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.065. Change of registered office or registered agent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 235, § 1, and ch. 274, § 13; amend. Acts 1986, ch. 202, § 2, effective March 28, 1986) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.070. Service of process on corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 14; amend. Acts 1974, ch. 315, § 37; amend. Acts 1980, ch. 114, § 58, effective July 15, 1980) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.075. Authorized shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 15) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.080. Issuance of shares of preferred or special classes in series. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 16; amend. Acts 1978, ch. 384, § 431, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.085. Subscriptions for shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 17) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.090. Consideration for shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 18) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.095. Payment for shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 19) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.100. Stock rights and options. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 20) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.105. Determination of amount of stated capital. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 21) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.110. Expenses of organization, reorganization and financing. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 22) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.115. Certificates representing shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 23) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.120. Fractional shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 24) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.125. Liability of subscribers and shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 25) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.130. Shareholders’ preemptive rights. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 26) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.135. By-laws and other powers in emergency. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 27) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.140. Meetings of shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 28) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.145. Notice of shareholders’ meetings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 29) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.150. Closing of transfer books and fixing record date. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 30) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.155. Voting record. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 31) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.160. Quorum of shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 32) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.165. Voting of shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 33; amend. Acts 1982, ch. 141, § 81, effective July 1, 1982) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.170. Voting trusts and agreements among shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 34) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.175. Board of directors. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 35) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.180. Number and election of directors. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 36) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.185. Classification of directors. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 37) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.190. Vacancies. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 38) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.195. Removal of directors. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 39) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.200. Quorum of directors. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 40) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.202. General standards for directors. [Renumbered as KRS 271B.8-300.]

Compiler’s Notes.

This section was renumbered as KRS 271B.8-300 , effective January 1, 1989.

271A.205. Director conflicts of interest. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 41) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989, and ch. 224, § 26, effective July 15, 1988. For present law, see KRS 271B.8-310 .

271A.206. Director conflict of interest. [Renumbered as KRS 271B.8-310.]

Compiler’s Notes.

This section was renumbered as KRS 271B.8-310 , effective January 1, 1989.

271A.210. Executive and other committees. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 42) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.215. Directors’ meetings — Conduct of meetings via telephone or similar communications equipment. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 43; amend. Acts 1982, ch. 155, § 1, effective July 15, 1982) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.220. Action by directors without a meeting. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 44) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.225. Dividends. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 45) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.230. Distributions from capital surplus. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 46) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.235. Loans to employes and directors. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 47) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.240. Liability of directors in certain cases. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 48; amend. Acts 1974, ch. 315, § 38; amend. Acts 1980, ch. 114, § 59; amend. Acts 1984, ch. 111, § 114, effective July 13, 1984) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.245. Provisions relating to actions by shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 49) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.250. Officers. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 50) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.255. Removal of officers. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 51) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.257. Standards of conduct for officers. [Renumbered as KRS 271B.8-420.]

Compiler’s Notes.

This section was renumbered as KRS 271B.8-420 , effective January 1, 1989.

271A.260. Books and records. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 52) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.265. Incorporators. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 53) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.270. Articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 54; amend. Acts 1976, ch. 27, § 5; amend. Acts 1986, ch. 202, § 3, effective March 28, 1986) was repealed by Acts 1988, ch. 224, § 26, effective July 15, 1988 and Acts 1988, ch. 23, § 248, effective January 1, 1989. For present law, see KRS 271B.2-010 to 271B.2-070 .

271A.271. Articles of incorporation. [Renumbered as KRS 271B.2-020.]

Compiler’s Notes.

This section was renumbered as KRS 271B.2-020 , effective January 1, 1989.

271A.275. Filing of articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 55; amend. Acts 1978, ch. 384, § 432, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.280. Effect of issuance of certificate of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 56) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.285. Organization meeting of directors. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 57) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.290. Right to amend articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 58) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.295. Amendment of articles. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 59) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.300. Class voting on amendments. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 60) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.305. Articles of amendment. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 61) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.310. Filing of articles of amendment. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 62; amend. Acts 1978, ch. 384, § 433, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.315. Effect of certificate of amendment. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 63) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.320. Restated articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 64; amend. Acts 1978, ch. 384, § 434, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.325. Amendment of articles of incorporation in reorganization proceedings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 65; amend. Acts 1978, ch. 384, § 435, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.330. Restriction on redemption or purchase of redeemable shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 66) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.335. Cancellation of redeemable shares by redemption or purchase. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 67; amend. Acts 1978, ch. 384, § 436, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.340. Cancellation of other reacquired shares. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 68; amend. Acts 1978, ch. 384, § 437, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.345. Reduction of stated capital in certain cases. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 69; amend. Acts 1978, ch. 384, § 438, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.350. Special provisions relating to surplus and reserves. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 70) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.355. Procedure for merger. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 71) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.360. Procedure for consolidation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 72) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.365. Approval by shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 73) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.370. Articles of merger on consolidation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 74; amend. Acts 1974, ch. 259, § 1; amend. Acts 1978, ch. 384, § 439, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.375. Merger of subsidiary corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 75; amend. Acts 1974, ch. 259, § 2; amend. Acts 1980, ch. 188, § 238, effective July 15, 1980) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.380. Effect of merger or consolidation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 76) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.385. Merger or consolidation of domestic and foreign corporations. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 77; amend. Acts 1986, ch. 88, § 2, effective July 15, 1986) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.390. Sale of assets in regular course of business and mortgage or pledge of assets. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 78) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.395. Sale of assets other than in regular course of business. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 79) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.396. Definitions for KRS 271B.12-210 to 271B.12-230. [Renumbered as KRS 271B.12-200.]

Compiler’s Notes.

This section was renumbered as KRS 271B.12-200 , effective January 1, 1989.

271A.397. Minimum share vote requirements for approval of business combinations — Limitations on business corporation. [Renumbered as KRS 271B.12-210.]

Compiler’s Notes.

This section was renumbered as KRS 271B.12-210 , effective January 1, 1989.

271A.398. Exemptions from minimum share vote requirements. [Renumbered as KRS 271B.12-220.]

Compiler’s Notes.

This section was renumbered as KRS 271B.12-220 , effective January 1, 1989.

271A.399. KRS 271B.12-200 to 271B.12-220 prevail over other provisions of KRS Chapter 271B — Severability of provisions. [Renumbered as KRS 271B.12-230.]

Compiler’s Notes.

This section was renumbered as KRS 271B.12-230 , effective January 1, 1989.

271A.400. Right of shareholders to dissent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 80; amend. Acts 1984, ch. 355, § 5, effective July 13, 1984) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.405. Rights of dissenting shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 81; amend. Acts 1976, ch. 62, § 110; amend. Acts 1980, ch. 114, § 60; amend. Acts 1984, ch. 355, § 6, effective July 13, 1984) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.410. Voluntary dissolution by incorporators. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 82; amend. Acts 1978, ch. 384, § 440, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.415. Voluntary dissolution by consent of shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 83) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.420. Voluntary dissolution by act of corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 84) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.425. Filing of statement of intent to dissolve. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 85) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.430. Effect of statement of intent to dissolve. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 86) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.435. Procedure after filing of statement of intent to dissolve. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 87) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.440. Revocation of voluntary dissolution proceedings by consent of shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 88) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.445. Revocation of voluntary dissolution proceedings by act of corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 89) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.450. Filing of statement of revocation of voluntary dissolution proceedings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 90; amend. Acts 1978, ch. 384, § 442, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.455. Effect of statement of revocation of voluntary dissolution proceedings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 91) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.460. Articles of dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 92) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.465. Filing of articles of dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 93; amend. Acts 1978, ch. 384, § 443; amend. Acts 1986, ch. 202, § 4, effective March 28, 1986) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.470. Involuntary dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 94) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.475. Jurisdiction of court to liquidate assets and business of corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 95) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.480. Procedure in liquidation of corporation by court. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 96) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.485. Qualifications of receivers. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 97) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.490. Filing of claims in liquidation proceedings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 98) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.495. Discontinuance of liquidation proceedings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 99) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.500. Decree of involuntary dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 100) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.505. Filing of decree of dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 101; amend. Acts 1978, ch. 384, § 444, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.510. Deposit with department of revenue of amount due certain shareholders. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 102) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.515. Survival of remedy after dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 103) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.520. Admission of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 104) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.525. Powers of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 105) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.530. Corporate name of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 106; amend. Acts 1980, ch. 294, § 3, effective July 15, 1980) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.535. Change of name by foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 107) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.540. Application for certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 108) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.545. Filing of application for certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 109) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.550. Effect of certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 110) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.555. Registered office and registered agent of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 111) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.560. Change of registered office or registered agent of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 112) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.565. Service of process on foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 113; amend. Acts 1978, ch. 384, § 575; amend. Acts 1980, ch. 114, § 61, effective July 15, 1980) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.570. Amendment to articles of incorporation of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 114) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.575. Merger of foreign corporation authorized to transact business in this state. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 115) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.580. Amended certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 116) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.585. Withdrawal of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 117; amend. Acts 1974, ch. 315, § 4; amend. Acts 1980, ch. 114, § 62, effective July 15, 1980) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.590. Filing of application for withdrawal. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 118; amend. Acts 1986, ch. 202, § 5, effective March 28, 1986) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.595. Revocation of certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 119) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.600. Issuance of certificate of revocation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 120) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.605. Application to corporations heretofore authorized to transact business in this state. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 121) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.610. Transacting business without certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 122) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.615. Annual report of domestic and foreign corporations — Reinstatement of certificate of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 123; amend. Acts 1980, ch. 294, § 4; amend. Acts 1986, ch. 202, § 6, effective March 28, 1986) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.620. Filing of annual report of domestic and foreign corporations. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 124) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.625. Fees and charges to be collected by secretary of state. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 125; amend. Acts 1984, ch. 410, § 13, effective July 1, 1984) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.630. Fees for filing documents and issuing certificates. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 126; amend. Acts 1978, ch. 84, § 7, effective June 17, 1978; amend. Acts 1978, ch. 384, § 445, effective June 17, 1978; amend. Acts 1986, ch. 204, § 4, effective July 15, 1986) was repealed by Acts 1988, ch. 85, § 4, effective July 15, 1988 and Acts 1988, ch. 23, § 248, effective January 1, 1989. For present law, see KRS 271B.1-220 .

271A.631. Fees for filing documents and issuing certificates — Miscellaneous charges. [Renumbered as KRS 271B.1-220.]

Compiler’s Notes.

This section was renumbered as KRS 271B.1-220 , effective January 1, 1989.

271A.635. Miscellaneous charges. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 127; amend. Acts 1986, ch. 204, § 5, effective July 15, 1986) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989 and Acts 1988, ch. 85, § 4, effective July 15, 1988. For present law, see KRS Ch. 271B.

271A.640. Penalties imposed upon corporations. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 128) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.645. Certificates and certified copies to be received in evidence. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 129) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.650. Forms to be furnished by Secretary of State. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 130) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.655. Greater voting requirements. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 131) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.660. Waiver of notice. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 132) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.665. Action by shareholders without a meeting. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 133) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.670. Unauthorized assumption of corporate powers. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 134) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.675. Application to existing corporations. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 135) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.680. Effect of repeal of prior acts. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 136) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

271A.685. Validity of facsimile signature for corporation debt security. [Renumbered as KRS 271B.18-010.]

Compiler’s Notes.

This section was renumbered as KRS 271B.18-010 , effective January 1, 1989.

271A.690. Retroactive validation of existing domestic corporations. [Renumbered as KRS 271B.18-020.]

Compiler’s Notes.

This section was renumbered as KRS 271B.18-020 , effective January 1, 1989.

271A.695. Acceptance of present Constitution. [Renumbered as KRS 271B.18-030.]

Compiler’s Notes.

This section was renumbered as KRS 271B.18-030 , effective January 1, 1989.

271A.700. Purpose of filing articles of incorporation. [Renumbered as KRS 271B.18-040.]

Compiler’s Notes.

This section was renumbered as KRS 271B.18-040 , effective January 1, 1989.

271A.705. Limitation on business and holding of real estate; escheat. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1972, ch. 274, § 142) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989. For present law, see KRS Ch. 271B.

271A.710. Revocation of charters and grants since 1856. [Renumbered as KRS 271B.18-050.]

Compiler’s Notes.

This section was renumbered as KRS 271B.18-050 , effective January 1, 1989.

271A.715. Incorporation for purposes of establishing a foreign trade zone within this state. [Renumbered as KRS 271B.18-060.]

Compiler’s Notes.

This section was renumbered as KRS 271B.18-060 , effective January 1, 1989.

CHAPTER 271B Business Corporations

Subtitle 1. General Provisions

Title

271B.1-010. Title.

This chapter shall be known and may be cited as the “Kentucky Business Corporation Act.”

History. Enact. Acts 1972, ch. 274, § 1.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.005 and was renumbered by the Reviser of Statutes pursuant to KRS 7.136 .

NOTES TO DECISIONS

Cited:

Simpson v. JOC Coal, Inc., 677 S.W.2d 305, 1984 Ky. LEXIS 271 ( Ky. 1984 ).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Kuehn, Shareholders, 61 Ky. L.J. 158 (1972).

Kentucky Law Survey, Ham, Corporations, 69 Ky. L.J. 453 (1980-81).

Article: Say on Pay’s Bundling Problems, 99 Ky. L.J. 119 (2010/2011).

Note: Corporate Gatekeepers: An Examination of the Transactional Lawyer’s Role, 99 Ky. L.J. 555 (2010/2011).

Article: Beyond Public/Private: Understanding Excessive Corporate Prerogative, 100 Ky. L.J. 43 (2011/2012).

Article: Tackling Shareholder Short-Termism and Managerial Myopia, 100 Ky. L.J. 531 (2011/2012).

Northern Kentucky Law Review.

Note, Facing the Economic Challenges of the Eighties — The Kentucky Constitution and Hayes v. The State Property and Buildings Commission of Kentucky, 15 N. Ky. L. Rev. 645 (1988).

Tobergte, Regulating the Nonprofit Corporation, 16 N. Ky. L. Rev. 325 (1989).

Filing Documents

271B.1-200. Filing requirements.

  1. Each document delivered by a domestic or foreign corporation to the Secretary of State for filing shall satisfy the requirements of KRS 14A.2-010 to 14A.2-150
  2. Whenever a provision of KRS Chapter 271B permits any of the terms of a plan or a filed document to be dependent on facts objectively ascertainable outside the plan or filed document, the following provisions apply:
    1. The manner in which the facts will operate upon the terms of the plan or filed document shall be set forth in the plan or filed document;
    2. The facts may include but are not limited to:
      1. Any of the following that is available in a nationally recognized news or information medium either in print or electronically:
        1. Statistical or market indices;
        2. Market prices of any security or group of securities;
        3. Interest rates;
        4. Currency exchange rates; or
        5. Similar economic or financial data;
      2. A determination or action by any person or body, including the corporation or any other party to a plan or filed document; or
      3. The terms of, or actions taken under, an agreement to which the corporation is a party, or any other agreement or document;
    3. As used in this subsection:
      1. “Filed document” means a document filed with the Secretary of State under any provision of KRS Chapter 271B except an annual report or a filing pursuant to Subtitle 15 of KRS Chapter 271B; and
      2. “Plan” means a plan of nonprofit conversion as provided for in KRS 273.382 , conversion into an LLC as provided for in KRS 275.376 , merger, or of share exchange;
    4. The following provisions of a plan or filed document shall not be made dependent on facts outside the plan or filed document:
      1. The name and address of any person required in a filed document;
      2. The registered office of any entity required in a filed document;
      3. The registered agent of any entity required in a filed document;
      4. The number of authorized shares and designation of each class or series of shares;
      5. The effective date of a filed document; or
      6. Any required statement in a filed document of the date on which the underlying transaction was approved or the manner in which that approval was given; and
    5. If a provision of a filed document is made dependent on a fact ascertainable outside of the filed document, and that fact is not ascertainable by reference to a source described in paragraph (b)1. of this subsection or a document that is a matter of public record, or the affected shareholders have not received notice of the fact from the corporation, then the corporation shall file with the Secretary of State articles of amendment setting forth the fact promptly after the time when the fact referred to is first ascertainable or thereafter changes. Articles of amendment under this paragraph are deemed to be authorized by the authorization of the original filed document or plan to which they relate and may be filed by the corporation without further action by the board of directors or the shareholders.

History. Enact. Acts 1988, ch. 23, § 1, effective January 1, 1989; 2002, ch. 102, § 1, effective July 15, 2002; 2007, ch. 137, § 46, effective June 26, 2007; repealed and reenact., 2010 Ky. Acts ch. 51, § 46, effective July 15, 2010; repealed, reenacted, and amended ch. 151, § 50, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed, reenacted, and amended by 2010 Ky. Acts ch. 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict, therefore, they have been codified together.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

271B.1-210. Forms. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 47) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-050 .

271B.1-220. Fees for filing documents and issuing certificates — Miscellaneous charges.

  1. The Secretary of State shall collect the following fees when the documents described in this subsection are delivered to him for filing:

(1) Articles of incorporation $40 (2) Amendment of articles of incorporation $40 (3) Restatement of articles of incorporation $40 (4) Amended and restated articles $80 (5) Articles of merger or share exchange $50 (6) Articles of dissolution $40 (7) Articles of revocation of dissolution $15 (8) Any other document required or permitted to be filed by this chapter $15

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History. Enact. Acts 1988, ch. 23, § 3, effective January 1, 1989; 1988, ch. 85, § 3, effective July 15, 1988; 1998, ch. 341, § 3, effective July 15, 1998; 2007, ch. 137, § 48, effective June 26, 2007; repealed and reenact., 2010 Ky. Acts ch. 51, § 48, effective July 15, 2010; and repealed, reenact., and amended ch. 151, § 51, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed, reenacted, and amended by 2010 Ky. Acts ch. 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict, therefore, they have been codified together.

Similar versions of this section were created by 1988 Acts Chapter 85, Section 3, and 1988 Acts Chapter 23, Section 3, which conflict in regard to the amount of fees to be charged by Secretary of State. Pursuant to KRS 446.250 , the fees set forth in Chapter 85 prevail as the later enactment. The remaining provisions do not appear to be in conflict and have been compiled together.

Opinions of Attorney General.

The payment of the filing fee is a condition precedent for filing documents with the Secretary of State, and the Secretary of State may void the filing and return a document after it has been received, stamped, and filed, if the check for payment of that fee has been dishonored. OAG 89-94 .

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

271B.1-230. Effective time and date of filing. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 4; 2002, ch. 102, § 2) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-070 .

271B.1-240. Correcting filed documents. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 5; 2002, ch. 102, § 3) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-090 .

271B.1-250. Filing duty of Secretary of State. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 49) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-100 .

NOTES TO DECISIONS

1.Duty of Secretary of State.

It was the duty of the Secretary of State to record only such articles of incorporation as the statute provided for. McChesney v. Batman, 121 Ky. 303 , 89 S.W. 198, 28 Ky. L. Rptr. 281 , 1905 Ky. LEXIS 205 ( Ky. 1905 )(decided under prior law); Cheaney v. Bruner, 141 Ky. 32 , 132 S.W. 167, 1910 Ky. LEXIS 412 ( Ky. 1910 )(decided under prior law).

2.Refusal.

If the articles were deficient the Secretary of State could refuse to file them. Cheaney v. Bruner, 141 Ky. 32 , 132 S.W. 167, 1910 Ky. LEXIS 412 ( Ky. 1910 )(decided under prior law).

If incorporators fail to comply with the law the Secretary of State may refuse to file their articles of incorporation, however, if such articles are filed, then failure to comply with any law in organizing can only be taken advantage of in a direct proceeding by the Commonwealth to annul the charter. Dorman v. Bankers' Trust Co.'s Receiver, 259 Ky. 430 , 82 S.W.2d 494, 1935 Ky. LEXIS 333 ( Ky. 1935 )(decided under prior law).

271B.1-260. Appeal from Secretary of State’s refusal to file document. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 7) was repealed by Acts 2011, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-110 .

271B.1-270. Evidentiary effect of filed document. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 8; 2002, ch. 102, § 5) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-120 .

271B.1-280. Certificate of existence. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 9) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-130 .

NOTES TO DECISIONS

1.Proof of Existence.

When the existence of a corporation was questioned collaterally, strict proof of due incorporation was not required, and parol proof, such as the testimony of the president of the corporation, was sufficient. Strunks Lane & Jellico Mountain Coal & Coke Co. v. Anderson, 276 Ky. 576 , 124 S.W.2d 779, 1939 Ky. LEXIS 552 ( Ky. 1939 ) (decided under prior law).

271B.1-290. Penalty for signing false document.

  1. A person commits an offense by signing a document knowing it is false in any material respect with intent that the document be delivered to the Secretary of State for filing.
  2. An offense under this section shall be a misdemeanor punishable by a fine not to exceed one hundred dollars ($100).

History. Enact. Acts 1988, ch. 23, § 10, effective January 1, 1989; 2007, ch. 137, § 50, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 50, effective July 15, 2010.

Secretary of State

271B.1-300. Powers.

The Secretary of State shall have the power reasonably necessary to perform the duties required of him by this chapter.

History. Enact. Acts 1988, ch. 23, § 11, effective January 1, 1989.

Definitions

271B.1-400. Definitions for chapter.

As used in this chapter:

  1. “Appropriate court” means the Circuit Court for the county within the Commonwealth in which the corporation maintains its principal office or, if none, the county in which the registered office is located;
  2. “Articles of incorporation” include amended and restated articles of incorporation and articles of merger;
  3. “Authorized shares” means the shares of all classes a domestic or foreign corporation is authorized to issue;
  4. “Conspicuous” means so written that a reasonable person against whom the writing is to operate should have noticed it. For example, printing in italics or boldface or contrasting color, or typing in capitals or underlining, shall be considered conspicuous;
  5. “Corporation” or “domestic corporation” means a corporation for profit, which is not a foreign corporation, incorporated under or subject to the provisions of this chapter, and includes a professional service corporation and a public benefit corporation;
  6. “Deliver” or “delivery” means any method of delivery used in conventional commercial practice, including delivery by hand, mail, commercial delivery, and electronic transmission;
  7. “Distribution” means a direct or indirect transfer of money or other property (except its own shares) or incurrence of indebtedness by a corporation to or for the benefit of its shareholders in respect of any of its shares. A distribution may be in the form of a declaration or payment of a dividend; a purchase, redemption, or other acquisition of shares; a distribution of indebtedness; or otherwise;
  8. “Effective date of notice” is defined in KRS 271B.1-410 ;
  9. “Electronic transmission” or “electronically transmitted” means any process of communication not directly involving the physical transfer of paper that is suitable for the retention, retrieval, and reproduction of information by the recipient;
  10. “Employee” includes an officer but not a director. A director may accept duties that make him also an employee;
  11. “Entity” includes a domestic or foreign corporation; not-for-profit corporation; profit and not-for-profit unincorporated association; business trust, estate, partnership, trust, and two (2) or more persons having a joint or common economic interest; and state, United States, and foreign government;
  12. “Foreign corporation” means a corporation for profit incorporated under a law other than the law of this state;
  13. “Governmental subdivision” includes authority, county, district, and municipality;
  14. “Includes” denotes a partial definition;
  15. “Individual” means a natural person and includes the estate of an incompetent or deceased individual;
  16. “Means” denotes an exhaustive definition;
  17. “Name of record with the Secretary of State” means any real, fictitious, reserved, registered, or assumed name of an entity;
  18. “Notice” is defined in KRS 271B.1-410 ;
  19. “Person” includes individual and entity;
  20. “Principal office” means the office in or out of this state, so designated in writing to the Secretary of State where the principal executive offices of a domestic or foreign corporation are located;
  21. “Proceeding” includes civil suit and criminal, administrative, and investigatory action;
  22. “Public benefit” means a positive effect or reduction of negative effects on one (1) or more categories of persons, entities, communities, or interests other than stockholders in their capacities as stockholders;
  23. “Public benefit corporation” means a for-profit corporation that is intended to produce a public benefit and to operate in a responsible manner, balancing the stockholders’ pecuniary interests, the best interests of those materially affected by the corporation’s conduct, and the public benefit identified in its articles of incorporation;
  24. “Public benefit provisions” means the provisions of articles of incorporation authorized by KRS 271B.2-020 (4);
  25. “Real name” shall have the meaning set forth in KRS 365.015 ;
  26. “Record date” means the date established under Subtitle 6 or 7 of this chapter on which a corporation determines the identity of its shareholders and their shareholdings for purposes of this chapter. The determinations shall be made as of the close of business on the record date, unless another time for doing so is specified when the record date is fixed;
  27. “Secretary” means the corporate officer to whom the board of directors has delegated responsibility under KRS 271B.8-400 (3) for custody of the minutes of the meetings of the board of directors and of the shareholders and for authenticating records of the corporation;
  28. “Share” means the unit into which the proprietary interests in a corporation are divided;
  29. “Shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation;
  30. “Sign” or “signature” includes any manual, facsimile, or conformed or electronic signature;
  31. “State,” when referring to a part of the United States, includes a state and Commonwealth and their agencies and governmental subdivisions, and a territory and insular possession and their agencies and governmental subdivisions of the United States;
  32. “Subscriber” means a person who subscribes for shares in a corporation, whether before or after incorporation;
  33. “United States” includes district, authority, bureau, commission, department, and any other agency of the United States; and
  34. “Voting group” means all shares of one (1) or more classes or series that under the articles of incorporation or this chapter are entitled to vote and be counted together collectively on a matter at a meeting of shareholders. All shares entitled by the articles of incorporation or this chapter to vote generally on the matter are for that purpose a single voting group.

HISTORY: Enact. Acts 1988, ch. 23, § 12, effective January 1, 1989; 1998, ch. 341, § 4, effective July 15, 1998; 2002, ch. 102, § 6, effective July 15, 2002; 2007, ch. 137, § 51, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 51, effective July 15, 2010; 2015 ch. 34, § 6, effective June 24, 2015; 2017 ch. 28, § 2, effective June 29, 2017.

Legislative Research Commission Note.

(6/26/2007). 2007 Ky. Acts ch. 137, sec. 51, subsection (21) cited “Section 164 of this Act.” It is apparent from context that the section referred to should have been Section 163 of the Act, KRS 365.015 . The Reviser of Statutes has made this change under the authority of KRS 7.136 .

NOTES TO DECISIONS

Cited:

Conlon v. Haise, 2016 Ky. App. LEXIS 172 (Ky. Ct. App. Sept. 30, 2016).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

271B.1-410. Written or oral notice — How given — When effective.

  1. Notice under this chapter shall be in writing unless oral notice is reasonable under the circumstances. Notice by electronic transmission is written notice.
  2. Notice may be communicated in person; by mail or other method of delivery; or by telephone, voice mail, or other electronic means. If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published; or by radio, television, or other form of public broadcast communication.
  3. Written notice by a domestic or foreign corporation to its shareholder, if in a comprehensible form, shall be effective:
    1. Upon deposit in the United States mail, if mailed postpaid and correctly addressed to the shareholder’s address shown in the corporation’s current record of shareholders; or
    2. When electronically transmitted to the shareholder in a manner authorized and in accordance with the shareholder’s instructions, if any.
  4. Written notice to a domestic or foreign corporation authorized to transact business in this state may be addressed to its registered agent at its registered office or to the corporation or its secretary at its principal office address of record with the Secretary of State.
  5. Except as provided in subsections (3) and (4) of this section, written notice, if in a comprehensible form, shall be effective at the earliest of the following:
    1. When received;
    2. Five (5) days after its deposit in the United States mail, if mailed postpaid and correctly addressed; or
    3. On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee.
  6. Oral notice shall be effective when communicated, if communicated in a comprehensible manner.
  7. If this chapter prescribes notice requirements for particular circumstances, those requirements, shall govern. If articles of incorporation or bylaws prescribe notice requirements not inconsistent with this section or other provisions of this chapter, those requirements shall govern.

History. Enact. Acts 1988, ch. 23, § 13, effective January 1, 1989; 2002, ch. 102, § 7, effective July 15, 2002; 2007, ch. 137, § 52, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 52, effective July 15, 2010; 2013, ch. 106, § 5, effective June 25, 2013.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

271B.1-420. Number of shareholders.

  1. For purposes of this chapter, the following identified as a shareholder in a corporation’s current record of shareholders shall constitute one (1) shareholder:
    1. Three (3) or fewer co-owners;
    2. A corporation, partnership, trust, estate, or other entity;
    3. The trustees, guardians, custodians, or other fiduciaries of a single trust, estate, or account.
  2. For purposes of this chapter, shareholdings registered in substantially similar names shall constitute one (1) shareholder if it is reasonable to believe that the names represent the same person.

History. Enact. Acts 1988, ch. 23, § 14, effective January 1, 1989.

271B.1-430. Independent legal significance.

Action validly taken pursuant to one (1) provision of this chapter shall not be deemed invalid solely because it is identical or similar in substance to an action that could have been taken pursuant to some other provision of this chapter but fails to satisfy one (1) or more requirements prescribed by such other provision.

History. Enact. Acts 2010, ch. 133, § 1, effective July 15, 2010.

Research References and Practice Aids

Northern Kentucky Law Review.

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

Subtitle 2. Incorporation

271B.2-010. Incorporators.

One (1) or more persons may act as the incorporator or incorporators of a corporation by delivering articles of incorporation to the Secretary of State for filing.

History. Enact. Acts 1988, ch. 23, § 15, effective January 1, 1989.

271B.2-020. Articles of incorporation.

  1. The articles of incorporation shall set forth:
    1. A corporate name for the corporation that satisfies the requirements of KRS 14A.3-010 ;
    2. The number of shares the corporation is authorized to issue;
    3. The corporation’s initial registered office and initial registered agent that satisfy the requirements of KRS 14A.4-010 ;
    4. The mailing address of the corporation’s principal office; and
    5. The name and mailing address of each incorporator.
  2. The articles of incorporation may set forth:
    1. The names and mailing addresses of the individuals who are to serve as the initial directors;
    2. Provisions not inconsistent with law regarding:
      1. The purpose or purposes for which the corporation is organized;
      2. Managing the business and regulating the affairs of the corporation;
      3. Defining, limiting, and regulating the powers of the corporation, its board of directors, and shareholders;
      4. A par value for authorized shares or classes of shares; and
      5. The imposition of personal liability on shareholders for the debts of the corporation to a specified extent and upon specified conditions;
    3. Any provision that under this chapter is required or permitted to be set forth in the bylaws; and
    4. A provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for breach of his duties as a director, provided that such provision shall not eliminate or limit the liability of a director:
      1. For any transaction in which the director’s personal financial interest is in conflict with the financial interests of the corporation or its shareholders;
      2. For acts or omissions not in good faith or which involve intentional misconduct or are known to the director to be a violation of law;
      3. For any vote for or assent to an unlawful distribution to shareholders as prohibited under KRS 271B.8-330 ; or
      4. For any transaction from which the director derived an improper personal benefit. No such provision shall eliminate or limit the liability of any director for any act or omission occurring prior to the date when such provision becomes effective. In no case shall this subsection or any such provision be construed to expand the liability of any director as determined pursuant to KRS 271B.8-300 .
  3. The articles of incorporation need not set forth any of the corporate powers enumerated in this chapter.
  4. In addition to the information otherwise required, the articles of incorporation for a public benefit corporation shall state:
    1. That the corporation is a public benefit corporation; and
    2. The purpose or purposes of the corporation, which shall include one (1) or more public benefits.

HISTORY: Enact. Acts 1988, ch. 23, § 16, effective January 1, 1989; 1988, ch. 224, § 7, effective July 15, 1988; 1998, ch. 341, § 5, effective July 15, 1998; 2010, ch. 151, § 52, effective January 1, 2011; 2017 ch. 28, § 4, effective June 29, 2017.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.271 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

NOTES TO DECISIONS

1.Knowledge of Articles.

Incorporators, stockholders, directors and officers were chargeable with knowledge of all provisions of the corporate articles. Oil City Land & Imp. Co. v. Porter, 16 Ky. L. Rptr. 397 (1894) (decided under prior law); Oil City Land & Improv. Co. v. Porter, 99 Ky. 254 , 35 S.W. 643, 18 Ky. L. Rptr. 151 , 1896 Ky. LEXIS 81 ( Ky. 1896 ) (decided under prior law); Croninger v. Behtel Grove Camp Ground Ass'n, 156 Ky. 356 , 161 S.W. 230, 1913 Ky. LEXIS 454 ( Ky. 1913 ) (decided under prior law); Federal Chemical Co. v. Paddock, 264 Ky. 338 , 94 S.W.2d 645, 1936 Ky. LEXIS 309 ( Ky. 1936 ) (decided under prior law).

2.Period of Corporate Existence.

Stockholders impliedly agreed that the business should continue for the entire period named in the articles unless sooner dissolved by operation of law. Manufacturers' Land & Improv. Co. v. Cleary, 121 Ky. 403 , 89 S.W. 248, 28 Ky. L. Rptr. 359 , 1905 Ky. LEXIS 219 ( Ky. 1905 ) (decided under prior law).

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Comment, A Survey of Kentucky Tort Reform, 17 N. Ky. L. Rev. 473 (1990).

ALR

Construction and application of provisions of articles, bylaws, statutes, or agreements restricting alienation or transfer of corporate stock. 2 A.L.R.2d 745.

Validity, construction, and effect of provisions of articles of incorporation or stock certificates relating to call, redemption, or retirement of common stock. 48 A.L.R.2d 392.

Construction and effect of corporate articles, charter, or bylaws limiting duration or maturity of its indebtedness. 55 A.L.R.2d 949.

Construction and effect of corporate bylaws or articles relating to change in number of directors. 3 A.L.R.3d 623.

When Is Corporation Close, or Closely-Held, Corporation Under Common or Statutory Law, 111 A.L.R.5th 207.

271B.2-030. Incorporation.

  1. Unless a delayed effective date is specified, the corporate existence shall begin when the articles of incorporation are filed by the Secretary of State.
  2. The Secretary of State’s filing of the articles of incorporation shall be conclusive proof that the incorporators satisfied all conditions precedent to incorporation, except in a proceeding by the state to cancel or revoke the incorporation or involuntarily dissolve the corporation.

History. Enact. Acts 1988, ch. 23, § 17, effective January 1, 1989; 2007, ch. 137, § 53, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 53, effective July 15, 2010.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

271B.2-040. Liability for preincorporation transactions.

All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this chapter, shall be jointly and severally liable for all liabilities created while so acting.

History. Enact. Acts 1988, ch. 23, § 18, effective January 1, 1989.

NOTES TO DECISIONS

1.Liability for Post-dissolution Actions.

Insurer’s claim against a debtor/sole shareholder for worker’s compensation insurance premiums owed by a corporation following its dissolution was disallowed because although KRS 271B.2-040 , which imposed personal liability on those purporting to act on behalf of a nonexistent corporation, might have applied to actions taken following administrative dissolution of a corporation that went beyond what was necessary to wind up and liquidate its business and affairs, the evidence did not indicate that the indebtedness in question resulted from any act that the debtor purported to take on behalf of the corporation after its dissolution. In re Young, 2004 Bankr. LEXIS 736 (Bankr. E.D. Ky. Apr. 27, 2004).

271B.2-050. Organization of corporation.

  1. After incorporation:
    1. If initial directors are named in the articles of incorporation, the initial directors shall hold an organizational meeting, at the call of a majority of the directors, to complete the organization of the corporation by appointing officers, adopting bylaws, and carrying on any other business brought before the meeting;
    2. If initial directors are not named in the articles, the incorporator or incorporators shall hold an organizational meeting at the call of a majority of the incorporators:
      1. To elect directors and complete the organization of the corporation; or
      2. To elect a board of directors who shall complete the organization of the corporation.
  2. Action required or permitted by this chapter to be taken by incorporators at an organizational meeting may be taken without a meeting if the action taken is evidenced by one (1) or more written consents describing the action taken and signed by each incorporator.
  3. An organizational meeting may be held in or out of this state.

History. Enact. Acts 1988, ch. 23, § 19, effective January 1, 1989; 2007, ch. 137, § 54, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 54, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

271B.2-060. Bylaws.

  1. The incorporators or board of directors of a corporation shall adopt initial bylaws for the corporation.
  2. The bylaws of a corporation may contain any provision for managing the business and regulating the affairs of the corporation that is not inconsistent with law or the articles of incorporation.

History. Enact. Acts 1988, ch. 23, § 20, effective January 1, 1989.

Research References and Practice Aids

ALR

Conflict of laws as to validity and effect of corporate bylaw. 27 A.L.R.2d 435.

Construction and effect of corporate articles, charter, or bylaws limiting duration or maturity of its indebtedness. 55 A.L.R.2d 949.

Construction and effect of corporate bylaws or articles relating to change in number of directors. 3 A.L.R.3d 623.

271B.2-070. Emergency bylaws.

  1. Unless the articles of incorporation provide otherwise, the board of directors of a corporation may adopt bylaws to be effective only in an emergency defined in subsection (4) of this section. The emergency bylaws, which are subject to amendment or repeal by the shareholders, may make all provisions necessary for managing the corporation during the emergency, including:
    1. Procedures for calling a meeting of the board of directors;
    2. Quorum requirements for the meeting; and
    3. Designation of additional or substitute directors.
  2. All provisions of the regular bylaws consistent with the emergency bylaws remain effective during the emergency. The emergency bylaws are not effective after the emergency ends.
  3. Corporate action taken in good faith in accordance with the emergency bylaws:
    1. Shall bind the corporation; and
    2. Shall not be used to impose liability on a corporate director, officer, employee, or agent.
  4. An emergency exists for purposes of this section if a quorum of the corporation’s directors cannot readily be assembled because of some catastrophic event.

History. Enact. Acts 1988, ch. 23, § 21, effective January 1, 1989; 2007, ch. 137, § 55, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 55, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Subtitle 3. Purposes and Powers

271B.3-010. Purposes.

  1. Every corporation incorporated under this chapter has the purpose of engaging in any lawful business unless a more limited purpose is set forth in the articles of incorporation.
  2. A corporation engaging in a business that is subject to regulation under another statute of this state may incorporate under this chapter only if permitted by, and subject to all limitations of, the other statute.

History. Enact. Acts 1988, ch. 23, § 22, effective January 1, 1989; 2007, ch. 137, § 56, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 56, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

271B.3-020. General powers.

  1. Unless its articles of incorporation provide otherwise, every corporation shall have perpetual duration and succession in its corporate name and shall have the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, including without limitation power to:
    1. Sue and be sued, complain and defend in its corporate name;
    2. Have a corporate seal, which may be altered at will, and to use it, or a facsimile of it, by impressing or affixing it or in any other manner reproducing it;
    3. Make and amend bylaws, not inconsistent with its articles of incorporation or with the laws of this state, for managing the business and regulating the affairs of the corporation;
    4. Purchase, receive, lease, or otherwise acquire, and own, hold, improve, use and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located;
    5. Sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any part of its property;
    6. Purchase, receive, subscribe for, or otherwise acquire; own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of; and deal in and with shares or other interests in, or obligations of, any other entity;
    7. Make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations (which may be convertible into or include the option to purchase other securities of the corporation), and secure any of its obligations by mortgage or pledge of any of its property, franchises, or income;
    8. Lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment;
    9. Be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity;
    10. Conduct its business, locate offices, and exercise the powers granted by this chapter within or without this state;
    11. Elect directors and appoint officers, employees and agents of the corporation, define their duties, fix their compensation, and lend them money and credit;
    12. Pay pensions and establish pension plans, pension trusts, profit sharing plans, share bonus plans, share option plans, and benefit or incentive plans for any or all of its current or former directors, officers, employees, and agents;
    13. Make donations for the public welfare or for charitable, scientific, or educational purposes;
    14. Transact any lawful business that will aid governmental policy; and
    15. Make payments or donations, or do any other act, not inconsistent with law, that furthers the business and affairs of the corporation.
  2. Notwithstanding the provisions of subsection (1)(b) of this section, the presence or absence of a corporate seal on or from a writing shall neither add to nor detract from the legality thereof nor affect its validity in any manner or respect.

History. Enact. Acts 1988, ch. 23, § 23, effective January 1, 1989.

NOTES TO DECISIONS

Cited:

Telamarketing Communications, Inc. v. Liberty Partners, 798 S.W.2d 462, 1990 Ky. LEXIS 109 ( Ky. 1990 ).

Research References and Practice Aids

Kentucky Law Journal.

Campbell, Corporate Fiduciary Duties in Kentucky., 93 Ky. L.J. 551 (2004/2005).

ALR

Architecture, corporation practice of. 56 A.L.R.2d 726.

Partnership of or joint venture, corporation’s power to enter into. 60 A.L.R.2d 917.

Power of a business corporation to donate to a charitable or similar institution. 39 A.L.R.2d 1192.

Power of corporation to make political contribution or expenditure under state law. 79 A.L.R.3d 491.

271B.3-030. Emergency powers.

  1. In anticipation of or during an emergency defined in subsection (4) of this section, the board of directors of a corporation may:
    1. Modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent; and
    2. Relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
  2. During an emergency defined in subsection (4) of this section, unless emergency bylaws provide otherwise:
    1. Notice of a meeting of the board of directors need be given only to those directors whom it is practicable to reach and may be given in any practicable manner, including by publication and radio; and
    2. One (1) or more officers of the corporation present at a meeting of the board of directors may be deemed to be directors for the meeting, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum.
  3. Corporate action taken in good faith during an emergency under this section to further the ordinary business affairs of the corporation:
    1. Shall bind the corporation; and
    2. Shall not be used to impose liability on a corporate director, officer, employee, or agent.
  4. An emergency shall exist for purposes of this section if a quorum of the corporation’s directors cannot readily be assembled because of some catastrophic event.

History. Enact. Acts 1988, ch. 23, § 24, effective January 1, 1989.

271B.3-040. Ultra vires.

  1. Except as provided in subsection (2) of this section, the validity of corporate action shall not be challenged on the ground that the corporation lacks or lacked power to act.
  2. A corporation’s power to act may be challenged in a proceeding by:
    1. A shareholder against the corporation to enjoin the act;
    2. The corporation, directly, derivatively, or through a receiver, trustee, or other legal representative, against an incumbent or former director, officer, employee, or agent of the corporation; or
    3. The Attorney General under KRS 271B.14-300 .
    4. In a shareholder’s proceeding under subsection (2)(a) of this section to enjoin an unauthorized corporate act, the court may enjoin or set aside the act, if equitable and if all affected persons are parties to the proceeding, and may award damages for loss (other than anticipated profits) suffered by the corporation or another party because of enjoining the unauthorized act.

History. Enact. Acts 1988, ch. 23, § 25, effective January 1, 1989.

NOTES TO DECISIONS

Cited:

Dingus v. Fada Serv. Co., 856 S.W.2d 45, 1993 Ky. App. LEXIS 79 (Ky. Ct. App. 1993).

Subtitle 4. Name

271B.4-010. Corporate name.

The name of each corporation shall satisfy the requirements of KRS 14A.3-010 .

History. Enact. Acts 2007, ch. 137, § 1, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 57, effective July 15, 2010; repealed and reenact., Acts 2010, ch. 151, § 53, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed and reenacted without change to the existing language by 2010 Ky. Acts ch. 51, effective 7/15/10, and repealed and reenacted with the new language by 2010 Ky. Acts ch. 151, effective 1/1/2011. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment by ch. 51 not serve to void amendments made by other bills, and these Acts do not appear to be in conflict, therefore, they have been codified together.

271B.4-020. Reserved name. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 58) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-020 .

271B.4-030. Registered name. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 59) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-030 .

Subtitle 5. Office and Agent

271B.5-010. Registered office and registered agent — Requirement for agent’s written acceptance of appointment.

Each corporation shall continuously maintain in this Commonwealth a registered office and a registered agent that comply with KRS 14A.4-010 .

History. Enact. Acts 1988, ch. 23, § 29, effective January 1, 1989; 1998, ch. 341, § 6, effective July 15, 1998; 2011, ch. 29, § 8, effective June 8, 2011.

NOTES TO DECISIONS

1.Agent.

It was not necessary that the agent reside at the place of business; nor that he be present at such place of business at all times. It was sufficient that he be at such place of business or in the county, at all reasonable times, and not be unnecessarily absent for unreasonable lengths of time. Paducah Cooperage Co. v. Commonwealth, 122 Ky. 755 , 93 S.W. 12, 29 Ky. L. Rptr. 304 , 1906 Ky. LEXIS 100 ( Ky. 1906 ) (decided under prior law).

A person designated by the statement as process agent remained such until a new statement was filed although he had ceased to be an agent in fact. American Patriots v. Kinkead, 144 Ky. 662 , 139 S.W. 834, 1911 Ky. LEXIS 690 ( Ky. 1911 ) (decided under prior law); S. B. Reese Lumber Co. v. Licking Coal & Lumber Co., 156 Ky. 723 , 161 S.W. 1124, 1914 Ky. LEXIS 186 ( Ky. 1914 ) (decided under prior law).

A process agent was not empowered to waive service of summons and enter his principal’s appearance, especially when antagonistic interests had developed between them. King Const. Co. v. Mary Helen Coal Corp., 194 Ky. 435 , 239 S.W. 799, 1922 Ky. LEXIS 184 ( Ky. 1922 ) (decided under prior law).

2.Venue.

A penal action to recover a fine for violation of former section requiring registered office and agent must be brought in the county where the corporation conducts its business. Kentucky Straight Creek Coal Co. v. Commonwealth, 304 Ky. 247 , 200 S.W.2d 470, 1947 Ky. LEXIS 622 ( Ky. 1947 ) (decided under prior law).

Where service was made on registered office and agent maintained as required by former similar section, the complaint could not be dismissed for lack of venue under KRS 452.450 since that section only refers to “an” office or place of business rather than the chief place of business. Kem Mfg. Corp. v. Kentucky Gem Coal Co., 610 S.W.2d 913, 1980 Ky. App. LEXIS 407 (Ky. Ct. App. 1980) (decided under prior law).

271B.5-020. Change of registered office or registered agent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 30) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-020 .

271B.5-025. Statement of change of principal office.

A corporation that changes the mailing address of its principal office shall comply with KRS 14A.5-010 .

History. Enact. Acts 2007, ch. 137, § 1, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 1, effective July 15, 2010; repealed and reenact., ch. 151, § 54, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed and reenacted without change to the existing language by 2010 Ky. Acts ch. 51, effective 7/15/10, and repealed and reenacted with the new language by 2010 Ky. Acts ch. 151, effective 1/1/2011. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment by ch. 51 not serve to void amendments made by other bills, and these Acts do not appear to be in conflict, therefore, they have been codified together.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

271B.5-030. Resignation of registered agent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 31) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-030 .

271B.5-040. Service on corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 32) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-040 .

Subtitle 6. Shares and Distributions

271B.6-010. Authorized shares.

  1. The articles of incorporation shall prescribe the classes of shares and series of shares within a class and the number of shares of each class and series that the corporation is authorized to issue. If more than one (1) class or series of shares is authorized, the articles of incorporation shall prescribe a distinguishing designation for each class or series, and, prior to the issuance of shares of a class or series, the preferences, limitations, and relative rights of that class or series must be described in the articles of incorporation. All shares of a class shall have preferences, limitations, and relative rights identical with those of other shares of the same class except to the extent otherwise permitted by KRS 271B.6-020 .
  2. The articles of incorporation shall authorize:
    1. One (1) or more classes or series of shares that together have unlimited voting rights; and
    2. One (1) or more classes or series of shares which may be the same class or classes as those with voting rights, that together are entitled to receive the net assets of the corporation upon dissolution.
  3. The articles of incorporation may authorize one (1) or more classes or series of shares that:
    1. Have special, conditional, or limited voting rights, or no right to vote, except to the extent otherwise provided by this chapter;
    2. Are redeemable or convertible as specified in the articles of incorporation:
      1. At the option of the corporation, the shareholder, or another person or upon the occurrence of a designated event;
      2. For cash, indebtedness, securities, or other property; or
      3. In a designated amount or in an amount determined in accordance with a designated formula or by reference to extrinsic data or events;
    3. Entitle the holders to distributions calculated in any manner, including dividends that may be cumulative, noncumulative, or partially cumulative; or
    4. Have preference over any other class or series of shares with respect to distributions, including dividends and distributions upon the dissolution of the corporation.
  4. Terms of shares may be made dependent upon facts objectively ascertainable outside the articles of incorporation in accordance with KRS 271B.1-200 (2).
  5. The description of the designations, preferences, limitations, and relative rights of share classes in subsection (3) of this section shall not be considered exhaustive.

History. Enact. Acts 1988, ch. 23, § 33, effective January 1, 1989; Acts 2007, ch. 137, § 60, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 60, effective July 15, 2010; repealed and reenact., Acts 2010, ch. 151, § 121, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was amended by 2010 Ky. Acts ch. 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear in conflict, therefore, they have been codified together.

NOTES TO DECISIONS

1.No Par Stock.

Const., § 193 did not prohibit corporate stock having no par value. Lewis v. Oscar C. Wright Co., 234 Ky. 814 , 29 S.W.2d 566, 1930 Ky. LEXIS 282 ( Ky. 1930 ) (decided under prior law).

2.— Allocation of Proceeds.

The proceeds of stock having no par value may be allocated to either capital or surplus, as the directors may decide. Lewis v. Oscar C. Wright Co., 234 Ky. 814 , 29 S.W.2d 566, 1930 Ky. LEXIS 282 ( Ky. 1930 ) (decided under prior law).

3.Priority of Creditors over Stockholders.

As to withdrawal of capital or distribution of corporate assets the rights of creditors were paramount to the rights of stockholders, both common and preferred. Rider v. John G. Delker & Sons Co., 145 Ky. 634 , 140 S.W. 1011, 1911 Ky. LEXIS 899 ( Ky. 1911 ). See In re Phoenix Hotel Co., 83 F.2d 724, 1936 U.S. App. LEXIS 2624 (6th Cir. Ky.), cert. denied, 299 U.S. 568, 57 S. Ct. 31, 81 L. Ed. 418, 1936 U.S. LEXIS 257 (U.S. 1936); Fryer v. Wiedemann, 148 Ky. 379 , 146 S.W. 752, 1912 Ky. LEXIS 44 4 ( Ky. 1912 ); Smith v. Southern Foundry Co., 166 Ky. 208 , 179 S.W. 205, 1915 Ky. LEXIS 676 ( Ky. 1915 ); Westerfield-Bonte Co. v. Burnett, 176 Ky. 188 , 195 S.W. 477, 1917 Ky. LEXIS 44 ( Ky. 1917 ) (decided under prior law).

4.Priority of Preferred Stock over Common Stock.

It was only when the corporation was solvent and the rights of creditors would not be injuriously affected that stock preferences could be enforced. Rider v. John G. Delker & Sons Co., 145 Ky. 634 , 140 S.W. 1011, 1911 Ky. LEXIS 899 ( Ky. 1911 ) (decided under prior law).

5.Transfer of Shares.

A corporation was liable for paying dividends to the record owner of stock where the only other person who had ever claimed any right to the stock had relinquished such right by a formal assignment to the record owner, duly made and exhibited to the proper officers of the corporation. Greasy Brush Coal Co. v. Hays, 292 Ky. 517 , 166 S.W.2d 983, 1942 Ky. LEXIS 115 ( Ky. 1942 ) (decided under prior law).

A corporation owed a duty to its stockholders to exercise reasonable diligence, in every case where notice of any infirmity in the holder’s title had been brought to it, to ascertain whether or not a requested transfer of the stock was duly authorized to be made. Kentucky Utilities Co. v. Skaggs, 293 Ky. 622 , 169 S.W.2d 809, 1943 Ky. LEXIS 670 ( Ky. 1943 ) (decided under prior law).

A corporation was justified in refusing to transfer stock of one of its stockholders where it was put on notice of his mental condition and the facts were such as to raise a reasonable doubt of his mental capacity to transact business. Kentucky Utilities Co. v. Skaggs, 293 Ky. 622 , 169 S.W.2d 809, 1943 Ky. LEXIS 670 ( Ky. 1943 ) (decided under prior law).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

ALR

Validity of cancellation of accrued dividends on preferred corporate stock. 8 A.L.R.2d 893.

Rights of preferred stockholders as passed or accumulated dividends in going concern. 27 A.L.R.2d 1073.

Reduction of preferred stock of corporation. 35 A.L.R.2d 1149, 1175.

Validity, construction, and effect of articles of incorporation or stock certificates relating to call, redemption, or retirement of common stock. 48 A.L.R.2d 392.

Inadequate capitalization as factor in disregard of corporate entity. 63 A.L.R.2d 1051.

Power of corporation to change existing redemption rights of common stock shareholders. 70 A.L.R.2d 843.

Failure to issue stock as factor in disregard of corporate entity. 8 A.L.R.3d 1122.

Propriety of applying minority discount to value of shares purchased by corporation or its shareholders from minority shareholders, 13 A.L.R.5th 840.

271B.6-020. Terms of class or series determined by board of directors — Articles of amendment.

  1. If the articles of incorporation so provide, the board of directors may determine, in whole or in part, the preferences, limitations, and relative rights, within the limits set forth in KRS 271B.6-010 , of:
    1. Any class of shares before the issuance of any shares of that class; or
    2. One (1) or more series within a class before the issuance of any shares of that series.
  2. Each series of a class shall be given a distinguishing designation.
  3. All shares of a series shall have preferences, limitations, and relative rights identical with those of other shares of the same series and, except to the extent otherwise provided in the description of the series, with those of other series of the same class.
  4. Before issuing any shares of a class or series created under this section, the corporation shall deliver to the Secretary of State for filing articles of amendment, which are effective without shareholder action, that set forth:
    1. The name of the corporation;
    2. The text of the amendment determining the terms of the class or series of shares;
    3. The date it was adopted; and
    4. A statement that the amendment was duly adopted by the board of directors.
  5. The board of directors may adopt articles of amendment without shareholder action to make any of the following changes to a class or series created under this section:
    1. Increase the number of shares of a series but not above the total number of authorized and unissued shares of the class;
    2. Decrease the number of shares of a series but not below the number of shares of the series then issued and outstanding;
    3. Amend the designation, preferences, limitations, or relative rights of the shares of a class or series if no shares of the class or series are then issued or outstanding; or
    4. Eliminate the designation of, and all references to, a series from the articles of incorporation if no shares of the series are then issued and outstanding.
  6. If an amendment reduces the number of shares of a series, or eliminates a series, the shares previously subject to issuance in the series shall return to the status they had before the creation of the series.
  7. Articles of amendment adopted pursuant to subsection (5) of this section shall be delivered to the Secretary of State for filing and shall state:
    1. The name of the corporation;
    2. The designation of the class or series subject to the amendment;
    3. The text of the amendment changing the class or series;
    4. The date the amendment was adopted; and
    5. A statement that the amendment was duly adopted by the board of directors.

History. Enact. Acts 1988, ch. 23, § 34, effective January 1, 1989; 2002, ch. 102, § 8, effective July 15, 2002.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

271B.6-030. Issued and outstanding shares.

  1. A corporation may issue the number of shares of each class or series authorized by the articles of incorporation. Shares that are issued shall be outstanding shares until they are reacquired, redeemed, converted, or canceled.
  2. The reacquisition, redemption, or conversion of outstanding shares shall be subject to the limitations of subsection (3) of this section and to KRS 271B.6-400 .
  3. At all times that shares of the corporation are outstanding, one (1) or more shares that together have unlimited voting rights and one (1) or more shares that together are entitled to receive the net assets of the corporation upon dissolution shall be outstanding.

History. Enact. Acts 1988, ch. 23, § 35, effective January 1, 1989.

271B.6-040. Fractional shares.

  1. A corporation may:
    1. Issue fractions of a share or pay in money the value of fractions of a share;
    2. Arrange for disposition of fractional shares by the shareholders; and
    3. Issue scrip in registered or bearer form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share.
  2. Each certificate representing scrip shall be conspicuously labeled “scrip” and shall contain the information required by subsection (2) of KRS 271B.6-250 .
  3. The holder of a fractional share shall be entitled to exercise the rights of a shareholder, including the right to vote, to receive dividends, and to participate in the assets of the corporation upon liquidation. The holder of scrip shall not be entitled to any of these rights unless the scrip provides for them.
  4. The board of directors may authorize the issuance of scrip subject to any condition considered desirable, including:
    1. That the scrip will become void if not exchanged for full shares before a specified date; and
    2. That the shares for which the scrip is exchangeable may be sold and the proceeds paid to the scripholders.

History. Enact. Acts 1988, ch. 23, § 36, effective January 1, 1989.

Issuance of Shares

271B.6-200. Subscription of shares before incorporation.

  1. A subscription for shares entered into before incorporation shall be irrevocable for six (6) months, unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation.
  2. The board of directors may determine the payment terms of subscriptions for shares that were entered into before incorporation, unless the subscription agreement specifies them. A call for payment by the board of directors shall be uniform so far as practicable as to all shares of the same class or series, unless the subscription agreement specifies otherwise.
  3. Shares issued pursuant to subscriptions entered into before incorporation shall be fully paid and nonassessable when the corporation receives the consideration specified in the subscription agreement.
  4. If a subscriber defaults in payment of money or property under a subscription agreement entered into before incorporation, the corporation may collect the amount owed as any other debt. Alternatively, unless the subscription agreement provides otherwise, the corporation may rescind the agreement and may sell the shares if the debt remains unpaid more than twenty (20) days after the corporation sends written demand for payment to the subscriber.
  5. A subscription agreement entered into after incorporation shall be a contract between the subscriber and the corporation subject to KRS 271B.6-210 .

History. Enact. Acts 1988, ch. 23, § 37, effective January 1, 1989.

NOTES TO DECISIONS

1.Formal Subscription.

A formal subscription was unnecessary if the stock had been bought and paid for. In re Kentucky Wagon Mfg. Co., 3 F. Supp. 958, 1932 U.S. Dist. LEXIS 1514 (D. Ky. 1932 ), aff’d, 71 F.2d 802, 1934 U.S. App. LEXIS 3216 (6th Cir. 1934), cert. denied, Laurent v. Stites, 293 U.S. 612, 55 S. Ct. 142, 79 L. Ed. 701, 1934 U.S. LEXIS 1050 (1934) (decided under prior law).

2.Release.

For a valuable consideration and in the absence of fraud a corporation could release part or all of a subscription when there were no creditors and when the present and incoming stockholders consented. In no event could a subsequent creditor complain. E. M. T. Coal Co. v. Rogers, 216 Ky. 440 , 288 S.W. 342, 1926 Ky. LEXIS 980 ( Ky. 1926 ) (decided under prior law).

Research References and Practice Aids

ALR

Enforcement of stock subscription after suit on note of subscriber is barred by statute. 11 A.L.R.2d 1380.

Conversion by promoter of money paid for a preincorporation subscription for stock shares as embezzlement. 84 A.L.R.2d 1100.

271B.6-210. Issuance of shares.

  1. The powers granted in this section to the board of directors may be reserved to the shareholders by the articles of incorporation.
  2. The board of directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the corporation.
  3. Before the corporation issues shares, the board of directors shall determine that the consideration received or to be received for shares to be issued is adequate. That determination by the board of directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid, and nonassessable.
  4. When the corporation receives the consideration for which the board of directors authorized the issuance of shares in accordance with this section, the shares issued therefor are fully paid and nonassessable. When, and to the extent, consideration for the issuance of shares consists of a promissory note or contract for services or other benefits, the shares shall be fully paid and nonassessable at the time the note is issued or the contract is entered into.
  5. The board of directors, or a committee of the board of directors, may authorize one (1) or more officers of the corporation to approve the issuance, sale, or contract for sale of shares or to determine the designation and relative rights, preferences, and limitations of a class or series of shares, all within limits specifically prescribed by the board of directors or the committee.

History. Enact. Acts 1988, ch. 23, § 38, effective January 1, 1989; 2002, ch. 102, § 9, effective July 15, 2002; 2002, ch. 102, § 10, effective November 15, 2002.

Legislative Research Commission Note.

(6/26/2007). 2007 Ky. Acts ch. 137, sec. 179, effective June 26, 2007 provided: The General Assembly finds and declares that the amendment of KRS 271B.6-210 , 271B.6-230 , 271B.7-040 , 271B.7-280 , and 271B.8-080 , as provided for in 2002 Ky. Acts ch. 102, secs. 10, 11, 15, 18, and 19, respectively, are and were effective as of November 15, 2002.

(11/15/02). 2002 Ky. Acts ch. 102, sec. 22, provides that this section “shall take effect November 15, 2002, if a constitutional amendment proposing to amend Sections 190, 191, 192, 193, 194, 195, 198, 200, 202, 203, 205, 207 and 208 of the Constitution of Kentucky relating to corporations is enacted by the General Assembly and approved by the voters in the November, 2002 general election.” Otherwise, this section shall be void.

A constitutional amendment proposing to amend 11 of those 13 sections of the Constitution was enacted by the General Assembly and approved by the voters. During the 2002 Regular Session, the General Assembly enacted 2002 Ky. Acts ch. 341, which proposed to amend Sections 190, 191, 192, 193, 194, 198, 200, 202, 203, 207, and 208 of the Constitution of Kentucky. The voters approved that amendment in the November, 2002 general elections.

Research References and Practice Aids

Kentucky Bench & Bar.

Young, Modernizing Kentucky’s Corporate Laws, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 12.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

271B.6-220. Liability of shareholders.

  1. A purchaser from a corporation of its own shares shall not be liable to the corporation or its creditors with respect to the shares except to pay the consideration for which the shares were authorized to be issued or specified in the subscription agreement.
  2. Unless otherwise provided in the articles of incorporation, a shareholder of a corporation shall not be personally liable for the acts or debts of the corporation except that he or she may become personally liable by reason of his own acts or conduct.
  3. That a corporation has a single shareholder is not a basis for setting aside the rule recited in subsection (2) of this section.

History. Enact. Acts 1988, ch. 23, § 39, effective January 1, 1989; 2012, ch. 81, § 88, effective July 12, 2012.

NOTES TO DECISIONS

Analysis

1.Allegations That Misrepresentations Were Acts of Shareholders and Not Corporation.

Home owners’ fraudulent or negligent misrepresentation claims and a declaratory judgment claim against a construction company’s shareholders would not be dismissed under Fed. R. Civ. P. 12(b)(6) on the ground that the shareholders could not be personally liable under KRS 271B.6-220 (2) because the alleged misrepresentations were acts of the company, as the owners sufficiently alleged that the acts were the acts of the shareholders and not the company. Although the argument of the company and the shareholders might ultimately prevail, the court could only consider the facts as alleged in the complaint on a motion to dismiss. Schejbal v. Faulkner Eng'g & Constr., Inc., 2005 U.S. Dist. LEXIS 15323 (W.D. Ky. July 27, 2005).

2.Personal Liability.

Where the one owner continued to reach agreements with the construction company that was owed money by one owner’s administratively dissolved corporation, in the years after the money was owed, the one owner could not show that the one owner was not personally liable for the agreement the one owner made to guarantee the construction company payment in return for the construction company executing a lien waiver, which was an agreement the one owner did not fully perform. The one owner was not protected by KRS 271B.14-050 since the one owner’s conduct did not involve winding up the business and even though the one owner would normally be shielded from personal liability as a shareholder, the one owner was not so protected by KRS 271B.6-220 (2) because the administratively dissolved corporation had been dissolved by the time the one owner entered into the agreement. Martin v. Pack's Inc., 358 S.W.3d 481, 2011 Ky. App. LEXIS 187 (Ky. Ct. App. 2011).

Husband and wife who owned and operated a Kentucky oil and gas drilling company were ordered to pay investors $5,662,662 in compensatory damages plus prejudgment interest because they committed fraud, breach of contract, and conversion when they made misrepresentations that induced an elderly investor, members of his family, and family trusts to invest in nonexistent and worthless gas wells, and the debt was nondischargeable under 11 U.S.C.S. § 523. The court found that the husband and wife were personally liable for the fact that the company breached contracts with the investors because the company was the husband and wife’s alter ego and piercing the corporate veil was necessary to prevent the husband and wife from perpetuating a fraud and committing other illegal acts in the name of the company and then avoiding responsibility by hiding behind the corporate shield; the company did not maintain permanent corporate records, as required by KRS 271B.16-010 , and the husband and wife transferred significant amounts of money from the company to their personal bank accounts and used the money to pay personal expenses. Fontaine v. P&J Resources, Inc. (In re P&J Resources Inc.), 475 B.R. 838, 2012 Bankr. LEXIS 2167 (Bankr. E.D. Ky. 2012 ).

3.Subscriptions.

The subscriptions must be made in good faith and with the intention of paying therefor in cash or its equivalent. Smith v. Crawford, 228 Ky. 420 , 15 S.W.2d 249, 1929 Ky. LEXIS 556 ( Ky. 1929 ) (decided under prior law).

4.Tort Liability.

One’s position as an officer or shareholder in a corporation fails to immunize him from tort liability in circumstances where he would be otherwise liable if he were not a shareholder. Smith v. Isaacs, 777 S.W.2d 912, 1989 Ky. LEXIS 87 ( Ky. 1989 ) (decided under former KRS 271A.125 ).

Notes to Unpublished Decisions

1.Tort Liability.

Unpublished decision: District court erred when it found that a shareholder could not be personally liable for conversion where the proceeds of a sale of equipment that secured creditor’s loan were used to pay off another creditor because the proceeds were maintained in the corporation’s account. Under Kentucky law, if the shareholder was responsible for the transfer of funds to pay off the other creditor and was acting on behalf of the corporation, he could be personally liable for the tort of conversion. CNH Capital Am. LLC v. Hunt Tractor, Inc., 2014 FED App. 0477N, 2014 U.S. App. LEXIS 12722 (6th Cir. Ky. July 2, 2014).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge & Honabach, Kentucky Business Entity Laws: The 2010 Amendments, Vol. 74, No. 5, September 2010, Ky. Bench & Bar 6.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

ALR

Promise by stockholder to pay debt of corporation. 35 A.L.R.2d 906.

Enforceability in another jurisdiction of personal liability of stockholders for debts of corporation whose organization is incomplete or defective. 42 A.L.R.2d 659.

271B.6-230. Share dividends.

  1. Unless the articles of incorporation provide otherwise, shares may be issued pro rata and without consideration to the corporation’s shareholders or to the shareholders of one (1) or more classes or series. An issuance of shares under this subsection shall be considered a share dividend.
  2. Shares of one (1) class or series may not be issued as a share dividend in respect of shares of another class or series unless:
    1. The articles of incorporation so authorize;
    2. A majority of the votes entitled to be cast by the class or series to be issued approve the issue; or
    3. There are no outstanding shares of the class or series to be issued.
  3. If the board of directors does not fix the record date for determining shareholders entitled to a share dividend, it shall be the date the board of directors authorizes the share dividend.

History. Enact. Acts 1988, ch. 23, § 40, effective January 1, 1989; 2002, ch. 102, § 11, effective November 15, 2002.

Legislative Research Commission Note.

(6/26/2007). 2007 Ky. Acts ch. 137, sec. 179, effective June 26, 2007 provided: The General Assembly finds and declares that the amendment of KRS 271B.6-210 , 271B.6-230 , 271B.7-040 , 271B.7-280 , and 271B.8-080 , as provided for in 2002 Ky. Acts ch. 102, secs. 10, 11, 15, 18, and 19, respectively, are and were effective as of November 15, 2002.

(11/15/2002). 2002 Ky. Acts ch. 102, sec. 22, provides that this section “shall take effect November 15, 2002, if a constitutional amendment proposing to amend Sections 190, 191, 192, 193, 194, 195, 198, 200, 202, 203, 205, 207 and 208 of the Constitution of Kentucky relating to corporations is enacted by the General Assembly and approved by the voters in the November, 2002 general election.” Otherwise, [this section] shall be void.

A constitutional amendment proposing to amend 11 of those 13 sections of the Constitution was enacted by the General Assembly and approved by the voters. During the 2002 Regular Session, the General Assembly enacted 2002 Ky. Acts ch. 341, which proposed to amend Sections 190, 191, 192, 193, 194, 198, 200, 202, 203, 207, and 208 of the Constitution of Kentucky. The voters approved that amendment in the November, 2002 general elections.

Research References and Practice Aids

Kentucky Bench & Bar.

Young, Modernizing Kentucky’s Corporate Laws, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 12.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

271B.6-240. Share options.

  1. A corporation may issue rights, options, or warrants for the purchase of shares of the corporation. The board of directors shall determine the terms upon which the rights, options, or warrants are issued, their form and content, and the terms and conditions upon which and the consideration for which the shares are to be issued.
    1. The board of directors may, by a resolution adopted by the board, authorize one (1) or more officers of the corporation to do one (1) or more of the following: (2) (a) The board of directors may, by a resolution adopted by the board, authorize one (1) or more officers of the corporation to do one (1) or more of the following:
      1. Designate officers and employees of the corporation or of any of its subsidiaries to receive rights, options, or warrants to be issued by the corporation;
      2. Determine the number of rights, options, or warrants to be issued to each recipient; and
      3. Determine the time or times at or during which rights, options, or warrants may be exercised.
    2. Any resolution adopted pursuant to paragraph (a) of this subsection shall specify the total number of rights, options, or warrants the officer or officers may award.
    3. The board of directors shall not authorize an officer to designate himself or herself as a recipient of any rights, options, or warrants.

History. Enact. Acts 1988, ch. 23, § 41, effective January 1, 1989; 2002, ch. 102, § 12, effective July 15, 2002.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

271B.6-250. Form and content of certificate.

  1. Shares may but need not be represented by certificates. Unless this chapter or another statute expressly provides otherwise, the rights and obligations of shareholders shall be identical whether or not their shares are represented by certificates.
  2. At a minimum each share certificate shall state on its face:
    1. The name of the issuing corporation and that it is organized under the law of this state;
    2. The name of the person to whom issued; and
    3. The number and class of shares and the designation of the series, if any, the certificate represents.
  3. If the issuing corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations for future series) shall be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge.
  4. Each share certificate:
    1. Must be signed (either manually or in facsimile) by two (2) officers designated in the bylaws or by the board of directors; and
    2. May bear the corporate seal or its facsimile.
  5. If the person who signed (either manually or in facsimile) a share certificate no longer holds office when the certificate is issued, the certificate shall nevertheless be valid.

History. Enact. Acts 1988, ch. 23, § 42, effective January 1, 1989.

Research References and Practice Aids

ALR

Sufficiency of evidence as to delivery of stock certificate to complete valid gift of stock. 23 A.L.R.2d 1171.

271B.6-260. Shares without certificates — Shares of a public benefit corporation.

  1. Unless the articles of incorporation or bylaws provide otherwise, the board of directors of a corporation may authorize the issue of some or all of the shares of any or all of its classes or series without certificates. The authorization shall not affect shares already represented by certificates until they are surrendered to the corporation.
  2. Within a reasonable time after the issue or transfer of shares without certificates, the corporation shall send the shareholder a written statement of the information required on certificates by subsections (2) and (3) of KRS 271B.6-250 and, if applicable, KRS 271B.6-270 .
  3. Any stock certificate issued by a public benefit corporation shall note conspicuously that the corporation is a public benefit corporation.

HISTORY: Enact. Acts 1988, ch. 23, § 43, effective January 1, 1989; 2017 ch. 28, § 5, effective June 29, 2017.

271B.6-270. Restrictions on transfer or registration of shares or other securities.

  1. The articles of incorporation, bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation. A restriction shall not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction.
  2. A restriction on the transfer or registration of transfer of shares shall be valid and enforceable against the holder, or a transferee of the holder if the restriction is authorized by this section, and the holder or transferee has actual knowledge of the restriction or its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by KRS 271B.6-260 (2). Unless so noted or contained, a restriction is not enforceable against a person without knowledge of the restriction.
  3. A restriction on the transfer or registration of transfer of shares shall be authorized:
    1. To maintain the corporation’s status when it is dependent on the number or identity of its shareholders;
    2. To preserve exemptions under federal or state securities law;
    3. In connection with shares issued by the corporation to its officers, directors, employees, or independent contractors, including as equity-based compensation under the Internal Revenue Code; or
    4. For any other reasonable purpose.
  4. A restriction on the transfer or registration of transfer of shares may without limitation:
    1. Obligate the shareholder first to offer the corporation or other persons, separately, consecutively, or simultaneously, an opportunity to acquire the restricted shares;
    2. Obligate the corporation or other persons, separately, consecutively, or simultaneously, to acquire or transfer the restricted shares;
    3. Obligate a shareholder to transfer the restricted shares to the corporation or other persons for an agreed price or a price based on a valuation formula, including an obligation to transfer the shares for an amount equal to the original consideration paid for the shares;
    4. Require the corporation, the holders of any class of its shares, or another person to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable; or
    5. Prohibit the transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable.
  5. For purposes of this section, “shares” includes a security convertible into or carrying a right to subscribe for or acquire shares.

History. Enact. Acts 1988, ch. 23, § 44, effective January 1, 1989; 2002, ch. 102, § 13, effective July 15, 2002; 2007, ch. 137, § 61, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 61, effective July 15, 2010.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

ALR

Uniform Stock Transfer Act: construction and effect of § 15 prohibiting restriction on transfer of shares unless such restriction is stated on the certificate. 29 A.L.R.2d 901.

Right of corporation to refuse to transfer stock on presentation of properly indorsed certificate, because of conflicting rights or claims of one other than transferee. 75 A.L.R.2d 746.

Corporation’s delivery of stock certificate to stockholder as prerequisite of its issuance to him. 16 A.L.R.3d 1015.

271B.6-280. Expense of issue.

A corporation may pay or allow the expenses of selling or underwriting its shares or other securities, and of organizing or reorganizing the corporation, from the consideration received for shares without thereby rendering such shares or other securities not fully paid or assessable.

History. Enact. Acts 1988, ch. 23, § 45, effective January 1, 1989.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

Subsequent Acquisition of Shares by Shareholders and Corporation

271B.6-300. Shareholders’ preemptive rights.

  1. The shareholders of a corporation shall not have a preemptive right to acquire the corporation’s unissued shares except:
    1. To the extent the articles of incorporation so provide; and
    2. To the extent provided in subsection (4) of this section.
  2. A statement included in the articles of incorporation that “the corporation elects to have preemptive rights” (or words of similar import) means that the following principles apply, except to the extent the articles of incorporation expressly provide otherwise:
    1. The shareholders of the corporation shall have a preemptive right granted on uniform terms and conditions prescribed by the board of directors, to provide a fair and reasonable opportunity to exercise the right to acquire proportional amounts of the corporation’s unissued shares upon the decision of the board of directors to issue them.
    2. A shareholder may waive his preemptive right. A waiver evidenced by a writing shall be irrevocable even though it is not supported by consideration.
    3. There shall be no preemptive right with respect to:
      1. Shares issued as compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates;
      2. Shares issued to satisfy conversion or option rights created to provide compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates;
      3. Shares authorized in articles of incorporation that are issued within six (6) months from the effective date of incorporation; and
      4. Shares sold otherwise than for money.
    4. Holders of shares of any class without general voting rights but with preferential rights to distributions or assets shall have no preemptive rights with respect to shares of any class.
    5. Holders of shares of any class with general voting rights but without preferential rights to distributions or assets shall have no preemptive rights with respect to shares of any class with preferential rights to distributions or assets unless the shares with preferential rights are convertible into or carry a right to subscribe for or acquire shares without preferential rights.
    6. Shares subject to preemptive rights that are not acquired by shareholders may be issued to any person for a period of one (1) year after being offered to shareholders at a consideration set by the board of directors that is not lower than the consideration set for the exercise of preemptive rights. An offer at a lower consideration or after the expiration of one (1) year shall be subject to the shareholders’ preemptive rights.
  3. For purposes of this section, “shares” include a security convertible into or carrying a right to subscribe for or acquire shares.
  4. Except to the extent limited or denied by this subsection, shareholders of a corporation that existed on January 1, 1989, whose articles of incorporation did not on January 1, 1989, contain a provision specifically addressing preemptive rights shall have a preemptive right to acquire unissued shares or securities convertible into such shares or carrying a right to subscribe to or acquire shares.
    1. No preemptive right shall exist:
      1. To acquire any shares issued to directors, officers, or employees pursuant to approval by the affirmative vote of the holders of a majority of the shares entitled to vote thereon or when authorized by and consistent with a plan theretofore approved by such a vote of shareholders; or
      2. To acquire any shares sold otherwise than for cash.
    2. Holders of shares of any class that is preferred or limited as to dividends or assets shall not be entitled to any preemptive right.
    3. Holders of shares of any class with general voting rights but without preferential rights to distributions or assets shall not be entitled to any preemptive right to shares of any class that is preferred or limited as to dividends or assets or to any obligations, unless convertible into shares of any class with general voting rights but without preferential rights to distributions or assets, or carrying a right to subscribe to or acquire shares of any class with general voting rights but without preferential rights to distributions or assets.
    4. Holders of shares of any class without general voting rights shall have no preemptive rights to shares of a class which is identical as to rights except that the class has general voting rights.
    5. The preemptive right shall be only an opportunity to acquire shares or other securities under such terms and conditions as the board of directors may fix for the purpose of providing a fair and reasonable opportunity to exercise such right.
    6. This subsection shall not apply to any class of stock of any corporation after the corporation’s articles of incorporation are amended to limit or deny the preemptive rights of any class of its stock.

History. Enact. Acts 1988, ch. 23, § 46, effective January 1, 1989; 1990, ch. 441, § 1, effective July 13, 1990.

271B.6-310. Corporation’s acquisition of its own shares.

  1. A corporation may acquire its own shares and shares so acquired shall constitute authorized but unissued shares.
  2. If the articles of incorporation prohibit the reissue of acquired shares, the number of authorized shares shall be reduced by the number of shares acquired, effective upon amendment of the articles of incorporation.
  3. Articles of amendment may be adopted by the board of directors without shareholder action, and shall be delivered to the Secretary of State for filing, and shall set forth:
    1. The name of the corporation;
    2. The reduction in the number of authorized shares, itemized by class and series; and
    3. The total number of authorized shares, itemized by class and series, remaining after reduction of the shares.

History. Enact. Acts 1988, ch. 23, § 47, effective January 1, 1989.

Research References and Practice Aids

ALR

Stockholder converting or selling stock to corporation as creditor in bankruptcy. 4 A.L.R. Fed. 654.

Reduction of capital stock and distribution of capital assets upon reduction. 35 A.L.R.2d 1149, 1175.

Rights of creditors of corporation with respect to its purchase or acquisition of its own stock. 47 A.L.R.2d 758.

Validity, construction, and effect of provisions of articles of incorporation or stock certificates relating to call, redemption, or retirement of common stock. 48 A.L.R.2d 392.

Propriety of applying minority discount to value of shares purchased by corporation or its shareholders from minority shareholders. 13 A.L.R.5th 840.

Distributions

271B.6-400. Distributions to shareholders.

  1. A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction by the articles of incorporation and the limitation in subsection (3) of this section.
  2. If the board of directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a purchase, redemption or other acquisition of the corporation’s shares), it shall be the date the board of directors authorizes the distribution.
  3. No distribution shall be made if, after giving it effect:
    1. The corporation would not be able to pay its debts as they become due in the usual course of business; or
    2. The corporation’s total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
  4. The board of directors may base a determination that a distribution is not prohibited under subsection (3) of this section either on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.
  5. Except as provided in subsection (7) of this section, the effect of a distribution under subsection (3) of this section shall be measured:
    1. In the case of distribution by purchase, redemption, or other acquisition of the corporation’s shares, as of the earlier of:
      1. The date money or other property is transferred or debt incurred by the corporation; or
      2. The date the shareholder ceases to be a shareholder with respect to the acquired shares;
    2. In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and
    3. In all other cases, as of:
      1. The date the distribution is authorized if the payment occurs within one hundred twenty (120) days after the date of authorization; or
      2. The date the payment is made if it occurs more than one hundred twenty (120) days after the date of authorization.
  6. A corporation’s indebtedness to a shareholder incurred by a reason of a distribution made in accordance with this section shall be at parity with the corporation’s indebtedness to its general creditors except to the extent subordinated by agreement.
  7. Indebtedness of a corporation, including indebtedness issued as a distribution, shall not be considered a liability for purposes of determinations under subsection (3) of this section if its terms provide that payment of principal and interest are made only if and to the extent that payment of a distribution to shareholders could then be made under this section. If the indebtedness is issued as a distribution, each payment of principal or interest shall be treated as a distribution, the effect of which is measured on the date the payment is actually made.

History. Enact. Acts 1988, ch. 23, § 48, effective January 1, 1989.

NOTES TO DECISIONS

1.Fiduciary.

No technical trust was created between Chapter 7 debtor and bank which made loans to debtor’s electrical construction business, which would have allowed debtor to be considered as a fiduciary: under criteria set out in this section, no trust relationship existed notwithstanding any inferences that might be drawn from it concerning a corporate directors “fiduciary” duty to the corporation’s shareholders. Peoples Bank & Trust Co. v. Penick (In re Penick), 199 B.R. 16, 1996 Bankr. LEXIS 948 (Bankr. E.D. Ky. 1996 ).

2.Tolling.

Doctrine of adverse domination may operate to toll the statute of limitations under KRS 271B.8-330 (3) and 271B.6-400 while directors, who are guilty of alleged misconduct, exercise control over a corporation. Wilson v. Paine, 288 S.W.3d 284, 2009 Ky. LEXIS 154 ( Ky. 2009 ).

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Miller, Notes, Piercing the Corporate Veil in Kentucky: An Analysis of United States v. WRW Corp., 22 N. Ky. L. Rev. 541 (1995).

ALR

Cancellation of accrued dividends. 8 A.L.R.2d 893.

Overpayments of dividends on preferred stock as deductible in payment of dividends for later years. 10 A.L.R.2d 241.

Parties defendant to stockholder’s suit to compel declaration of dividend. 15 A.L.R.2d 1124.

Rights of preferred stockholders as to passed or accumulated dividends in going concern. 27 A.L.R.2d 1073.

Dividend rights in surplus of new consolidated corporation resulting from reduction of capital stock of former constituent corporations. 28 A.L.R.2d 1177.

Consequences to shareholder of dividend in kind. 56 A.L.R.2d 474.

Subtitle 7. Shareholders

Meetings

271B.7-010. Annual meeting.

  1. A corporation shall hold a meeting of shareholders annually at a time stated in or fixed in accordance with the bylaws.
  2. Annual shareholders’ meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated in or fixed in accordance with the bylaws, annual meetings shall be held at the corporation’s principal office.
  3. The failure to hold an annual meeting at the time stated in or fixed in accordance with a corporation’s bylaws shall not affect the validity of any corporate action.

History. Enact. Acts 1988, ch. 23, § 49, effective January 1, 1989.

Research References and Practice Aids

ALR

Remedies to restrain or compel holding of stockholders’ meetings. 48 A.L.R.2d 615.

271B.7-020. Special meeting.

  1. A corporation shall hold a special meeting of shareholders:
    1. On call of its board of directors or the person or persons authorized to do so by the articles of incorporation or bylaws; or
    2. If the holders of at least thirty-three and one-third percent (331/3%) (or such higher or lower percentage as is contained in the articles of incorporation) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date, and deliver to the corporation’s secretary one (1) or more written demands for the meeting describing the purpose or purposes for which it is to be held.
  2. If not otherwise fixed under KRS 271B.7-030 or 271B.7-070 , the record date for determining shareholders entitled to demand a special meeting shall be the date the first shareholder signs the demand.
  3. Special shareholders’ meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated or fixed in accordance with the bylaws, special meetings shall be held at the corporation’s principal office.
  4. Only business within the purpose or purposes described in the meeting notice required by subsection (3) of KRS 271B.7-050 may be conducted at a special shareholders’ meeting.

History. Enact. Acts 1988, ch. 23, § 50, effective January 1, 1989.

Research References and Practice Aids

ALR

Service of process, holding directors’, officers’, stockholders’, or sales meetings or conventions in a state by foreign corporation as doing business or otherwise subjecting it to service of process and suit. 84 A.L.R.2d 412.

271B.7-030. Court-ordered meeting.

  1. The Circuit Court for the county where a corporation’s principal office (or, if none in this state, its registered office) is located may summarily order a meeting to be held:
    1. On application of any shareholder of the corporation entitled to participate in an annual meeting if an annual meeting was not held within the earlier of six (6) months after the end of the corporation’s fiscal year or fifteen (15) months after its last annual meeting; or
    2. On application of a shareholder who signed a demand for a special meeting valid under KRS 271B.7-020 , if:
      1. Notice of the special meeting was not given within thirty (30) days after the date the demand was delivered to the corporation’s secretary; or
      2. The special meeting was not held in accordance with the notice.
  2. The court may fix the time and place of the meeting, determine the shares entitled to participate in the meeting, specify a record date for determining shareholders entitled to notice of and to vote at the meeting, prescribe the form and content of the meeting notice, fix the quorum required for specific matters to be considered at the meeting (or direct that the votes represented at the meeting constitute a quorum for action on those matters), and enter other orders necessary to accomplish the purpose or purposes of the meeting.

History. Enact. Acts 1988, ch. 23, § 51, effective January 1, 1989.

271B.7-040. Action without meeting.

  1. Except as provided in the articles of incorporation, action required or permitted by this chapter to be taken at a shareholders’ meeting may be taken without a meeting and without prior notice, except as provided in subsection (8) of this section, if the action is taken by all the shareholders entitled to vote on the action.
  2. If the articles of incorporation so provide, any action except the election of directors by cumulative voting pursuant to KRS 271B.7-280 required or permitted by this chapter to be taken at a shareholders’ meeting may be taken without a meeting and without prior notice, except as provided in subsection (8) of this section, if the action is taken by shareholders entitled to vote on the action representing not less than eighty percent (80%), or such higher percentage required by this chapter or the articles of incorporation, of the votes entitled to be cast.
  3. The action taken under this section shall be evidenced by one (1) or more written consents describing the action taken, signed by the shareholders taking the action, and delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  4. Action taken under this section shall be effective when consents representing the votes necessary to take the action under this section are delivered to the corporation, or upon delivery of the consents representing the necessary votes, as of a different date if specified in the consent.
  5. Any shareholder giving a consent may revoke the consent by a writing received by the corporation prior to the time that consents representing the votes required to take the action under this section have been delivered to the corporation but may not do so thereafter.
  6. A consent signed under this section shall have the effect of a meeting vote and may be described as such in any document.
  7. Prompt notice of the taking of any action by shareholders without a meeting under this section by less than unanimous written consent shall be given to those shareholders entitled to vote on the action who have not consented in writing.
  8. If this chapter requires that notice of proposed action be given to nonvoting shareholders and the action is to be taken by consent of the voting shareholders under this section, the corporation shall give its nonvoting shareholders and voting shareholders whose consent is not solicited, written notice of the proposed action at least ten (10) days before the action is taken. The notice shall contain or be accompanied by the same material that, under this chapter, would have been required to be sent to nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted to the shareholders for action.

History. Enact. Acts 1988, ch. 23, § 52, effective January 1, 1989; 2002, ch. 102, § 14, effective July 15, 2002; 2002, ch. 102, § 15, effective November 15, 2002.

Legislative Research Commission Note.

(6/26/2007). 2007 Ky. Acts ch. 137, sec. 179, effective June 26, 2007 provided: The General Assembly finds and declares that the amendment of KRS 271B.6-210 , 271B.6-230 , 271B.7-040 , 271B.7-280 , and 271B.8-080 , as provided for in 2002 Ky. Acts ch. 102, secs. 10, 11, 15, 18, and 19, respectively, are and were effective as of November 15, 2002.

(11/15/02). 2002 Ky. Acts ch. 102, sec. 22, provides that this section “shall take effect November 15, 2002, if a constitutional amendment proposing to amend Sections 190, 191, 192, 193, 194, 195, 198, 200, 202, 203, 205, 207 and 208 of the Constitution of Kentucky relating to corporations is enacted by the General Assembly and approved by the voters in the November, 2002 general election.” Otherwise, [this section] shall be void.

A constitutional amendment proposing to amend 11 of those 13 sections of the Constitution was enacted by the General Assembly and approved by the voters. During the 2002 Regular Session, the General Assembly enacted 2002 Ky. Acts ch. 341, which proposed to amend Sections 190, 191, 192, 193, 194, 198, 200, 202, 203, 207, and 208 of the Constitution of Kentucky. The voters approved that amendment in the November, 2002 general elections.

Research References and Practice Aids

Kentucky Bench & Bar.

Young, Modernizing Kentucky’s Corporate Laws, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 12.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

271B.7-050. Notice of meeting.

  1. A corporation shall notify shareholders of the date, time, and place of each annual and special shareholders’ meeting no fewer than ten (10) nor more than sixty (60) days before the meeting date. Unless this chapter or the articles of incorporation require otherwise, the corporation shall be required to give notice only to shareholders entitled to vote at the meeting.
  2. Unless this chapter or the articles of incorporation require otherwise, notice of an annual meeting shall not be required to include a description of the purpose or purposes for which the meeting is called.
  3. Notice of a special meeting shall include a description of the purpose or purposes for which the meeting is called.
  4. If not otherwise fixed under KRS 271B.7-030 or 271B.7-070 , the record date for determining shareholders entitled to notice of and to vote at an annual or special shareholders’ meeting shall be the day before the first notice is delivered to shareholders.
  5. Unless the bylaws require otherwise, if an annual or special shareholders’ meeting is adjourned to a different date, time, or place, notice shall not be required to be given of the new date, time, or place if the new date, time, or place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed under KRS 271B.7-070 , however, notice of the adjourned meeting shall be given under this section to persons who are shareholders as of the new record date.

History. Enact. Acts 1988, ch. 23, § 53, effective January 1, 1989.

NOTES TO DECISIONS

1.Notice.

Stockholders who consented to or ratified the action of a stockholder’s meeting which increased the capital stock waived their right to object to lack of notice. Stutz v. Handley, 41 F. 531, 1890 U.S. App. LEXIS 2042 (6th Cir. 1890), rev’d, 139 U.S. 417, 11 S. Ct. 530, 35 L. Ed. 227, 1891 U.S. LEXIS 2394 (1891), rev’d on other grounds, Handley v. Stutz, 139 U.S. 417, 11 S. Ct. 530, 35 L. Ed. 227, 1891 U.S. LEXIS 2394 (1891) (decided under prior law).

Where stockholders were given notice of a corporate reorganization meeting but were not specifically put on notice of a merger, failure to comply with requirement of filing written objections did not preclude them from qualifying as objecting shareholders. Acree v. E. I. F. C., Inc., 502 S.W.2d 43, 1973 Ky. LEXIS 59 ( Ky. 1973 ) (decided under prior law).

271B.7-060. Waiver of notice.

  1. A shareholder may waive any notice required by this chapter, the articles of incorporation, or bylaws before or after the date and time stated in the notice. The waiver shall be in writing, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  2. A shareholder’s attendance at a meeting shall:
    1. Waive objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and
    2. Waive objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.

History. Enact. Acts 1988, ch. 23, § 54, effective January 1, 1989.

Research References and Practice Aids

ALR

Participation in meeting as waiver of compliance with notice requirement for shareholders’ meeting. 64 A.L.R.3d 358.

271B.7-070. Record date.

  1. The bylaws may fix or provide the manner of fixing the record date for one (1) or more voting groups in order to determine the shareholders entitled to notice of a shareholders’ meeting, to demand a special meeting, to vote, or to take any other action. If the bylaws do not fix or provide for fixing a record date, the board of directors of the corporation may fix a future date as the record date.
  2. A record date fixed under this section shall not be more than seventy (70) days before the meeting or action requiring a determination of shareholders.
  3. A determination of shareholders entitled to notice of or to vote at a shareholders’ meeting shall be effective for any adjournment of the meeting unless the board of directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting.
  4. If a court orders a meeting adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting, it may provide that the original record date continues in effect or it may fix a new record date.

History. Enact. Acts 1988, ch. 23, § 55, effective January 1, 1989.

Research References and Practice Aids

ALR

Who may exercise voting power of corporate stock pending settlement of estate of deceased owner. 7 A.L.R.3d 629.

271B.7-080. Remote communication.

  1. If the board of directors is authorized to determine the place of an annual or special meeting of shareholders, the board of directors, in its sole discretion, may determine that the meeting shall not be held at any place but shall instead be held solely by means of remote communication under subsection (2) of this section.
  2. If authorized by the board of directors in its sole discretion, and subject to such guidelines and procedures as the board of directors may adopt, shareholders and proxyholders not physically present at a meeting of shareholders may by means of remote communication:
    1. Participate in a meeting of shareholders; and
    2. Be deemed present in person and vote at a meeting of shareholders, whether such meeting is to be held at a designated place or solely by means of remote communication, if:
      1. The corporation implements reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a shareholder or proxyholder;
      2. The corporation implements reasonable measures to provide shareholders and proxyholders referred to in subparagraph 1. of this paragraph a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with the proceedings; and
      3. The corporation records any vote or other action taken at the meeting by a shareholder or proxyholder by means of remote communication. The corporation shall maintain as a record the recorded vote or other action taken.

History. Enact. Acts 2002, ch. 102, § 21, effective July 15, 2002.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

Voting

271B.7-200. Shareholders’ list for meeting.

  1. After fixing a record date for a meeting, a corporation shall prepare a list of the names of all its shareholders who are entitled to notice of a shareholders’ meeting. The list shall be arranged by voting group (and within each voting group by class or series of shares) and show the address of and number of shares held by each shareholder.
  2. The shareholders’ list shall be available for inspection by any shareholder, beginning five (5) business days before the meeting for which the list was prepared and continuing through the meeting, at the corporation’s principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder, his agent, or attorney shall be entitled on written demand to inspect and, subject to the requirements of subsection (3) of KRS 271B.16-020 , to copy the list, during regular business hours and at his expense, during the period it is available for inspection.
  3. The corporation shall make the shareholders’ list available at the meeting, and any shareholder, his agent, or attorney shall be entitled to inspect the list at any time during the meeting or any adjournment.
  4. Refusal or failure to prepare or make available the shareholders’ list shall not affect the validity of action taken at the meeting.

History. Enact. Acts 1988, ch. 23, § 56, effective January 1, 1989.

271B.7-210. Voting entitlement of shares.

  1. Except as provided in subsections (2) and (4) of this section or unless the articles of incorporation provide otherwise, each outstanding share, regardless of class, shall be entitled to one (1) vote on each matter voted on at a shareholders’ meeting. Only shares shall be entitled to vote.
  2. Absent special circumstances, the shares of a corporation shall not be entitled to vote if they are owned, directly or indirectly, by an entity, domestic or foreign, and the corporation controls, directly or indirectly, the entity’s determination to vote, and how to vote, the shares.
  3. Subsection (2) of this section shall not limit the power of a corporation to vote any shares, including its own shares, held by it in a fiduciary capacity.
  4. Redeemable shares shall not be entitled to vote after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares.

History. Enact. Acts 1988, ch. 23, § 57, effective January 1, 1989; 2007, ch. 137, § 62, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 62, effective July 15, 2010.

NOTES TO DECISIONS

1.Cumulative Voting.

It was optional with the stockholder whether or not he should cast his votes cumulatively. Schmidt v. Mitchell, 101 Ky. 570 , 41 S.W. 929, 19 Ky. L. Rptr. 763 , 1897 Ky. LEXIS 223 ( Ky. 1897 ) (decided under prior law).

An election was valid if stockholders were not required to vote cumulatively and if they were not denied such right. Schmidt v. Mitchell, 101 Ky. 570 , 41 S.W. 929, 19 Ky. L. Rptr. 763 , 1897 Ky. LEXIS 223 ( Ky. 1897 ) (decided under prior law).

The purpose of allowing cumulative voting was to protect the rights of minority stockholders. Haldeman v. Haldeman, 176 Ky. 635 , 197 S.W. 376, 1917 Ky. LEXIS 95 ( Ky. 1917 ) (decided under prior law).

2.Fiduciaries.

Fiduciaries could vote stock held by them, although not transferred to their name, until settlement and division of the estate. Schmidt v. Mitchell, 101 Ky. 570 , 41 S.W. 929, 19 Ky. L. Rptr. 763 , 1897 Ky. LEXIS 223 ( Ky. 1897 ) (decided under prior law).

3.Proxy.

A joint owner who was present at an election had, in the absence of his co-owners, the right to vote the stock, and such a vote revoked a proxy theretofore given by a co-owner. Schmidt v. Mitchell, 101 Ky. 570 , 41 S.W. 929, 19 Ky. L. Rptr. 763 , 1897 Ky. LEXIS 223 ( Ky. 1897 ) (decided under prior law).

4.Voters.

Persons who appeared as owners of stock on the corporate books as of the date of a stockholder’s meeting were prima facie entitled to vote said stock. Bernheim v. Louisville Property Co., 221 F. 273, 1914 U.S. Dist. LEXIS 1293 (D. Ky. 1914 ) (decided under prior law).

NOTES TO UNPUBLISHED DECISIONS

1.Voters.

Shareholders generally have no individual liability, they purchase shares for consideration, and in return, they have a right to vote those shares; if they do not own the majority of the shares, they should recognize that they may be outvoted. Conlon v. Haise, 2016 Ky. App. Unpub. LEXIS 884 (Ky. Ct. App. Sept. 30, 2016), review denied, ordered not published, 2017 Ky. LEXIS 55 (Ky. Feb. 9, 2017).

Tools of good corporate practice are designed to give a purchasing minority shareholder the opportunity to bargain for protection before parting with consideration; it would do violence to normal corporate practice and the corporation law to impose a duty on the majority to vote their shares in the minority's interests as opposed to their interests. Conlon v. Haise, 2016 Ky. App. Unpub. LEXIS 884 (Ky. Ct. App. Sept. 30, 2016), review denied, ordered not published, 2017 Ky. LEXIS 55 (Ky. Feb. 9, 2017).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Article: Say on Pay’s Bundling Problems, 99 Ky. L.J. 119 (2010/2011).

ALR

Construction, application, and effect of constitutional provisions or statutes relating to cumulative voting of stock for corporate directors. 43 A.L.R.2d 1332.

Validity and effect of agreement controlling the vote of corporate stock. 45 A.L.R.2d 799.

Jointly held or fractional share in corporation, voting of. 98 A.L.R.2d 357.

Casting ballots after closing of polls. 41 A.L.R.3d 234.

Right, as between pledgor and pledgee, to vote pledged stock. 68 A.L.R.3d 680.

271B.7-220. Proxies.

  1. A shareholder may vote his or her shares in person or by proxy.
  2. A shareholder, or his or her agent or attorney-in-fact, may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form or by an electronic transmission. An electronic transmission shall contain, or be accompanied by, information from which one can determine that the shareholder, the shareholder’s agent, or the shareholder’s attorney-in-fact authorized the electronic transmission.
  3. An appointment of a proxy shall be effective when a signed appointment form or an electronic transmission of the appointment is received by the secretary or other officer or agent authorized to tabulate votes. An appointment shall be valid for eleven (11) months unless a longer period is expressly provided in the appointment form.
  4. An appointment of a proxy shall be revocable unless the appointment form or electronic transmission states that it is irrevocable and the appointment is coupled with an interest. Appointments coupled with an interest include the appointment of:
    1. A pledgee;
    2. A person who purchased or agreed to purchase the shares;
    3. A creditor of the corporation who extended it credit under terms requiring the appointment;
    4. An employee of the corporation whose employment contract requires the appointment; or
    5. A party to a voting agreement created under KRS 271B.7-310 .
  5. The death or incapacity of the shareholder appointing a proxy shall not affect the right of the corporation to accept the proxy’s authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment.
  6. An appointment made irrevocable under subsection (4) of this section shall be revocable when the interest with which it is coupled is extinguished. The revocation of an appointment under this subsection shall not be effective until the secretary of the corporation has received written notice of the revocation.
  7. A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if he did not know of its existence when he acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares or on the information statement for shares without certificates.
  8. Subject to KRS 271B.7-240 and to any express limitation on the proxy’s authority stated in the appointment form or electronic transmission, a corporation shall be entitled to accept the proxy’s vote or other action as that of the shareholder making the appointment.

History. Enact. Acts 1988, ch. 23, § 58, effective January 1, 1989; 2002, ch. 102, § 16, effective July 15, 2002.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

271B.7-230. Shares held by nominees.

  1. A corporation may establish a procedure by which the beneficial owner of shares that are registered in the name of a nominee is recognized by the corporation as the shareholder. The extent of this recognition may be determined in the procedure.
  2. The procedure may set forth:
    1. The types of nominees to which it applies;
    2. The rights or privileges that the corporation recognizes in a beneficial owner;
    3. The manner in which the procedure is selected by the nominee;
    4. The information that must be provided when the procedure is selected;
    5. The period for which selection of the procedure is effective; and
    6. Other aspects of the rights and duties created.

History. Enact. Acts 1988, ch. 23, § 59, effective January 1, 1989.

271B.7-240. Corporation’s acceptance of votes and persons authorized to vote shares.

  1. If the name signed on or submitted with a vote, consent, waiver, or proxy appointment corresponds to the name or electronic signature of a shareholder, the corporation if acting in good faith shall be entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder. For purposes of this section, a telegram or cablegram appearing to have been transmitted by the proper person, or a photographic, photostatic, or equivalent reproduction of a writing appointing a proxy may be accepted by the corporation, if acting in good faith, as a sufficient, signed appointment form.
  2. If the name signed on or submitted with a vote, consent, waiver, or proxy appointment does not correspond to the name or electronic signature of its shareholder, the corporation if, acting in good faith, shall nevertheless be entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder if:
    1. The shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;
    2. The name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
    3. The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
    4. The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory’s authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment; or
    5. Two (2) or more persons are the shareholder as cotenants or fiduciaries and the name signed purports to be the name of at least one (1) of the co-owners and the person signing appears to be acting on behalf of all the co-owners.
  3. The corporation shall be entitled to reject a vote, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory’s authority to sign for the shareholder or, in the case of an electronic record, to affix the shareholder’s electronic signature to the electronic record.
  4. The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section or KRS 271B.7-220 (2) shall not be liable in damages to the shareholder for the consequences of the acceptance or rejection.
  5. Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this section or KRS 271B.7-220 (2) shall be valid, unless a court of competent jurisdiction determines otherwise.
  6. Shares standing in the name of another corporation, domestic or foreign, may be voted by either the president of such corporation or by proxy appointed by him, unless the board of directors of such other corporation authorizes another person to vote such shares.
  7. Shares held by an administrator, executor, guardian, or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name.
  8. Where shares are held jointly by three (3) or more fiduciaries acting under an instrument becoming effective after June 30, 1946, the will of the majority of such fiduciaries shall control the manner of voting or the giving of a proxy, unless the instrument or order appointing the fiduciaries otherwise directs. Where, in any case, fiduciaries are equally divided upon the manner of voting shares jointly held by them, any court of competent jurisdiction may, upon petition filed by any of the fiduciaries, or by any beneficiary, appoint an additional person to act with the fiduciaries in determining the manner in which the shares shall be voted upon the particular questions as to which the fiduciaries are divided.
  9. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed.
  10. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the share so transferred.

History. Enact. Acts 1988, ch. 23, § 60, effective January 1, 1989; 2002, ch. 102, § 17, effective July 15, 2002.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

271B.7-250. Quorum and voting requirements for voting groups.

  1. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the articles of incorporation or this chapter provide otherwise, a majority of the votes entitled to be cast on the matter by the voting group shall constitute a quorum of that voting group for action on that matter.
  2. Once a share is represented for any purpose at a meeting, it shall be deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting, unless a new record date is or must be set for that adjourned meeting.
  3. If a quorum exists, action on a matter (other than the election of directors) by a voting group shall be approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the articles of incorporation or this chapter require a greater number of affirmative votes.
  4. An amendment of articles of incorporation adding, changing, or deleting a quorum or voting requirement for a voting group greater than specified in subsection (1) or (3) of this section shall be governed by KRS 271B.7-270 .
  5. The election of directors shall be governed by KRS 271B.7-280 .

History. Enact. Acts 1988, ch. 23, § 61, effective January 1, 1989.

271B.7-260. Action by single and multiple voting groups.

  1. If the articles of incorporation or this chapter provide for voting by a single voting group on a matter, action on that matter shall be taken when voted upon by that voting group as provided in KRS 271B.7-250 .
  2. If the articles of incorporation or this chapter provide for voting by two (2) or more voting groups on a matter, action on that matter shall be taken only when voted upon by each of those voting groups counted separately as provided in KRS 271B.7-250 . Action may be taken by one (1) voting group on a matter even though no action is taken by another voting group entitled to vote on the matter.

History. Enact. Acts 1988, ch. 23, § 62, effective January 1, 1989.

271B.7-270. Greater quorum or voting requirements.

  1. The articles of incorporation may provide for a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is provided for by this chapter.
  2. An amendment to the articles of incorporation that adds, changes, or deletes a greater quorum or voting requirement shall meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever is greater.

History. Enact. Acts 1988, ch. 23, § 63, effective January 1, 1989; 2007, ch. 137, § 63, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 63, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

271B.7-280. Voting for directors — Cumulative voting.

  1. Unless otherwise provided in the articles of incorporation, directors are elected by a plurality of votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. A “plurality” means that the individuals with the largest number of votes are elected as directors up to the maximum number of directors to be chosen at the election.
  2. Shareholders do not have the right to cumulate their votes for directors unless the articles of incorporation so provide.
  3. A statement included in the articles of incorporation that “all, or a designated group of, shareholders are entitled to cumulate their votes for directors,” or words of similar import, means that the shareholders designated are entitled to multiply the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote and cast the product for a single candidate or distribute the product among two (2) or more candidates.

History. Enact. Acts 1988, ch. 23, § 64, effective January 1, 1989; 2002, ch. 102, § 18, effective November 15, 2002.

Legislative Research Commission Note.

(6/26/2007). 2007 Ky. Acts ch. 137, sec. 179, effective June 26, 2007 provided: The General Assembly finds and declares that the amendment of KRS 271B.6-210 , 271B.6-230 , 271B.7-040 , 271B.7-280 , and 271B.8-080 , as provided for in 2002 Ky. Acts ch. 102, secs. 10, 11, 15, 18, and 19, respectively, are and were effective as of November 15, 2002.

(11/15/2002). 2002 Ky. Acts ch. 102, sec. 22, provides that this section “shall take effect November 15, 2002, if a constitutional amendment proposing to amend Sections 190, 191, 192, 193, 194, 195, 198, 200, 202, 203, 205, 207 and 208 of the Constitution of Kentucky relating to corporations is enacted by the General Assembly and approved by the voters in the November, 2002 general election.” Otherwise, [this section] shall be void.

A constitutional amendment proposing to amend 11 of those 13 sections of the Constitution was enacted by the General Assembly and approved by the voters. During the 2002 Regular Session, the General Assembly enacted 2002 Ky. Acts ch. 341, which proposed to amend Sections 190, 191, 192, 193, 194, 198, 200, 202, 203, 207, and 208 of the Constitution of Kentucky. The voters approved that amendment in the November, 2002 general elections.

Research References and Practice Aids

Kentucky Bench & Bar.

Young, Modernizing Kentucky’s Corporate Laws, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 12.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Voting Trusts and Agreements

271B.7-300. Voting trusts.

  1. One (1) or more shareholders may create a voting trust, conferring on a trustee the right to vote or otherwise act for them, by signing an agreement setting out the provisions of the trust (which may include anything consistent with its purpose) and transferring their shares to the trustee. When a voting trust agreement is signed, the trustee shall prepare a list of the names and addresses of all owners of beneficial interests in the trust, together with the number and class of shares each transferred to the trust, and deliver copies of the list and agreement to the corporation’s principal office.
  2. A voting trust shall become effective on the date the first shares subject to the trust are registered in the trustee’s name. A voting trust shall be valid for not more than ten (10) years after its effective date unless extended under subsection (3) of this section.
  3. All or some of the parties to a voting trust may extend it for additional terms of not more than ten (10) years each by signing an extension. An extension shall be valid for ten (10) years from the date the first shareholder signs the extension agreement. The voting trustee shall deliver copies of the extension agreement and list of beneficial owners to the corporation’s principal office. An extension agreement shall bind only those parties signing it.

History. Enact. Acts 1988, ch. 23, § 65, effective January 1, 1989.

NOTES TO DECISIONS

1.In General.

A voting trust established for a lawful purpose was valid. Ecker v. Kentucky Refining Co., 144 Ky. 264 , 138 S.W. 264, 1911 Ky. LEXIS 614 ( Ky. 1911 ) (decided under prior law).

2.Consent of Stockholders.

Voting trusts and the pooling of stock for voting purposes were not valid when established without the consent of the stockholders involved. Lebus v. Stansifer, 154 Ky. 444 , 157 S.W. 727, 1913 Ky. LEXIS 91 ( Ky. 1913 ) (decided under prior law).

Research References and Practice Aids

ALR

Agreement controlling the vote of corporate stock. 45 A.L.R.2d 799.

Validity of voting trust or other similar agreement for control of voting power of corporate stock. 98 A.L.R.2d 376.

271B.7-310. Voting agreements.

  1. Two (2) or more shareholders may provide for the manner in which they will vote their shares by signing an agreement for that purpose. A voting agreement created under this section shall not be subject to the provisions of KRS 271B.7-300 .
  2. A voting agreement created under this section shall be specifically enforceable.

History. Enact. Acts 1988, ch. 23, § 66, effective January 1, 1989.

NOTES TO DECISIONS

1.Public Policy.

Public policy forbids the bargaining away by a stockholder of his right to vote for directors according to his best judgment, and in the interest of the corporation. Haldeman v. Haldeman, 176 Ky. 635 , 197 S.W. 376, 1917 Ky. LEXIS 95 ( Ky. 1917 ) (decided under prior law).

Derivative Proceedings

271B.7-400. Procedure in derivative proceedings — Shareholders of a public benefit corporation.

  1. A person shall not commence a proceeding in the right of a domestic or foreign corporation unless he was a shareholder of the corporation when the transaction complained of occurred or unless he became a shareholder through transfer by operation of law from one who was a shareholder at that time. The derivative proceeding shall not be maintained if it appears that the person commencing the proceeding does not fairly and adequately represent the interests of the shareholders in enforcing the right of the corporation.
  2. A complaint in a proceeding brought in the right of a corporation shall be verified and allege with particularity the demand made, if any, to obtain action by the board of directors and either that the demand was refused or ignored or why he did not make the demand. Whether or not a demand for action was made, if the corporation commences an investigation of the charges made in the demand or complaint, the court may stay any proceeding until the investigation is completed.
  3. A proceeding commenced under this section may not be discontinued or settled without the court’s approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interest of the corporation’s shareholders or a class of shareholders, the court shall direct that notice be given the shareholders affected.
  4. On termination of the proceeding the court may require the plaintiff to pay any defendant’s reasonable expenses, including counsel fees, incurred in defending the proceeding if it finds that the proceeding was commenced without reasonable cause.
  5. For purposes of this section, “shareholder” includes a beneficial owner whose shares are held in a voting trust or held by a nominee on his behalf.
  6. In any derivative proceedings in the right of a foreign corporation, the matters covered by this section shall be governed by the laws of the jurisdiction of incorporation.
  7. The articles of incorporation of the corporation may provide that proper venue for a derivative action or an action to compel the production of books and records is in or only is in the appropriate court.
  8. Shareholders of a public benefit corporation owning individually or collectively, as of the date of instituting a derivative proceeding, at least two percent (2%) of the corporation’s outstanding shares or, in the case of a corporation with shares listed on a national securities exchange, the lesser of that percentage or shares of at least two million dollars ($2,000,000) in market value, may maintain a derivative proceeding to enforce the requirements set forth in KRS 271B.8-300 (8).

HISTORY: Enact. Acts 1988, ch. 23, § 67, effective January 1, 1989; 2007, ch. 137, § 64, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 64, effective July 15, 2010; 2015 ch. 34, § 7, effective June 24, 2015; 2017 ch. 28, § 6, effective June 29, 2017.

Compiler’s Notes.

The heading preceding this section which reads “Derivative Proceedings” was changed by the compiler from “Derivative Agreements” upon authorization of the Reviser of Statutes.

NOTES TO DECISIONS

1.Corporate Cause of Action.

A stockholder’s derivative suit must state a cause of action existing in favor of the corporate entity. Security Trust Co. v. Dabney, 372 S.W.2d 401, 1963 Ky. LEXIS 132 ( Ky. 1963 ).

2.Demand for Action.

Where it appears that a demand for action would be unavailing, or, if granted, litigation would be in unfriendly hands, such a demand is not a condition precedent to the right of stockholders to sue on behalf of a corporation. Maas v. Tyler, 316 S.W.2d 211, 1958 Ky. LEXIS 32 ( Ky. 1958 ).

Shareholder failed to make a sufficient demand for action as contemplated by KRS 271B.7-400 (2) because it simply requested production of certain information and demanded an investigation into her particular allegations, and the shareholder at no time demanded the commencement of legal action; however, under the present circumstances the demand requirement was excused for futility. Sahni v. Hock, 369 S.W.3d 39, 2010 Ky. App. LEXIS 79 (Ky. Ct. App. 2010), overruled in part, Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189, 2013 Ky. LEXIS 642 ( Ky. 2013 ).

3.Ownership of Shares at Time Actions Occurred.

In a stockholder derivative action where alleged wrongful acts involved in certain transactions were not claimed to have been committed subsequent to the earliest date on which any of the plaintiffs acquired stock in the corporation, the allegations relative to the wrongful acts were subject to a motion to strike. Levitan v. Stout, 97 F. Supp. 105, 1951 U.S. Dist. LEXIS 4261 (D. Ky. 1951 ).

4.President’s Debts to Corporation.

Where a minority stockholder wanted the debts of the president of the corporation to the corporation to be collected and wanted the arrangement set aside under which they were to be paid, the remedy by which it could be accomplished without a receiver was through a stockholder’s derivative suit in the name of the corporation. Cumberland Publishing Co. v. Adams Real Estate Corp., 432 S.W.2d 808, 1968 Ky. LEXIS 355 ( Ky. 1968 ).

5.Unpaid Stock.

If a corporation, being under the domination of stockholders who have not fully paid for their stock, fails or refuses to sue for sums unpaid on stock, and there are no creditors, a bona fide stockholder may sue in the corporate name and for its benefit either for a cancellation of unpaid stock or for amount of unpaid par value. People's State Bank v. Jacksonian Hotel Co., 261 Ky. 166 , 87 S.W.2d 111, 1935 Ky. LEXIS 603 ( Ky. 1935 ). See also Taylor v. Citizens' Oil Co., 182 Ky. 350 , 206 S.W. 644, 1918 Ky. LEXIS 386 ( Ky. 1918 ).

6.Investigation by Corporation.

The trial court’s findings of good faith, reasonableness and independence on the part of the corporation’s special litigation committees would be upheld where (1) directors did not serve on committees investigating entities in which they had a direct interest, (2) the board hired independent counsel to investigate and assist the committees, (3) counsel expended over 1,100 hours investigating the plaintiff’s charges at a cost exceeding $129,000, (4) the board also hired accountants who investigated the specific complaints and sampled transactions going back twelve (12) years. Allied Ready Mix Co. v. Allen, 994 S.W.2d 4, 1998 Ky. App. LEXIS 146 (Ky. Ct. App. 1998).

7.Fair and Adequate Representation of Shareholders.

The trial court properly found that the plaintiff was not a suitable representation to prosecute the action where he stated during his deposition that he would have the auditor review every financial record from the very beginning of the corporation that was available and that he would not place any cost controls or budgets on the investigation of the litigation. Allied Ready Mix Co. v. Allen, 994 S.W.2d 4, 1998 Ky. App. LEXIS 146 (Ky. Ct. App. 1998).

Shareholder’s appeal of the dismissal of his derivative action was dismissed because, during the pendency of the appeal, as the result of a merger, the shareholder’s stock in the corporation was cancelled; derivative actions required plaintiffs to fairly and adequately represent the interests of the stockholders, and continuous ownership of stock was required. Further, the right to continue any pending derivative lawsuits would have passed from the former stockholders to the surviving corporation. Bacigalupo v. Kohlhepp, 240 S.W.3d 155, 2007 Ky. App. LEXIS 454 (Ky. Ct. App. 2007).

Trial court did not abuse its discretion by concluding that the shareholder fairly and adequately represented the interests of the shareholders where she was the only shareholder available to pursue claims on behalf of the other shareholders. Sahni v. Hock, 369 S.W.3d 39, 2010 Ky. App. LEXIS 79 (Ky. Ct. App. 2010), overruled in part, Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189, 2013 Ky. LEXIS 642 ( Ky. 2013 ).

Trial court did not err by dismissing a derivative shareholder action, because appellant’s self-interest and lack of support from the other shareholders deprived him of standing to pursue a derivative claim under KRS 271B.7-400 (1). Appellant’s willingness to settle all claims if he was personally paid $2.2 million reflected that his self-interests were in conflict with those of the other shareholders. Watkins v. Stock Yards Bank & Trust Co., 2012 Ky. App. Unpub. LEXIS 1044 (Ky. Ct. App. June 29, 2012), review denied, ordered not published, 2013 Ky. LEXIS 503 (Ky. Aug. 21, 2013).

8.Costs and Attorney Fees.

Recovery of attorney fees from the shareholder was prohibited by KRS 271B.7-400 (4) because she prevailed on her derivative claim and direct action against the director; the shareholder’s proceeding was not wholly without merit. Sahni v. Hock, 369 S.W.3d 39, 2010 Ky. App. LEXIS 79 (Ky. Ct. App. 2010), overruled in part, Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189, 2013 Ky. LEXIS 642 ( Ky. 2013 ).

Upon the dismissal of a shareholder derivative action filed against appellees, the chairman of a corporation, its president, and majority shareholder, for selling a shopping mall for an allegedly inadequate price, the trial court did not err by refusing to award appellees attorney fees under KRS 271B.7-400 (4). Because the facts surrounding the sale and re-sale of the mall gave appellant a reasonable basis to question the sale, appellee did not commence the proceeding without reasonable cause. Watkins v. Stock Yards Bank & Trust Co., 2012 Ky. App. Unpub. LEXIS 1044 (Ky. Ct. App. June 29, 2012), review denied, ordered not published, 2013 Ky. LEXIS 503 (Ky. Aug. 21, 2013).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

ALR

Diversity of citizenship as ground of jurisdiction of federal courts in stockholders’ derivative action against directors where corporation is a citizen of same state as plaintiffs, under 28 USCS § 1401. 18 A.L.R.2d 1022.

Pending action or existing cause of action, statute regulating stockholders’ actions as applicable to. 32 A.L.R.2d 851.

Stockholder’s action as remedy to recover damages for violation of antitrust laws. 36 A.L.R.2d 1345.

Amount of compensation of attorney for services in stockholders’ action in absence of contract or statute fixing amount. 56 A.L.R.2d 176.

Diversity of citizenship for purposes of federal jurisdiction, in stockholders’ derivative action. 68 A.L.R.2d 824.

Intervention by other stockholders in stockholder’s derivative action. 69 A.L.R.2d 562.

Circumstances excusing demand upon other shareholders which is otherwise prerequisite to bringing of stockholder’s derivative suit on behalf of corporation. 48 A.L.R.3d 595.

Allowance of punitive damages in stockholder’s derivative action. 67 A.L.R.3d 350.

Negligence, nonfeasance, or ratification of wrongdoing as excusing demand on directors as prerequisite to bringing of stockholder’s derivative suit on behalf of corporation. 99 A.L.R.3d 1034.

Requirement of Rule 22.1 of Federal Rules of Civil Procedure that plaintiff in shareholder derivative action “fairly and adequately represent” shareholders’ interests in enforcing corporation’s right. 15 A.L.R. Fed. 954.

Notice to shareholders and court approval of dismissal or compromise of derivative actions, under Rule 23.1 of Federal Rules of Civil Procedure. 26 A.L.R. Fed. 465.

Circumstances Excusing Demand Upon Board of Directors that is Otherwise Prerequisite to Bringing of Stockholder’s Derivative Suit on Behalf of Corporation, 43 A.L.R.6th 1.

Subtitle 8. Directors and Officers

Board of Directors

271B.8-010. Requirement for and duties of board of directors.

  1. Except as provided in subsection (3) of this section, each corporation shall have a board of directors.
  2. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors, subject to any limitation set forth in the articles of incorporation.
  3. A corporation having fifty (50) or fewer shareholders may dispense with or limit the authority of a board of directors by describing in its articles of incorporation who will perform some or all of the duties of a board of directors.

History. Enact. Acts 1988, ch. 23, § 68, effective January 1, 1989.

NOTES TO DECISIONS

1.Acceptance of Office.

A duly elected director sufficiently accepts the office by the simple act of serving. Cumberland Publishing Co. v. Adams Real Estate Corp., 432 S.W.2d 808, 1968 Ky. LEXIS 355 ( Ky. 1968 ) (decided under prior law).

2.Powers.

The discretion and acts of the board of directors were conclusively deemed to be those of the corporation unless such acts were ultra vires, fraudulent or constitute a breach of trust. Pittsburg, C., C. & S. L. R. Co. v. Dodd, 115 Ky. 176 , 72 S.W. 822, 1903 Ky. LEXIS 88 ( Ky. 1903 ) (decided under prior law).

The management of a corporation’s affairs, involving exercise of judgment and policy, was by law committed to the board of directors. Pittsburg, C., C. & S. L. R. Co. v. Dodd, 115 Ky. 176 , 72 S.W. 822, 1903 Ky. LEXIS 88 ( Ky. 1903 ); Caddy Oil Co. v. Sommer, 186 Ky. 843 , 218 S.W. 288, 1920 Ky. LEXIS 41 ( Ky. 1920 ) (decided under prior law).

The action of directors when exercised in good faith and not in fraud of the rights of stockholders was not subject to their control and would not be interfered with by the courts. Taylor v. Axton-Fisher Tobacco Co., 295 Ky. 226 , 173 S.W.2d 377, 1943 Ky. LEXIS 189 ( Ky. 1943 ) (decided under prior law).

Directors could not vote by proxy. Haldeman v. Haldeman, 176 Ky. 635 , 197 S.W. 376, 1917 Ky. LEXIS 95 ( Ky. 1917 ).

An individual director had no authority as such. He could only act as agent by appointment, like other agents were appointed. Directors had to act together as a board; the separate assent of a majority was not binding on the corporation. Haldeman v. Haldeman, 176 Ky. 635 , 197 S.W. 376, 1917 Ky. LEXIS 95 ( Ky. 1917 ); Caddy Oil Co. v. Sommer, 186 Ky. 843 , 218 S.W. 288, 1920 Ky. LEXIS 41 ( Ky. 1920 ); Paducah Newspapers, Inc. v. Goodman, 251 Ky. 754 , 65 S.W.2d 990, 1933 Ky. LEXIS 944 ( Ky. 1933 ) (decided under prior law).

The directors could confer authority upon the corporate officers and ratify unauthorized acts of such officers. Caddy Oil Co. v. Sommer, 186 Ky. 843 , 218 S.W. 288, 1920 Ky. LEXIS 41 ( Ky. 1920 ) (decided under prior law). See also Paducah Newspapers, Inc. v. Goodman, 251 Ky. 754 , 65 S.W.2d 990, 1933 Ky. LEXIS 944 ( Ky. 1933 ) (decided under prior law).

3.Director as Trustee.

A director represented all the stockholders; he was a trustee for them, and could not use his office for his personal benefit at the expense of any stockholder. Haldeman v. Haldeman, 176 Ky. 635 , 197 S.W. 376, 1917 Ky. LEXIS 95 ( Ky. 1917 ) (decided under prior law).

A director or managing officer has a fiducial relation to the corporation and its stockholders. Urban J. Alexander Co. v. Trinkle, 311 Ky. 635 , 224 S.W.2d 923, 1949 Ky. LEXIS 1202 ( Ky. 1949 ) (decided under prior law).

4.Instigation of Litigation.

Executive director of a corporation, whose authority did not include the power to institute civil rights litigation on behalf of the corporation and whose action was specifically ordered terminated by the board of directors, was without standing to bring civil rights suit and the complaint was properly dismissed. Covington Housing Development Corp. v. Covington, 381 F. Supp. 427, 1974 U.S. Dist. LEXIS 6801 (E.D. Ky. 1974 ), aff’d, 513 F.2d 630 (6th Cir. Ky. 1975 ), cert. denied, Thompson v. Covington, 423 U.S. 869, 96 S. Ct. 133, 46 L. Ed. 2d 99, 1975 U.S. LEXIS 2794 (1975), rehearing denied, 423 U.S. 991, 96 S. Ct. 408, 46 L. Ed. 2d 312 (1975) (decided under prior law).

Cited:

United States v. WRW Corp., 778 F. Supp. 919, 1991 U.S. Dist. LEXIS 17028 (E.D. Ky. 1991 ).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

271B.8-020. Qualifications of directors.

The articles of incorporation or bylaws may prescribe qualifications for directors. A director shall not be required to be a resident of this state or a shareholder of the corporation unless the articles of incorporation or bylaws so prescribe.

History. Enact. Acts 1988, ch. 23, § 69, effective January 1, 1989.

NOTES TO DECISIONS

1.Eligibility.

A fiduciary could have been a director. Schmidt v. Mitchell, 101 Ky. 570 , 41 S.W. 929, 19 Ky. L. Rptr. 763 , 1897 Ky. LEXIS 223 ( Ky. 1897 ) (decided under prior law).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

271B.8-030. Number and election of directors.

  1. A board of directors shall consist of one (1) or more individuals, with the number specified in or fixed in accordance with the articles of incorporation or bylaws.
  2. If a board of directors has power to fix or change the number of directors, the board may increase or decrease by thirty percent (30%) or less the number of directors last approved by the shareholders, but only the shareholders may increase or decrease by more than thirty percent (30%) the number of directors last approved by the shareholders.
  3. The articles of incorporation or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or the board of directors. After shares are issued, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa.
  4. Directors shall be elected at the first annual shareholders’ meeting and at each annual meeting thereafter unless their terms are staggered under KRS 271B.8-060 .
  5. Every director of a corporation, by acceptance of election or appointment as a director, including by service, shall be deemed to have consented to the jurisdiction of the courts of the Commonwealth of Kentucky for any action by, in the name of, or on behalf of the corporation.

History. Enact. Acts 1988, ch. 23, § 70, effective January 1, 1989; 2012, ch. 81, § 89, effective July 12, 2012.

NOTES TO DECISIONS

1.Annual Elections.

An election for directors had to be held annually. Mutual Tel. Co. v. Jarrell, 220 Ky. 551 , 295 S.W. 865, 1927 Ky. LEXIS 570 ( Ky. 1927 ) (decided under prior law).

2.Calling of Election.

The directors or other proper officers were required by mandamus to call an election. O'Hara v. Williamstown Cemetery Co., 133 Ky. 828 , 119 S.W. 234, 1909 Ky. LEXIS 239 ( Ky. 1909 ) (decided under prior law).

Where there were no de jure directors, the court could require the corporation or stockholders to call a meeting for the purpose of electing directors. O'Hara v. Williamstown Cemetery Co., 133 Ky. 828 , 119 S.W. 234, 1909 Ky. LEXIS 239 ( Ky. 1909 ) (decided under prior law).

3.Failure to Elect.

Mere failure to elect a board of directors did not invalidate the organization of a corporation. Drake v. Herndon, 122 Ky. 206 , 91 S.W. 674, 28 Ky. L. Rptr. 1106 , 1906 Ky. LEXIS 39 ( Ky. 1906 ) (decided under prior law).

When new directors were not elected and qualified, subsequent acts of the old directors were valid. La Rue v. Bank of Columbus, 165 Ky. 669 , 178 S.W. 1033, 1915 Ky. LEXIS 585 ( Ky. 1915 ) (decided under prior law).

4.Incorporators.

The articles could not provide that the incorporators should act as the board of directors, even for a definitely named period, without any action on the part of the stockholders. Lebus v. Stansifer, 154 Ky. 444 , 157 S.W. 727, 1913 Ky. LEXIS 91 ( Ky. 1913 ) (decided under prior law).

5.Voting.

The court did not direct stockholders how to vote in an election for directors. Haldeman v. Haldeman, 176 Ky. 635 , 197 S.W. 376, 1917 Ky. LEXIS 95 ( Ky. 1917 ) (decided under prior law).

Research References and Practice Aids

ALR

Cumulative voting of stock for corporate directors. 43 A.L.R.2d 799.

Construction and effect of corporate bylaws or articles relating to change in number of directors. 3 A.L.R.2d 623.

Casting ballots after closing of polls. 41 A.L.R.3d 234.

271B.8-040. Election of directors by certain classes of shareholders.

If the articles of incorporation authorize dividing the shares into classes, the articles may also authorize the election of all or a specified number of directors by the holders of one (1) or more authorized classes of shares. A class (or classes) of shares entitled to elect one (1) or more directors is a separate voting group for purposes of the election of directors.

History. Enact. Acts 1988, ch. 23, § 71, effective January 1, 1989.

271B.8-050. Terms of directors generally.

  1. The terms of the initial directors of a corporation shall expire at the first shareholders’ meeting at which directors are elected.
  2. The terms of all other directors shall expire at the next annual shareholders’ meeting following their election unless their terms are staggered under KRS 271B.8-060 .
  3. A decrease in the number of directors shall not shorten an incumbent director’s term.
  4. For a corporation the directors of which are divided into groups under KRS 271B.8-060 , any director filling a vacancy under KRS 271B.8-100 shall hold office until the next election of the group in which the director is filling the vacancy, and until his or her successor shall be elected and qualified.
  5. Despite the expiration of a director’s term, he shall continue to serve until his successor is elected and qualifies or until there is a decrease in the number of directors.

History. Enact. Acts 1988, ch. 23, § 72, effective January 1, 1989; 2001, ch. 130, § 1, effective June 21, 2001.

271B.8-060. Staggered terms for directors.

The articles of incorporation may provide for staggering the terms of directors by dividing the total number of directors in two (2) or three (3) groups, with each group containing one-half (1/2) or one-third (1/3) of the total, as near as may be. In that event, the terms of directors in the first group shall expire at the first annual shareholders’ meeting after their election, the terms of the second group shall expire at the second annual shareholders’ meeting after their election, and the terms of the third group, if any, shall expire at the third annual shareholders’ meeting after their election. At each annual shareholders’ meeting held thereafter, directors shall be chosen for a term of two (2) years or three (3) years, as the case may be, to succeed those whose terms expire.

History. Enact. Acts 1988, ch. 23, § 73, effective January 1, 1989; 1996, ch. 21, § 1, effective July 15, 1996.

271B.8-070. Resignation of directors.

  1. A director may resign at any time by delivering written notice to the board of directors, its chairman, or to the corporation.
  2. A resignation shall be effective when the notice is delivered unless the notice specifies a later effective date.

History. Enact. Acts 1988, ch. 23, § 74, effective January 1, 1989.

1.Resignation.

Directors who resigned, effective upon acceptance, remained such, when the resignations were not accepted. Lincoln Court Realty Co. v. Kentucky Title Sav. Bank & Trust Co., 169 Ky. 840 , 185 S.W. 156, 1916 Ky. LEXIS 777 ( Ky. 1916 ) (decided under prior law).

271B.8-080. Removal of directors by shareholders.

  1. The shareholders may remove one (1) or more directors with or without cause, unless the articles of incorporation provide that directors may be removed only for cause.
  2. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him or her.
  3. If cumulative voting is authorized, a director shall not be removed if the number of votes sufficient to elect him or her under cumulative voting is voted against his or her removal. If cumulative voting is not authorized, a director shall be removed only if the number of votes cast to remove him or her exceeds the number of votes cast not to remove him or her.
  4. A director shall be removed by the shareholders only at a meeting called for the purpose of removing him or her, and the meeting notice shall state that the purpose, or one (1) of the purposes, of the meeting is removal of the director.

History. Enact. Acts 1988, ch. 23, § 75, effective January 1, 1989; 2002, ch. 102, § 19, effective November 15, 2002.

Legislative Research Commission Note.

(6/26/2007). 2007 Ky. Acts ch. 137, sec. 179, effective June 26, 2007 provided: The General Assembly finds and declares that the amendment of KRS 271B.6-210 , 271B.6-230 , 271B.7-040 , 271B.7-280 , and 271B.8-080 , as provided for in 2002 Ky. Acts ch. 102, secs. 10, 11, 15, 18, and 19, respectively, are and were effective as of November 15, 2002.

(11/15/2002). 2002 Ky. Acts ch. 102, sec. 22, provides that this section “shall take effect November 15, 2002, if a constitutional amendment proposing to amend Sections 190, 191, 192, 193, 194, 195, 198, 200, 202, 203, 205, 207 and 208 of the Constitution of Kentucky relating to corporations is enacted by the General Assembly and approved by the voters in the November, 2002 general election.” Otherwise, [this section] shall be void.

A constitutional amendment proposing to amend 11 of those 13 sections of the Constitution was enacted by the General Assembly and approved by the voters. During the 2002 Regular Session, the General Assembly enacted 2002 Ky. Acts ch. 341, which proposed to amend Sections 190, 191, 192, 193, 194, 198, 200, 202, 203, 207, and 208 of the Constitution of Kentucky. The voters approved that amendment in the November, 2002 general elections.

Research References and Practice Aids

Kentucky Bench & Bar.

Young, Modernizing Kentucky’s Corporate Laws, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 12.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

271B.8-100. Vacancy on board.

  1. Unless the articles of incorporation provide otherwise, if a vacancy occurs on a board of directors, including a vacancy resulting from an increase in the number of directors:
    1. The shareholders may fill the vacancy;
    2. The board of directors may fill the vacancy; or
    3. If the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
  2. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group shall be entitled to vote to fill the vacancy if it is filled by the shareholders.
  3. A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date under subsection (2) of KRS 271B.8-070 or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.

History. Enact. Acts 1988, ch. 23, § 76, effective January 1, 1989.

NOTES TO DECISIONS

1.Filling of Vacancy.

The only vacancies authorized to be filled by the directors were those arising after the stockholders, either at the annual meeting or a called meeting held for that purpose, had first filled all places due to be filled at the annual meeting. Harris v. Brown, 6 F.2d 922, 1925 U.S. Dist. LEXIS 1184 (D. Ky. 1925 ) (decided under prior law).

Research References and Practice Aids

ALR

Provision authorizing directors to fill vacancies as applicable to newly created directorships. 6 A.L.R.2d 174.

271B.8-110. Compensation of directors.

Unless the articles of incorporation or bylaws provide otherwise, the board of directors may fix the compensation of directors.

History. Enact. Acts 1988, ch. 23, § 77, effective January 1, 1989.

NOTES TO DECISIONS

1.Entitlement to Compensation.

Directors were entitled to compensation for work done not in line of duty, where the conduct of the corporation justified an expectation of payment. Louisville Bldg. Ass'n v. Hegan, 49 S.W. 796, 20 Ky. L. Rptr. 1629 , 1899 Ky. LEXIS 478 (Ky. Ct. App. 1899) (decided under prior law).

A director or officer of a corporation could recover the reasonable value of services rendered entirely outside the scope of his official duties when they were rendered under such circumstances as to indicate that the parties intended or understood they were to be paid for or ought to have so intended and understood. Johnson v. Tri-Union Oil & Gas Co., 278 Ky. 633 , 129 S.W.2d 111, 1939 Ky. LEXIS 463 ( Ky. 1939 ) (decided under prior law).

Meetings and Action of Board of Directors

271B.8-200. Meetings.

  1. The board of directors may hold regular or special meetings in or out of this state.
  2. Unless the articles of incorporation or bylaws provide otherwise, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during this meeting. A director participating in a meeting by this means shall be deemed to be present in person at the meeting.

History. Enact. Acts 1988, ch. 23, § 78, effective January 1, 1989.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

271B.8-205. Court-ordered meeting.

The Circuit Court for the county where a corporation’s principal office or, if there is none in this state, its registered office is located may order a special meeting of the board of directors on the application of one-third (1/3) or more of the incumbent number of directors. The court may fix the time and place of the meeting, prescribe the form and content of the meeting notice, and enter such other orders as are necessary to accomplish the purpose of the meeting.

History. Enact. Acts 2010, ch. 133, § 2, effective July 15, 2010.

Research References and Practice Aids

Northern Kentucky Law Review.

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

271B.8-210. Action without meeting.

  1. Unless the articles of incorporation or bylaws provide otherwise, action required or permitted by this chapter to be taken at a board of director’s meeting may be taken without a meeting if the action is taken by all members of the board. The action shall be evidenced by one (1) or more written consents describing the action taken, signed by each director, and included in the minutes or filed with the corporate records reflecting the action taken.
  2. Action taken under this section shall be effective when the last director signs the consent, unless the consent specifies a different effective date.
  3. A consent signed under this section shall have the effect of a meeting vote and may be described as such in any document.

History. Enact. Acts 1988, ch. 23, § 79, effective January 1, 1989.

271B.8-220. Notice of meeting.

  1. Unless the articles of incorporation or bylaws provide otherwise, regular meetings of the board of directors may be held without notice of the date, time, place, or purpose of the meeting.
  2. Unless the articles of incorporation or bylaws provide for a longer or shorter period, special meetings of the board of directors shall be preceded by at least two (2) days’ notice of the date, time, and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the articles of incorporation or bylaws.

History. Enact. Acts 1988, ch. 23, § 80, effective January 1, 1989; 2007, ch. 137, § 65, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 65, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

271B.8-230. Waiver of notice.

  1. A director may waive any notice required by this Act, the articles of incorporation, or bylaws before or after the date and time stated in the notice. Except as provided by subsection (2) of this section, the waiver shall be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records.
  2. A director’s attendance at or participation in a meeting shall waive any required notice to him of the meeting, unless the director at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

History. Enact. Acts 1988, ch. 23, § 81, effective January 1, 1989.

271B.8-240. Quorum and voting.

  1. Unless the articles of incorporation or bylaws require a greater number, a quorum of a board of directors shall consist of:
    1. A majority of the fixed number of directors if the corporation has a fixed board size; or
    2. A majority of the number of directors prescribed, or if no number is prescribed the number in office immediately before the meeting begins, if the corporation has a variable-range size board.
  2. The articles of incorporation or bylaws may authorize a quorum of a board of directors to consist of no fewer than one-third (1/3) of the fixed or prescribed number of directors determined under subsection (1) of this section.
  3. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present shall be the act of the board of directors, unless the articles of incorporation or bylaws require the vote of a greater number of directors.
  4. A director who is present at a meeting of the board of directors or a committee of the board of directors when corporate action is taken shall be deemed to have assented to the action taken unless:
    1. He objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting business at the meeting;
    2. His dissent or abstention from the action taken is entered in the minutes of the meeting; or
    3. He delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention shall not be available to a director who votes in favor of the action taken.

History. Enact. Acts 1988, ch. 23, § 82, effective January 1, 1989.

NOTES TO DECISIONS

1.Lack of Quorum.

Less than a quorum of the board could not bind the corporation. Paducah Newspapers, Inc. v. Goodman, 251 Ky. 754 , 65 S.W.2d 990, 1933 Ky. LEXIS 944 ( Ky. 1933 ) (decided under prior law).

2.Majority.

A majority of the directors constituted a quorum for the transaction of business. Caddy Oil Co. v. Sommer, 186 Ky. 843 , 218 S.W. 288, 1920 Ky. LEXIS 41 ( Ky. 1920 ) (decided under prior law).

271B.8-250. Committees — Powers — Limitations — Alternate members.

  1. Unless this chapter, the articles of incorporation, or the bylaws provide otherwise, a board of directors may create one (1) or more committees and appoint one (1) or more members of the board of directors to serve on any such committee.
  2. Unless this chapter provides otherwise, the creation of a committee and appointment of members to it shall be approved by the greater of:
    1. A majority of all the directors in office when the action is taken; or
    2. The number of directors required by the articles of incorporation or bylaws to take action under KRS 271B.8-240 .
  3. KRS 271B.8-200 to 271B.8-240 shall apply both to committees of the board and to their members as well.
  4. To the extent specified by the board of directors or in the articles of incorporation or bylaws, each committee may exercise the powers of the board of directors under KRS 271B.8-010 .
  5. A committee shall not, however:
    1. Authorize or approve distributions, except according to a formula or method, or within limits, prescribed by the board of directors;
    2. Approve or propose to shareholders action that this chapter requires be approved by shareholders;
    3. Fill vacancies on the board of directors or, subject to the provisions of subsection (7) of this section, on any of its committees; or
    4. Adopt, amend, or repeal bylaws.
  6. The creation of, delegation of authority to, or action by a committee shall not alone constitute compliance by a director with the standards of conduct described in KRS 271B.8-300 .
  7. The board of directors may appoint one (1) or more directors as alternate members of any committee to replace any absent or disqualified member during the member’s absence or disqualification. Unless the articles of incorporation, the bylaws, or the resolution creating the committee provide otherwise, in the event of the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting may unanimously appoint another director to act in place of the absent or disqualified member.

History. Enact. Acts 1988, ch. 23, § 83, effective January 1, 1989; 2002, ch. 102, § 20, effective July 15, 2002.

NOTES TO DECISIONS

1.Delegation of Power.

Directors could delegate part of their power to an executive committee. Haldeman v. Haldeman, 176 Ky. 635 , 197 S.W. 376, 1917 Ky. LEXIS 95 ( Ky. 1917 ) (decided under prior law).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

Standards of Conduct

271B.8-300. General standards for directors — Directors of a public benefit corporation.

  1. A director shall discharge his duties as a director, including his duties as a member of a committee:
    1. In good faith;
    2. On an informed basis; and
    3. In a manner he honestly believes to be in the best interests of the corporation.
  2. A director shall be considered to discharge his duties on an informed basis if he makes, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, inquiry into the business and affairs of the corporation, or into a particular action to be taken or decision to be made.
  3. In discharging his duties a director shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    1. One (1) or more officers or employees of the corporation whom the director honestly believes to be reliable and competent in the matters presented;
    2. Legal counsel, public accountants, or other persons as to matters the director honestly believes are within the person’s professional or expert competence; or
    3. A committee of the board of directors of which he is not a member, if the director honestly believes the committee merits confidence.
  4. A director shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (3) of this section unwarranted.
  5. In addition to any other limitation on a director’s liability for monetary damages contained in any provision of the corporation’s articles of incorporation adopted in accordance with subsection (2)(d) of KRS 271B.2-020 , any action taken as a director, or any failure to take any action as a director, shall not be the basis for monetary damages or injunctive relief unless:
    1. The director has breached or failed to perform the duties of the director’s office in compliance with this section; and
    2. In the case of an action for monetary damages, the breach or failure to perform constitutes willful misconduct or wanton or reckless disregard for the best interests of the corporation and its shareholders.
  6. A person bringing an action for monetary damages under this section shall have the burden of proving by clear and convincing evidence the provisions of subsection (5)(a) and (b) of this section, and the burden of proving that the breach or failure to perform was the legal cause of damages suffered by the corporation.
  7. Nothing in this section shall eliminate or limit the liability of any director for any act or omission occurring prior to July 15, 1988.
  8. In a public benefit corporation:
    1. The board of directors shall manage or direct the business and affairs of the public benefit corporation in a manner that balances the pecuniary interests of the stockholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit or public benefits identified in its articles of incorporation;
    2. A director of the public benefit corporation shall not, by virtue of the public benefit provisions set forth in the corporation’s articles of incorporation, have any duty to any person on account of any interest of the person in the public benefit or public benefits identified in the articles of incorporation or on account of any interest materially affected by the corporation’s conduct;
    3. With respect to a decision implicating the balance requirement inparagraph (a) of this subsection, a director shall act in conformity with subsection (1) of this section; and
    4. The articles of incorporation of a public benefit corporation may include a provision that any disinterested failure to satisfy this subsection shall not constitute an act or omission not in good faith or a breach of the duty of loyalty.

HISTORY: Enact. Acts 1988, ch. 23, § 85, effective January 1, 1989; 1988, ch. 224, § 8, effective July 15, 1988; 2017 ch. 28, § 7, effective June 29, 2017.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.202 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

NOTES TO DECISIONS

1.Applicability.

Although KRS 271B.8-300 (3), regarding director liability, was relevant to determine the standard of care which the bank’s directors were obligated to exercise, the bank was not entitled to use that statute offensively to support a separate cause of action against its auditors. Indeed, even the bank cited no authority for the proposition that it could do so. Peoples Bank of N. Ky., Inc. v. Crowe Chizek & Co. LLC, 277 S.W.3d 255, 2008 Ky. App. LEXIS 176 (Ky. Ct. App. 2008).

KRS 271B.8-300 and 271B.8-420 were applicable to a breach of fiduciary responsibility lawsuit brought against corporate directors who allegedly solicited the revocation of proxies to prevent a quorum at the corporation’s annual meeting and voting in order to remove the CEO as an officer. The directors allegedly acted to preserve their employment in the corporation; actions that could be classified as having been taken as a director or officer. Gundaker/Jordan Am. Holdings, Inc. v. Clark, 2008 U.S. Dist. LEXIS 80907 (E.D. Ky. Oct. 9, 2008).

Shareholder failed to demonstrate a specific injury to herself outside the diminution in value of company stock and she did not sufficiently allege a cause of action under KRS 271B.8-300 ; therefore, the judgment in favor of the shareholder individually was reversed and remanded to the trial court with instructions to dismiss the shareholder’s direct action claim. Sahni v. Hock, 369 S.W.3d 39, 2010 Ky. App. LEXIS 79 (Ky. Ct. App. 2010), overruled in part, Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189, 2013 Ky. LEXIS 642 ( Ky. 2013 ).

2.Construction.

Because there was no mandatory or persuasive authority from Kentucky courts classifying a breach of fiduciary duty as a personal injury, the court declined to construe it as such. Therefore, KRS 271B.8-300 and 271B.8-420 did not fall under the protection of the “jural rights” doctrine and had to be enforced. Gundaker/Jordan Am. Holdings, Inc. v. Clark, 2008 U.S. Dist. LEXIS 80907 (E.D. Ky. Oct. 9, 2008).

To the extent Sahni v. Hock, 369 S.W.3d 39, 47, 2010 Ky. App. LEXIS 79 (Ky. App. 2011) suggests that refinement and correction of the legal theory during the pleading stage is not allowed pursuant to KRS 271B.8-300 , it is incorrect. Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189, 2013 Ky. LEXIS 642 ( Ky. 2013 ).

Lower courts erred in concluding that KRS 271B.8-300 abrogated a corporation’s common law fiduciary duty claims against corporate directors where the statute applied to any action taken as a director and any failure to take any action as a director, and preparing for and participating in a competing venture did not constitute the type of internal corporate governance conduct addressed in § 271B.8-300 . Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189, 2013 Ky. LEXIS 642 ( Ky. 2013 ).

KRS 271B.8-300 does not abrogate common law fiduciary duty claims against directors in Kentucky but essentially codifies a standard of conduct and standard of liability for directors that is derived from business judgment rule principles. Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189, 2013 Ky. LEXIS 642 ( Ky. 2013 ).

If a director is acting on his own accord in anticipation of competing with the corporation which he still serves, that conduct implicates the director’s common law fiduciary duties, not KRS 271B.8-300 . Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189, 2013 Ky. LEXIS 642 ( Ky. 2013 ).

KRS 271B.8-300 simply does not speak to all actions an individual takes while serving as a corporate director but only to those which he or she takes or fails to take while acting in a directorial role, i.e., actions or inactions regarding corporate governance and the affairs of the corporation. For claims alleging breach of a director’s fiduciary duties, especially the duty of loyalty, in the context of preparation for and participation in a competing enterprise, the common law principles elucidated in case law continue to apply. Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189, 2013 Ky. LEXIS 642 ( Ky. 2013 ).

3.Common law.

Clinic properly asserted a breach of fiduciary claim because KRS 271B.8-300 did not supplant the common law breach of fiduciary duty. Notice was given of a general claim of breach of fiduciary duty, the facts giving rise to the claim, and the nature of the damages sought; moreover, a reference to KRS ch. 271B was not required due to the liberal policy relating to notice pleadings. New Lexington Clinic, P.S.C. v. Cooper, 2011 Ky. App. LEXIS 245 (Ky. Ct. App. Dec. 16, 2011, sub. op., 2011 Ky. App. Unpub. LEXIS 1000 (Ky. Ct. App. Dec. 16, 2011).

Kentucky General Assembly intends for KRS 271B.8-300 to apply in all circumstances where money damages are sought in a claim of breach of fiduciary duty against a corporate director; aside from this heightened burden of proof, KRS 271B.8-300 (5) tracks the common law very closely. The Kentucky Legislature has merely meticulously set forth the claims and remedies available under common law, and the change in the burden of proof does not indicate an intent to abrogate the common-law claim entirely; rather, it merely increases the burden of proof. New Lexington Clinic, P.S.C. v. Cooper, 2011 Ky. App. LEXIS 245 (Ky. Ct. App. Dec. 16, 2011, sub. op., 2011 Ky. App. Unpub. LEXIS 1000 (Ky. Ct. App. Dec. 16, 2011).

4.Expert Testimony.

In a bank auditor malpractice case, a trial court did not err by admitting expert testimony under KRE. 702 because the nature and scope of a bank director’s duties under KRS 271B.8-300 was beyond the ken of the average juror or the court. Peoples Bank of N. Ky., Inc. v. Horwath, 390 S.W.3d 830, 2012 Ky. App. LEXIS 113 (Ky. Ct. App. 2012).

5.Standing.

Circuit court properly dismissed a shareholder's causes of action for against a corporate officer for lack of standing because the claims were derivative, not direct, where the officer owed the shareholder a fiduciary duty to inform him personally if she had reason to know that assets would be (or were being) misappropriated, the common-law fiduciary and statutory duties ran directly to the corporation or limited liability company. Griffin v. Jones, 2015 Ky. App. LEXIS 115 (Ky. Ct. App. Aug. 14, 2015), review denied, ordered not published, 2016 Ky. LEXIS 360 (Ky. Aug. 17, 2016).

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Campbell, Corporate Fiduciary Duties in Kentucky., 93 Ky. L.J. 551 (2004/2005).

Article: Normative Justifications for Lax (or No) Corporate Fiduciary Duties: A Tale of Problematic Principles, Imagined Facts and Inefficient Outcomes, 99 Ky. L.J. 231 (2010/2011).

Note: Corporate Gatekeepers: An Examination of the Transactional Lawyer’s Role, 99 Ky. L.J. 555 (2010/2011).

Northern Kentucky Law Review.

Comment, A Survey of Kentucky Tort Reform, 17 N. Ky. L. Rev. 473 (1990).

271B.8-310. Director conflict of interest.

  1. A conflict of interest transaction shall be a transaction with the corporation in which a director of the corporation has a direct or indirect interest. A conflict of interest transaction shall not be voidable by the corporation solely because of the director’s interest in the transaction if any one (1) of the following is true:
    1. The material facts of the transaction and the director’s interest were disclosed or known to the board of directors or a committee of the board of directors and the board of directors or committee authorized, approved, or ratified the transaction;
    2. The material facts of the transaction and the director’s interest were disclosed or known to the shareholders entitled to vote and they authorized, approved, or ratified the transaction; or
    3. The transaction was fair to the corporation.
  2. For purposes of this section, a director of the corporation shall have an indirect interest in a transaction if:
    1. Another entity in which he has a material financial interest or in which he is a general partner is a party to the transaction; or
    2. Another entity of which he is a director, officer, or trustee is a party to the transaction and the transaction is or should be considered by the board of directors of the corporation.
  3. For purposes of subsection (1)(a) of this section, a conflict of interest transaction shall be considered authorized, approved, or ratified if it receives the affirmative vote of a majority of the directors on the board of directors (or on the committee) who have no direct or indirect interest in the transaction, but a transaction shall not be authorized, approved, or ratified under this section by a single director. If a majority of the directors who have no direct or indirect interest in the transaction vote to authorize, approve, or ratify the transaction, a quorum shall be present for the purpose of taking action under this section. The presence of, or a vote cast by, a director with a direct or indirect interest in the transaction shall not affect the validity of any action taken under subsection (1)(a) of this section if the transaction is otherwise authorized, approved, or ratified as provided in that subsection.
  4. For purposes of subsection (1)(b) of this section, a conflict of interest transaction shall be considered authorized, approved, or ratified if it receives the vote of a majority of the shares entitled to be counted under this subsection. Shares owned by or voted under the control of a director who has a direct or indirect interest in the transaction, and shares owned by or voted under the control of an entity described in subsection (2)(a) of this section, may not be counted in a vote of shareholders to determine whether to authorize, approve, or ratify a conflict of interest transaction under subsection (1)(b) of this section. The vote of those shares, however, shall be counted in determining whether the transaction is approved under other sections of this chapter. A majority of the shares that are entitled to be counted in a vote on the transaction under this subsection shall constitute a quorum for the purpose of taking action under this section.

History. Enact. Acts 1988, ch. 23, § 86, effective January 1, 1989; 1988, ch. 224, § 9, effective July 15, 1988.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.206 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

NOTES TO DECISIONS

Analysis

1.Overcoming Conflict.

The three basic requirements to overcome director conflict at the time of merger include disclosure, shareholder approval of the merger, and a fair and reasonable transaction to the corporation. Nelson v. Gammon, 478 F. Supp. 630, 1979 U.S. Dist. LEXIS 10010 (W.D. Ky. 1979 ), aff’d, 647 F.2d 710, 1981 U.S. App. LEXIS 13523 (6th Cir. 1981) (decided under prior law).

2.— Shareholder Validation.

Kentucky has adopted the principle that informed shareholders could validate transactions which might otherwise be subject to attack due to director self-interest; this section did add, however, the requirement that the transaction must not be “manifestly unfair” to the corporation. Nelson v. Gammon, 478 F. Supp. 630, 1979 U.S. Dist. LEXIS 10010 (W.D. Ky. 1979 ), aff’d, 647 F.2d 710, 1981 U.S. App. LEXIS 13523 (6th Cir. 1981) (decided under prior law).

3.Merger Plan.

Nothing in the Kentucky merger statutes requires disqualification of shareholders from voting on a merger plan. Nelson v. Gammon, 478 F. Supp. 630, 1979 U.S. Dist. LEXIS 10010 (W.D. Ky. 1979 ), aff’d, 647 F.2d 710, 1981 U.S. App. LEXIS 13523 (6th Cir. 1981) (decided under prior law).

4.Business Opportunity Doctrine.

Judgment which did not award damages based on a managing member’s breach of fiduciary duty to a limited liability company (LLC) was error because, regardless of the LLC’s ability to complete projects diverted to another company formed by the managing member, the managing member could have and should have informed the other LLC members, and this conduct violated KRS 275.170 ; KRS 271B.8-310 (1) was illustrative of Kentucky law regarding the primacy of fiduciary duty over misappropriation of corporate opportunity. Patmon v. Hobbs, 280 S.W.3d 589, 2009 Ky. App. LEXIS 48 (Ky. Ct. App. 2009).

5.Construction.

Statute, which concerned director conflicts of interest, provided no support for the corporation's argument that it was capable of filing suit on its own behalf; the statute merely delineates transactions that are voidable by the corporation, and nothing in the statute requires a corporation to directly exercise that right, or alters the manner in which a corporation decides to exercise and vindicate such a right, and nothing in the statute disqualifies any director, self-interested or otherwise, from voting against the corporation exercising such a right. Gross v. Adcomm, Inc., 478 S.W.3d 396, 2015 Ky. App. LEXIS 170 (Ky. Ct. App. 2015).

Claim alleging a violation of this statute was subject to dismissal because the statute did not provide an individual cause of action for the debtor as a shareholder or director and thus the debtor lacked standing to assert a direct claim against plaintiff creditor under the statute. Feldman v. Pearl (In re Pearl), 2017 Bankr. LEXIS 616 (Bankr. E.D. Ky. Mar. 8, 2017), dismissed, 577 B.R. 513, 2017 Bankr. LEXIS 3297 (Bankr. E.D. Ky. 2017 ).

Notes to Unpublished Decisions

1.Application.

Unpublished decision: KRS 271B.8-310 (a), which governed corporate directors’ conflicts of interest, did not apply to the case because defendant, a former corporate officer and controller, was not a director of plaintiff, his former company. In the absence of Kentucky statutory authority governing a corporate officer’s conflicts of interest, Kentucky common law—in the instant case, Aero Drapery of Ky. Inc. v. Engdahl, 507 S.W.2d 166, 1974 Ky. LEXIS 671 ( Ky. 1974 ), and its progeny—governed; therefore, defendant’s argument that, pursuant to KRS 271B.8-310 (1), the transactions between companies in which he had a secret interest and plaintiff needed only to be “fair” to waive his conflicts of interest was not well taken. Mazak Corp. v. King, 496 Fed. Appx. 507, 2012 FED App. 0935N, 2012 U.S. App. LEXIS 17945 (6th Cir. Ky. 2012 ).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Campbell, Corporate Fiduciary Duties in Kentucky., 93 Ky. L.J. 551 (2004/2005).

Article: Normative Justifications for Lax (or No) Corporate Fiduciary Duties: A Tale of Problematic Principles, Imagined Facts and Inefficient Outcomes, 99 Ky. L.J. 231 (2010/2011).

Northern Kentucky Law Review.

Comment, A Survey of Kentucky Tort Reform, 17 N. Ky. L. Rev. 473 (1990).

ALR

Purchase of claims against corporation by officer or director thereof. 13 A.L.R.2d 1172.

Right of corporate officer to purchase corporate assets from corporation. 24 A.L.R.2d 71.

Validity of contract between corporations as affected by directors or officers in common. 33 A.L.R.2d 1060.

271B.8-320. Loans to directors.

  1. Except as provided by subsection (3) of this section, a corporation may not lend money to or guarantee the obligation of a director of the corporation unless:
    1. The particular loan or guarantee is approved by a majority of the votes represented by the outstanding voting shares of all classes, voting as a single voting group, except the votes of shares owned by or voted under the control of the benefited director; or
    2. The corporation’s board of directors determines that the loan or guarantee benefits the corporation and either approves the specific loan or guarantee or a general plan authorizing loans and guarantees.
  2. The fact that a loan or guarantee is made in violation of this section shall not affect the borrower’s liability on the loan or the corporation’s liability on the guarantee.
  3. This section shall not apply to loans and guarantees authorized by statute regulating any special class of corporations.

History. Enact. Acts 1988, ch. 23, § 87, effective January 1, 1989.

271B.8-330. Liability for unlawful distributions.

  1. A director who votes for or who assents to a distribution made in violation of KRS 271B.6-400 or the articles of incorporation shall be personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating KRS 271B.6-400 or the articles of incorporation if it is established that he did not perform his duties in compliance with KRS 271B.8-300 . In any proceeding commenced under this section, a director shall have all of the defenses ordinarily available to a director.
  2. A director held liable under subsection (1) of this section for an unlawful distribution shall be entitled to contribution:
    1. From every other director who could be held liable under subsection (1) of this section for the unlawful distribution; and
    2. From each shareholder for the amount the shareholder accepted knowing the distribution was made in violation of KRS 271B.6-400 or the articles of incorporation.
  3. A proceeding under this section shall be barred unless it is commenced within two (2) years after the date on which the effect of the distribution was measured under subsection (5) or (7) of KRS 271B.6-400 .

History. Enact. Acts 1988, ch. 23, § 88, effective January 1, 1989.

NOTES TO DECISIONS

1.Tolling.

Doctrine of adverse domination may operate to toll the statute of limitations under KRS 271B.8-330 (3) and 271B.6-400 while directors, who are guilty of alleged misconduct, exercise control over a corporation. Wilson v. Paine, 288 S.W.3d 284, 2009 Ky. LEXIS 154 ( Ky. 2009 ).

2.Applicability.

In a bank's action seeking repayment of loans guaranteed by a realty company, its breach of fiduciary duty claims against two officers of the company were not limited by this statute; precedents indicated that officers owe fiduciary duties to a corporation's creditors in some circumstances, and that duty was triggered when the officers improperly transferred property away from the company when it was moving toward insolvency and owed money to the bank. Bank of Am., N.A. v. Corporex Cos., LLC, 99 F. Supp. 3d 708, 2015 U.S. Dist. LEXIS 49254 (E.D. Ky. 2015 ).

Research References and Practice Aids

Northern Kentucky Law Review.

Miller, Notes, Piercing the Corporate Veil in Kentucky: An Analysis of United States v. WRW Corp., 22 N. Ky. L. Rev. 541 (1995).

Officers

271B.8-400. Required officers.

  1. A corporation shall have the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws.
  2. A duly appointed officer may appoint one (1) or more officers or assistant officers if authorized by the bylaws or the board of directors.
  3. The bylaws or the board of directors shall delegate to one (1) of the officers responsibility for preparing minutes of the directors’ and shareholders’ meetings and for authenticating records of the corporation.
  4. The same individual may simultaneously hold more than one (1) office in a corporation.
  5. Every officer of a corporation, by acceptance of election or appointment as an officer, including by service, shall be deemed to have consented to the jurisdiction of the courts of the Commonwealth of Kentucky for any action by, in the name of, or on behalf of the corporation.

History. Enact. Acts 1988, ch. 23, § 89, effective January 1, 1989; 2012, ch. 81, § 90, effective July 12, 2012.

271B.8-410. Duties of officers.

Each officer shall have the authority and shall perform the duties set forth in the bylaws or, to the extent consistent with the bylaws, the duties prescribed by the board of directors or by direction of an officer authorized by the board of directors to prescribe the duties of other officers.

History. Enact. Acts 1988, ch. 23, § 90, effective January 1, 1989.

NOTES TO DECISIONS

1.President’s Powers.

While presidents of corporations customarily exercised wide powers without approval of the board of directors, such powers were limited to doing acts customarily done in the business. Bancokentucky Co.'s Receiver v. National Bank of Kentucky's Receiver, 281 Ky. 784 , 137 S.W.2d 357, 1939 Ky. LEXIS 41 ( Ky. 1939 ) (decided under prior law).

Fact that corporation was engaged in business of acquiring securities did not confer power on president to purchase securities known to him to be worthless. Bancokentucky Co.'s Receiver v. National Bank of Kentucky's Receiver, 281 Ky. 784 , 137 S.W.2d 357, 1939 Ky. LEXIS 41 ( Ky. 1939 ) (decided under prior law).

2.Executive Director.

The executive director of a corporation, whose authority did not include the power to institute civil rights litigation on behalf of the corporation and whose action was specifically ordered terminated by the board of directors, was without standing to bring civil rights suit and the complaint was properly dismissed. Covington Housing Development Corp. v. Covington, 381 F. Supp. 427, 1974 U.S. Dist. LEXIS 6801 (E.D. Ky. 1974 ), aff’d, 513 F.2d 630 (6th Cir. Ky. 1975 ), cert. denied, Thompson v. Covington, 423 U.S. 869, 96 S. Ct. 133, 46 L. Ed. 2d 99, 1975 U.S. LEXIS 2794 (1975), rehearing denied, 423 U.S. 991, 96 S. Ct. 408, 46 L. Ed. 2d 312 (1975) (decided under prior law).

271B.8-420. Standards of conduct for officers.

  1. An officer with discretionary authority shall discharge his duties under that authority:
    1. In good faith;
    2. On an informed basis; and
    3. In a manner he honestly believes to be in the best interests of the corporation.
  2. An officer shall be considered to discharge his duties on an informed basis if he makes, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, inquiry into the business and affairs of the corporation, or into a particular action to be taken or decision to be made.
  3. In discharging his duties an officer shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    1. One (1) or more officers or employees of the corporation whom the officer honestly believes to be reliable and competent in the matters presented; or
    2. Legal counsel, public accountants, or other persons as to matters the officer honestly believes are within the person’s professional or expert competence.
  4. An officer shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (3) of this section unwarranted.
  5. Any action taken as an officer, or any failure to take any action as an officer, shall not be the basis for monetary damages or injunctive relief unless:
    1. The officer has breached or failed to perform his duties in compliance with this section; and
    2. In the case of an action for monetary damages, the breach or failure to perform constitutes willful misconduct or wanton or reckless disregard for the best interests of the corporation or its shareholders.
  6. A person bringing an action or monetary damages under this section shall have the burden of proving by clear and convincing evidence the provisions of subsection (5)(a) and (b) of this section, and the burden of proving that the breach or failure to perform was the legal cause of damages suffered by the corporation.
  7. Nothing in this section shall eliminate or limit the liability of any officer for any act or omission occurring prior to January 1, 1989.

History. Enact. Acts 1988, ch. 23, § 91, effective January 1, 1989; 1988, ch. 224, § 10, effective July 15, 1988.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.257 (Acts 1988, ch. 224, § 10, effective July 15, 1988) which was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989, and KRS 271B.420 (Acts 1988 ch. 23, § 91, effective January 1, 1989).

NOTES TO DECISIONS

1.Applicability.

KRS 271B.8-300 and 271B.8-420 were applicable to a breach of fiduciary responsibility lawsuit brought against corporate directors who allegedly solicited the revocation of proxies to prevent a quorum at the corporation’s annual meeting and voting in order to remove the CEO as an officer. The directors allegedly acted to preserve their employment in the corporation; actions that could be classified as having been taken as a director or officer. Gundaker/Jordan Am. Holdings, Inc. v. Clark, 2008 U.S. Dist. LEXIS 80907 (E.D. Ky. Oct. 9, 2008).

Even if this statute could have supported an action for wrongful termination, it did not apply in a case where an employee was just managerial in nature; his title of “president” was honorary only. Brown Jordan Int'l, Inc. v. Carmicle, 846 F.3d 1167, 2017 U.S. App. LEXIS 1310 (11th Cir. Fla. 2017).

2.Construction.

Because there was no mandatory or persuasive authority from Kentucky courts classifying a breach of fiduciary duty as a personal injury, the court declined to construe it as such. Therefore, KRS 271B.8-300 and 271B.8-420 did not fall under the protection of the “jural rights” doctrine and had to be enforced. Gundaker/Jordan Am. Holdings, Inc. v. Clark, 2008 U.S. Dist. LEXIS 80907 (E.D. Ky. Oct. 9, 2008).

3.Tort Liability.

One’s position as an officer or shareholder in a corporation fails to immunize him from tort liability in circumstances where he would be otherwise liable if he were not a shareholder. Smith v. Isaacs, 777 S.W.2d 912, 1989 Ky. LEXIS 87 ( Ky. 1989 ) (decided under former KRS 271A.125 ).

4.Standing.

Circuit court properly dismissed a shareholder's causes of action for against a corporate officer for lack of standing because the claims were derivative, not direct, where the officer owed the shareholder a fiduciary duty to inform him personally if she had reason to know that assets would be (or were being) misappropriated, the common-law fiduciary and statutory duties ran directly to the corporation or limited liability company. Griffin v. Jones, 2015 Ky. App. LEXIS 115 (Ky. Ct. App. Aug. 14, 2015), review denied, ordered not published, 2016 Ky. LEXIS 360 (Ky. Aug. 17, 2016).

Research References and Practice Aids

Kentucky Law Journal.

Campbell, Corporate Fiduciary Duties in Kentucky., 93 Ky. L.J. 551 (2004/2005).

Article: Normative Justifications for Lax (or No) Corporate Fiduciary Duties: A Tale of Problematic Principles, Imagined Facts and Inefficient Outcomes, 99 Ky. L.J. 231 (2010/2011).

Northern Kentucky Law Review.

Comment, A Survey of Kentucky Tort Reform, 17 N. Ky. L. Rev. 473 (1990).

271B.8-430. Resignation and removal of officers.

  1. An officer may resign at any time by delivering notice to the corporation. A resignation shall be effective when the notice is delivered, unless the notice specifies a later effective date. If a resignation is made effective at a later date and the corporation accepts the future effective date, its board of directors may fill the pending vacancy before the effective date if the board of directors provides that the successor shall not take office until the effective date.
  2. A board of directors may remove any officer at any time with or without cause.

History. Enact. Acts 1988, ch. 23, § 92, effective January 1, 1989.

NOTES TO DECISIONS

1.Right of Removal.

Legal directors had the right to remove an officer. Harris v. Brown, 6 F.2d 922, 1925 U.S. Dist. LEXIS 1184 (D. Ky. 1925 ) (decided under prior law).

In the absence of contract the directors could discharge a corporate officer at any time without cause. O'Neal v. F. A. Neider Co., 118 Ky. 62 , 80 S.W. 451, 25 Ky. L. Rptr. 2279 , 1904 Ky. LEXIS 8 ( Ky. 1904 ) (decided under prior law).

271B.8-440. Contract rights of officers.

  1. The appointment of an officer shall not itself create contract rights.
  2. An officer’s removal shall not affect the officer’s contract rights, if any, with the corporation. An officer’s resignation shall not affect the corporation’s contract rights, if any, with the officer.

History. Enact. Acts 1988, ch. 23, § 93, effective January 1, 1989.

Indemnification

271B.8-500. Definitions for KRS 271B.8-510 to 271B.8-580.

As used in KRS 271B.8-510 to 271B.8-580 :

  1. “Corporation” includes any domestic or foreign predecessor entity of a corporation in a merger or other transaction in which the predecessor’s existence ceased upon consummation of the transaction.
  2. “Director” means an individual who is or was a director of a corporation or an individual, while a director of a corporation, is or was serving at the corporation’s request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A director shall be considered to be serving an employee benefit plan at the corporation’s request if his duties to the corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. “Director” includes, unless the context requires otherwise, the estate or personal representative of a director.
  3. “Expenses” include counsel fees.
  4. “Liability” means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding.
  5. “Official capacity” means:
    1. When used with respect to a director, the office of director in a corporation; and
    2. When used with respect to an individual other than a director, as contemplated in KRS 271B.8-560 , the office in a corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation. “Official capacity” shall not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise.
  6. “Party” includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding.
  7. “Proceeding” means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal.

History. Enact. Acts 1988, ch. 23, § 94, effective January 1, 1989.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

271B.8-510. Authority to indemnify.

  1. Except as provided in subsection (4) of this section, a corporation may indemnify an individual made a party to a proceeding because he is or was a director against liability incurred in the proceeding if:
    1. He conducted himself in good faith; and
    2. He honestly believed:
      1. In the case of conduct in his official capacity with the corporation, that his conduct was in its best interests; and
      2. In all other cases, that his conduct was at least not opposed to its best interests; and
    3. In the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful.
  2. A director’s conduct with respect to an employee benefit plan for a purpose he reasonably believed to be in the interests of the participants in and beneficiaries of the plan shall be conduct that satisfies the requirement of subsection (1)(b)2. of this section.
  3. The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not be, of itself, determinative that the director did not meet the standard of conduct described in this section.
  4. A corporation may not indemnify a director under this section:
    1. In connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or
    2. In connection with any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received by him.
  5. Indemnification permitted under this section in connection with a proceeding by or in the right of the corporation shall be limited to reasonable expenses incurred in connection with the proceeding.

HISTORY: Enact. Acts 1988, ch. 23, § 95, effective January 1, 1989; 2015 ch. 34, § 8, effective June 24, 2015.

271B.8-520. Mandatory indemnification.

Unless limited by its articles of incorporation, a corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he is or was a director of the corporation against reasonable expenses incurred by him in connection with the proceeding.

History. Enact. Acts 1988, ch. 23, § 96, effective January 1, 1989.

271B.8-530. Advance for expenses.

  1. A corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if:
    1. The director furnishes the corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct; and
    2. A determination is made that the facts then known to those making the determination would not preclude indemnification under KRS 271B.8-500 to 271B.8-580 .
  2. The undertaking required by subsection (1)(a) of this section shall be an unlimited general obligation of the director but shall not be required to be secured and may be accepted without reference to financial ability to make repayment.
  3. Determinations and authorizations of payments under this section shall be made in the manner specified in KRS 271B.8-550 .

HISTORY: Enact. Acts 1988, ch. 23, § 97, effective January 1, 1989; 2017 ch. 193, § 6, effective June 29, 2017.

271B.8-540. Court-ordered indemnification.

Unless a corporation’s articles of incorporation provide otherwise, a director of the corporation who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court after giving any notice the court considers necessary may order indemnification if it determines:

  1. The director is entitled to mandatory indemnification under KRS 271B.8-520 , in which case the court shall also order the corporation to pay the director’s reasonable expenses incurred to obtain court-ordered indemnification; or
  2. The director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not he met the standard of conduct set forth in KRS 271B.8-510 or was adjudged liable as described in subsection (4) of KRS 271B.8-510 , but if he was adjudged so liable his indemnification shall be limited to reasonable expenses incurred.

History. Enact. Acts 1988, ch. 23, § 98, effective January 1, 1989.

271B.8-550. Determination and authorization of indemnification.

  1. A corporation shall not indemnify a director under KRS 271B.8-510 unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because he has met the standard of conduct set forth in KRS 271B.8-510 .
  2. The determination shall be made:
    1. By the board of directors by majority vote of a quorum consisting of directors not at the time parties to the proceeding;
    2. If a quorum cannot be obtained under subsection (2)(a) of this section, by majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two (2) or more directors not at the time parties to the proceeding;
    3. By special legal counsel:
      1. Selected by the board of directors or its committee in the manner prescribed in subsection (2)(a) and (b) of this section; or
      2. If a quorum of the board of directors cannot be obtained under subsection (2)(a) of this section and a committee cannot be designated under subsection (2)(b) of this section, selected by majority vote of the full board of directors (in which selection directors who are parties may participate); or
    4. By the shareholders, but shares owned by or voted under the control of directors or shareholders who are at the time parties to the proceeding shall not be voted on the determination.
  3. Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subsection (2)(c) of this section to select counsel.

HISTORY: Enact. Acts 1988, ch. 23, § 99, effective January 1, 1989; 2017 ch. 193, § 7, effective June 29, 2017.

271B.8-560. Indemnification of officers, employees, and agents.

Unless a corporation’s articles of incorporation provide otherwise:

  1. An officer of the corporation who is not a director shall be entitled to mandatory indemnification under KRS 271B.8-520 , and is entitled to apply for court-ordered indemnification under KRS 271B.8-540 , in each case to the same extent as a director;
  2. The corporation may indemnify and advance expenses under KRS 271B.8-500 to 271B.8-580 to an officer, employee, or agent of the corporation who is not a director to the same extent as to a director; and
  3. A corporation may also indemnify and advance expenses to an officer, employee, or agent who is not a director to the extent, consistent with public policy, that may be provided by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract.

History. Enact. Acts 1988, ch. 23, § 100, effective January 1, 1989.

271B.8-570. Insurance.

A corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation, or who, while a director, officer, employee or agent of the corporation, is or was serving at the request of the corporation as a director, officer, manager, partner, trustee, employee, or agent of another entity, or of an employee benefit plan or other enterprise, against liability asserted against or incurred in that capacity or arising from the status as a director, officer, manager, employee, or agent, whether or not the corporation would have power to indemnify against the same liability under KRS 271B.8-510 or 271B.8-520 .

History. Enact. Acts 1988, ch. 23, § 101, effective January 1, 1989; 2007, ch. 137, § 66, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 66, effective July 15, 2010.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

271B.8-580. Application of KRS 271B.8-500 to 271B.8-580.

  1. The indemnification and advancement of expenses provided by, or granted pursuant to, KRS 271B.8-500 to 271B.8-580 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
  2. KRS 271B.8-500 to 271B.8-580 shall not limit a corporation’s power to pay or reimburse expenses incurred by a director in connection with his appearance as a witness at a proceeding at a time when he has not been made a named defendant or responded to the proceeding.

History. Enact. Acts 1988, ch. 23, § 102, effective January 1, 1989.

Subtitle 9. [Reserved]

Subtitle 10. Amendment of Articles of Incorporation and Bylaws

Amendment of Articles of Incorporation

271B.10-010. Authority to amend — Conversion to nonstock, nonprofit corporation.

  1. A corporation may amend its articles of incorporation at any time to add or change a provision that is required or permitted in the articles of incorporation or to delete a provision not required in the articles of incorporation. Whether a provision is required or permitted in the articles of incorporation shall be determined as of the effective date of the amendment.
  2. A shareholder of the corporation shall not have a vested property right resulting from any provision in the articles of incorporation, including provisions relating to management, control, capital structure, dividend entitlement, or purpose or duration of the corporation.
  3. A corporation existing under this chapter or its predecessors may amend its articles of incorporation to convert into a nonstock, nonprofit corporation under KRS 273.161 to 273.387 , but a corporation existing under KRS 273.161 to 273.387 may not convert to a corporation existing under this chapter.

History. Enact. Acts 1988, ch. 23, § 103, effective January 1, 1989; 2005, ch. 182, § 8, effective June 20, 2005.

NOTES TO DECISIONS

1.Creditors.

The right to amend the articles was not conditioned upon the consent of creditors. In re Benedict Tea & Coffee Co., 192 F. 1011, 1912 U.S. Dist. LEXIS 1845 (D. Ky. 1912 ) (decided under prior law).

2.New Corporation.

An amendment changing the name of the corporation, the number and qualifications of its directors, and authorizing an executive committee created a new corporation. Senn v. Levy, 111 Ky. 318 , 63 S.W. 776, 23 Ky. L. Rptr. 1331 , 23 Ky. L. Rptr. 662 , 1901 Ky. LEXIS 209 ( Ky. 1901 ) (decided under prior law).

271B.10-020. Amendment by board of directors.

Unless the articles of incorporation provide otherwise, a corporation’s board of directors may adopt one (1) or more amendments to the corporation’s articles of incorporation without shareholder action:

  1. To extend the duration of the corporation if it was incorporated at a time when limited duration was required by law;
  2. To delete the names and addresses of the initial directors;
  3. To delete the name and address of the initial registered agent or registered office, if a statement of change is on file with the Secretary of State;
  4. To delete the mailing address of the corporation’s initial principal office if the statement containing the mailing address of new principal office is on file with the Secretary of State;
  5. To change each issued and unissued authorized share of an outstanding class into a greater number of whole shares if the corporation has only shares of that class outstanding;
  6. To change the corporate name by substituting the word “corporation,” “incorporated,” “company,” “limited,” or the abbreviation “corp.,” “inc.,” “co.,” or “ltd.,” for a similar word or abbreviation in the name, or by adding, deleting, or changing a geographical attribution for the name; or
  7. To make any other change expressly permitted by this chapter to be made without shareholder action.

History. Enact. Acts 1988, ch. 23, § 104, effective January 1, 1989; 1998, ch. 341, § 7, effective July 15, 1998.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, The 2002 Amendments to the Kentucky Business Corporation Act, Vol. 67, No. 3, May 2003, Ky. Bench & Bar 13.

271B.10-030. Amendment by board of directors and shareholders.

  1. A corporation’s board of directors may propose one (1) or more amendments to the articles of incorporation for submission to the shareholders.
  2. For the amendment to be adopted:
    1. The board of directors shall recommend the amendment to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders with the amendment; and
    2. The shareholders entitled to vote on the amendment shall approve the amendment as provided in subsection (5) of this section.
  3. The board of directors may condition its submission of the proposed amendment on any basis.
  4. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholder’s meeting in accordance with KRS 271B.7-050 . The notice of meeting shall also state that the purpose, or one (1) of the purposes, of the meeting is to consider the proposed amendment and contain or be accompanied by a copy or summary of the amendment.
  5. Unless this chapter, the articles of incorporation, or the board of directors (acting pursuant to subsection (3) of this section) requires a greater vote or a vote by voting groups, the amendment to be adopted shall be approved by:
    1. A majority of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters’ rights; and
    2. The votes required by KRS 271B.7-250 and 271B.7-260 by every other voting group entitled to vote on the amendment.

History. Enact. Acts 1988, ch. 23, § 105, effective January 1, 1989.

271B.10-040. Voting on amendments by voting groups.

  1. The holders of the outstanding shares of a class shall be entitled to vote as a separate voting group (if shareholder voting is otherwise required by this chapter) on a proposed amendment if the amendment would:
    1. Increase or decrease the aggregate number of authorized shares of the class;
    2. Effect an exchange or reclassification of all or part of the shares of the class into shares of another class;
    3. Effect an exchange or reclassification, or create the right of exchange, of all or part of the shares of another class into shares of the class;
    4. Change the designation, rights, preferences, or limitations of all or part of the shares of the class;
    5. Change the shares of all or part of the class into a different number of shares of the same class;
    6. Create a new class of shares having rights or preferences with respect to distributions or to dissolution that are prior, superior, or substantially equal to the shares of the class;
    7. Increase the rights, preferences, or number of authorized shares of any class that, after giving effect to the amendment, have rights or preferences with respect to distributions or to dissolution that are prior, superior, or substantially equal to the shares of the class;
    8. Limit or deny an existing preemptive right of all or part of the shares of the class; or
    9. Cancel or otherwise affect rights to distributions or dividends that have accumulated but not yet been declared on all or part of the shares of the class.
  2. If a proposed amendment would affect a series of a class of shares in one (1) or more of the ways described in subsection (1) of this section, the shares of that series shall be entitled to vote as a separate voting group on the proposed amendment.
  3. If a proposed amendment that entitles two (2) or more series of shares to vote as separate voting groups under this section would affect those two (2) or more series in the same or a substantially similar way, the shares of all the series so affected shall vote together as a single voting group on the proposed amendment.
  4. A class or series of shares is entitled to the voting rights granted by this section although the articles of incorporation provide that the shares are nonvoting shares.

History. Enact. Acts 1988, ch. 23, § 106, effective January 1, 1989.

271B.10-050. Amendment before issuance of shares.

If a corporation has not yet issued shares, its incorporators or board of directors may adopt one (1) or more amendments to the corporation’s articles of incorporation.

History. Enact. Acts 1988, ch. 23, § 107, effective January 1, 1989.

271B.10-060. Articles of amendment.

A corporation amending its articles of incorporation shall deliver to the Secretary of State for filing articles of amendment setting forth:

  1. The name of the corporation;
  2. The text of each amendment adopted;
  3. If an amendment provides for an exchange, reclassification, or cancellation of issued shares, provisions for implementing the amendment if not contained in the amendment itself;
  4. The date of each amendment’s adoption;
  5. If an amendment was adopted by the incorporators or board of directors without shareholder action, a statement to that effect and that shareholder action was not required; and
  6. If an amendment was approved by the shareholders:
    1. The designation, number of outstanding shares, number of votes entitled to be cast by each voting group entitled to vote separately on the amendment, and number of votes of each voting group indisputably represented at the meeting; and
    2. Either the total number of votes cast for and against the amendment by each voting group entitled to vote separately on the amendment or the total number of undisputed votes cast for the amendment by each voting group and a statement that the number cast for the amendment by each voting group was sufficient for approval by that voting group.
  7. If the amendment includes language converting the corporation into a nonprofit, nonstock corporation under KRS 273.161 to 273.387 , the conversion shall be effective upon the filing of the amendment with the Secretary of State, and, upon filing, the Secretary of State shall immediately forward a copy of the amendment to the commissioner of revenue.

History. Enact. Acts 1988, ch. 23, § 108, effective January 1, 1989; 2005, ch. 182, § 9, effective June 20, 2005.

Legislative Research Commission Note.

(6/20/2005). 2005 Ky. Acts chs. 11, 85, 95, 97, 98, 99, 123, and 181 instruct the Reviser of Statutes to correct statutory references to agencies and officers whose names have been changed in the 2005 legislation confirming the reorganization of the executive branch. Such a correction has been made in this section.

271B.10-070. Restated articles of incorporation.

  1. A corporation’s board of directors may restate its articles of incorporation at any time with or without shareholder action.
  2. The restatement may include one (1) or more amendments to the articles. If the restatement includes an amendment requiring shareholder approval, it shall be adopted as provided in KRS 271B.10-030 .
  3. If the board of directors submits a restatement for shareholder action, the corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders’ meeting in accordance with KRS 271B.7-050 . The notice shall also state that the purpose, or one (1) of the purposes, of the meeting is to consider the proposed restatement and contain or be accompanied by a copy of the restatement that identifies any amendment or other change it would make in the articles.
  4. A corporation restating its articles of incorporation shall deliver to the secretary of state for filing articles of restatement setting forth the name of the corporation and the text of the restated articles of incorporation together with a certificate setting forth:
    1. Whether the restatement contains an amendment to the articles requiring shareholder approval and, if it does not, that the board of directors adopted the restatement; or
    2. If the restatement contains an amendment to the articles requiring shareholder approval, the information required by KRS 271B.10-060 .
  5. Restated articles of incorporation supersede the original articles of incorporation and all amendments to them when the restated articles of incorporation become effective pursuant to KRS 14A.2-070 .
  6. The secretary of state may certify restated articles of incorporation as the articles of incorporation currently in effect, without including the certificate information required by subsection (4) of this section.

History. Enact. Acts 1988, ch. 23, § 109, effective January 1, 1989; 2010, ch. 151, § 132, effective January 1, 2011.

271B.10-080. Amendment pursuant to reorganization.

  1. A corporation’s articles of incorporation may be amended without action by the board of directors or shareholders to carry out a plan of reorganization ordered or decreed by a court of competent jurisdiction under federal statute if the articles of incorporation after amendment contain only provisions required or permitted by KRS 271B.2-020 .
  2. The individual or individuals designated by the court shall deliver to the Secretary of State for filing articles of amendment setting forth:
    1. The name of the corporation;
    2. The text of each amendment approved by the court;
    3. The date of the court’s order or decree approving the articles of amendment;
    4. The title of the reorganization proceeding in which the order or decree was entered; and
    5. A statement that the court had jurisdiction of the proceeding under federal statute.
  3. Shareholders of a corporation undergoing reorganization shall not have dissenters’ rights except as and to the extent provided in the reorganization plan.
  4. This section shall not apply after entry of a final decree in the reorganization proceeding even though the court retains jurisdiction of the proceeding for limited purposes unrelated to consummation of the reorganization plan.

History. Enact. Acts 1988, ch. 23, § 110, effective January 1, 1989.

271B.10-090. Effect of amendment.

An amendment to articles of incorporation shall not affect a cause of action existing against or in favor of the corporation, a proceeding to which the corporation is a party, or the existing rights of persons other than shareholders of the corporation. An amendment changing a corporation’s name shall not abate a proceeding brought by or against the corporation in its former name.

History. Enact. Acts 1988, ch. 23, § 111, effective January 1, 1989.

Amendment of Bylaws

271B.10-200. Amendment by board of directors or shareholders.

  1. A corporation’s board of directors may amend or repeal the corporation’s bylaws unless:
    1. The articles of incorporation or this chapter reserve this power exclusively to the shareholders in whole or part; or
    2. The shareholders in amending or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw.
  2. A corporation’s shareholders may amend or repeal the corporation’s bylaws even though the bylaws may also be amended or repealed by its board of directors.
  3. A shareholder of the corporation shall not have a vested property right resulting from any provision in the bylaws.

HISTORY: Enact. Acts 1988, ch. 23, § 112, effective January 1, 1989; 2017 ch. 193, § 8, effective June 29, 2017.

271B.10-220. Bylaw increasing quorum or voting requirements for directors.

  1. A bylaw that fixes a greater quorum or voting requirement for the board of directors may be amended or repealed:
    1. If originally adopted by the shareholders, only by the shareholders; or
    2. If originally adopted by the board of directors, either by the shareholders or by the board of directors.
  2. A bylaw adopted or amended by the shareholders that fixes a greater quorum or voting requirement for the board of directors may provide that it may be amended or repealed only by a specified vote of either the shareholders or the board of directors.
  3. Action by the board of directors under subsection (1)(b) of this section to adopt or amend a bylaw that changes the quorum or voting requirement for the board of directors shall meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.

History. Enact. Acts 1988, ch. 23, § 113, effective January 1, 1989.

Subtitle 11. Merger and Share Exchange

271B.11-010. Merger.

  1. One (1) or more corporations may merge into another corporation if the board of directors of each corporation adopts and its shareholders (if required by KRS 271B.11-030 ) approve a plan of merger.
  2. The plan of merger shall set forth:
    1. The name of each corporation planning to merge and the name of the surviving corporation into which each other corporation plans to merge;
    2. The terms and conditions of the merger; and
    3. The manner and basis of converting the shares of each corporation into shares, obligations, or other securities of the surviving or any other corporation or into cash or other property in whole or part.
  3. The plan of merger may set forth:
    1. Amendments to the articles of incorporation of the surviving corporation; and
    2. Other provisions relating to the merger.

History. Enact. Acts 1988, ch. 23, § 114, effective January 1, 1989.

NOTES TO DECISIONS

1.In General.

Consolidation describes the combination of two (2) corporations into a new one. Central University of Kentucky v. Walters' Ex'rs, 122 Ky. 65 , 90 S.W. 1066, 28 Ky. L. Rptr. 1041 , 1906 Ky. LEXIS 23 ( Ky. 1906 ).

2.Retention of Board Members and Employees.

The retention of board members and continued employment with the surviving corporation do not offend principles of Kentucky merger law. Nelson v. Gammon, 478 F. Supp. 630, 1979 U.S. Dist. LEXIS 10010 (W.D. Ky. 1979 ), aff'd, 647 F.2d 710, 1981 U.S. App. LEXIS 13523 (6th Cir. Ky. 1981 ).

Research References and Practice Aids

ALR

Merger or consolidation of corporation as terminating charitable trust of which corporation is beneficiary. 34 A.L.R.3d 749.

Sufficiency, under § 14 of Securities Exchange Act of 1934 (15 USCS § 78n), and implementing regulations, of proxy or information statement incident to merger of corporation. 4 A.L.R. Fed. 1021.

271B.11-020. Share exchange.

  1. A corporation may acquire all of the outstanding shares of one (1) or more classes or series of another corporation if the board of directors of each corporation adopts and its shareholders (if required by KRS 271B.11-030 ) approve the exchange.
  2. The plan of exchange shall set forth:
    1. The name of the corporation whose shares will be acquired and the name of the acquiring corporation;
    2. The terms and conditions of the exchange; and
    3. The manner and basis of exchanging the shares to be acquired for shares, obligations, or other securities of the acquiring or any other corporation or for cash or other property in whole or part.
  3. The plan of exchange may set forth other provisions relating to the exchange.
  4. This section shall not limit the power of a corporation to acquire all or part of the shares of one (1) or more classes or series of another corporation through a voluntary exchange or otherwise.

History. Enact. Acts 1988, ch. 23, § 115, effective January 1, 1989.

NOTES TO DECISIONS

1.Transfer of Assets.

A transfer of assets by one corporation to another corporation in the nature of an assignment for creditors was not a consolidation. La Rue v. Bank of Columbus, 165 Ky. 669 , 178 S.W. 1033, 1915 Ky. LEXIS 585 ( Ky. 1915 ) (decided under prior law).

Research References and Practice Aids

ALR

Merger or consolidation of corporation as terminating charitable trust of which corporation is beneficiary. 34 A.L.R.3d 749.

271B.11-025. Change of status from or to a public benefit corporation — Conditions for.

  1. Notwithstanding any other provisions of this chapter, a corporation that is not a public benefit corporation shall not, without the approval of ninety percent (90%) of the outstanding shares of each class of the stock of the corporation of which there are outstanding shares, whether voting or nonvoting:
    1. Amend its articles of incorporation to elect to be a public benefit corporation; or
    2. Merge with or into another entity if, as a result of the merger, the shares in the corporation would become, or be converted into or exchanged for the right to receive, shares or other equity interests in a domestic or foreign public benefit corporation or similar entity. The restrictions of this section shall not apply prior to the time that the corporation has received payment for any of its capital stock.
  2. Any stockholder of a corporation that is not a public benefit corporation who:
    1. Holds shares of stock of the corporation immediately prior to the effective time of:
      1. An amendment to the corporation’s articles of incorporation to become a public benefit corporation; or
      2. A merger that would result in the conversion of the corporation’s stock into, or exchange of the corporation’s stock for the right to receive, shares or other equity interests in a domestic or foreign public benefit corporation or similar entity; and
    2. Has not voted in favor of the amendment, merger, or consolidation or consented thereto in writing; shall be entitled to exercise dissenters’ rights under Subtitle 13 of this chapter.
  3. Notwithstanding any other provisions of this chapter, a corporation that is a public benefit corporation shall not, without the approval of two-thirds (2/3) of the outstanding shares of each class of the stock of the corporation of which there are outstanding shares, whether voting or nonvoting:
    1. Amend its articles of incorporation to delete the election to be a public benefit corporation; or
    2. Merge with or into another entity if, as a result of the merger, the shares in the corporation would become, or be converted into or exchanged for the right to receive, shares or other equity interests in a domestic or foreign corporation that is not a public benefit corporation or similar entity and the articles of incorporation of which does not contain the identical public benefit or public benefits as the public benefit corporation identified in its articles of incorporation.

HISTORY: 2017 ch. 28, § 3, effective June 29, 2017.

271B.11-030. Action on plan.

  1. After adopting a plan of merger or share exchange, the board of directors of each corporation party to the merger, and the board of directors of the corporation whose shares will be acquired in the share exchange, shall submit the plan of merger (except as provided in subsection (7) of this section) or share exchange for approval by its shareholders.
  2. For a plan of merger or share exchange to be approved:
    1. The board of directors shall recommend the plan of merger or share exchange to the shareholders, unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders with the plan; and
    2. The shareholders entitled to vote shall approve the plan.
  3. The board of directors may condition its submission of the proposed merger or share exchange on any basis.
  4. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders’ meeting in accordance with KRS 271B.7-050 . The notice shall also state that the purpose, or one (1) of the purposes, of the meeting is to consider the plan of merger or share exchange and contain or be accompanied by a copy or summary of the plan.
  5. Unless this chapter, the articles of incorporation, or the board of directors (acting pursuant to subsection (3) of this section) require a greater vote or vote by voting groups, the plan of merger or share exchange to be authorized shall be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group.
  6. Separate voting by voting groups shall be required:
    1. On a plan of merger if the plan contains a provision that, if contained in a proposed amendment to articles of incorporation, would require action by one (1) or more separate voting groups on the proposed amendment under KRS 271B.10-040 ; and
    2. On a plan of share exchange by each class or series of shares included in the exchange, with each class or series constituting a separate voting group.
  7. Action by the shareholders of the surviving corporation on a plan of merger shall not be required if:
    1. The articles of incorporation of the surviving corporation will not differ (except for amendments enumerated in KRS 271B.10-020 ) from its articles before the merger;
    2. Each shareholder of the surviving corporation whose shares were outstanding immediately before the effective date of the merger will hold the same number of shares, with identical designations, preferences, limitations, and relative rights, immediately after;
    3. The number of voting shares outstanding immediately after the merger, plus the number of voting shares issuable as a result of the merger (either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger) will not exceed by more than twenty percent (20%) the total number of voting shares of the surviving corporation outstanding immediately before the merger; and
    4. The number of participating shares outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger (either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger), will not exceed by more than twenty percent (20%) the total number of participating shares outstanding immediately before the merger.
  8. As used in subsection (7) of this section:
    1. “Participating shares” means shares that entitle their holders to participate without limitation in distributions.
    2. “Voting shares” means shares that entitle their holders to vote unconditionally in elections of directors.
  9. After a merger or share exchange is authorized, and at any time before articles of merger or share exchange are filed, the planned merger or share exchange may be abandoned (subject to any contractual rights), without further shareholder action, in accordance with the procedure set forth in the plan of merger or share exchange or, if none is set forth, in the manner determined by the board of directors.

History. Enact. Acts 1988, ch. 23, § 116, effective January 1, 1989.

NOTES TO DECISIONS

1.Preferred Shareholders.

Former section governing merger and consolidation did not impair the obligation of preferred stockholders simply because it authorized some sort of consolidation. Donohue v. Heuser, 239 S.W.2d 238, 1951 Ky. LEXIS 866 ( Ky. 1951 ) (decided under prior law).

2.Rights of Stockholders.

A consolidation necessarily involves a change in the rights of shareholders and the shareholder is on notice that changes may be effected; moreover a reasonable alteration of preferred stockholders’ rights would include the elimination of dividend arrearages and other changes made provided they are necessary, proper, and fair in view of the corporate condition shown in the particular case. Donohue v. Heuser, 239 S.W.2d 238, 1951 Ky. LEXIS 866 ( Ky. 1951 ) (decided under prior law).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

271B.11-040. Merger of subsidiary.

  1. A parent corporation owning at least ninety percent (90%) of the outstanding shares of each class of a subsidiary corporation may merge the subsidiary into itself without approval of the shareholders of the parent or subsidiary.
  2. The board of directors of the parent shall adopt a plan of merger that sets forth:
    1. The names of the parent and subsidiary; and
    2. The manner and basis of converting the shares of the subsidiary into shares, obligations, or other securities of the parent or any other corporation or into cash or other property in whole or part.
  3. The parent shall mail a copy or summary of the plan of merger to each shareholder of the subsidiary who does not waive the mailing requirement in writing.
  4. The parent shall not deliver articles of merger to the Secretary of State for filing until at least thirty (30) days after the date it mailed a copy of the plan of merger to each shareholder of the subsidiary who did not waive the mailing requirement.
  5. Articles of merger under this section shall not contain amendments to the articles of incorporation of the parent corporation (except for amendments enumerated in KRS 271B.10-020 ).

History. Enact. Acts 1988, ch. 23, § 117, effective January 1, 1989.

271B.11-050. Articles of merger or share exchange.

  1. After a plan of merger or share exchange is approved by the shareholders, or adopted by the board of directors if shareholder approval is not required, the surviving or acquiring corporation shall deliver to the Secretary of State for filing articles of merger or share exchange setting forth:
    1. The names of the parties to the merger or share exchange;
    2. The name of the surviving corporation, if a merger, or the name of the acquiring corporation, if a share exchange;
    3. If a merger, the information required by KRS 271B.11-010 (2)(c);
    4. If a merger, any amendment to the articles of incorporation of the surviving corporation;
    5. If a share exchange, the information required by KRS 271B.11-020 (2)(c);
    6. If shareholder approval was not required, a statement to that effect; and
    7. If approval of the shareholders of one (1) or more corporations party to the merger or share exchange was required:
      1. The designation, number of outstanding shares, and number of votes entitled to be cast by each voting group entitled to vote separately on the plan as to each corporation; and
      2. Either the total number of votes cast for and against the plan by each voting group entitled to vote separately on the plan or the total number of undisputed votes cast for the plan separately by each voting group and a statement that the number cast for the plan by each voting group was sufficient for approval by that voting group.
  2. A merger or share exchange shall take effect upon the effective date of the articles of merger or share exchange.

HISTORY: Enact. Acts 1988, ch. 23, § 118, effective January 1, 1989; 2015 ch. 34, § 9, effective June 24, 2015.

Legislative Research Commission Notes.

(6/24/2015). During codification, the Reviser of Statutes has corrected a manifest clerical or typographical error in subsection (1)(e) of this statute from the way it appeared in 2015 Ky. Acts ch. 34, sec. 9 by changing a citation to “KRS 271B.11-020 (c)” to read “KRS 271B.11-020 (2)(c).” None of the text of the subsection was changed.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

271B.11-060. Effect of merger or share exchange.

  1. When a merger takes effect:
    1. Every other corporation party to the merger shall merge into the surviving corporation and the separate existence of every corporation, except the surviving corporation, shall cease;
    2. The title to all property, whether real, personal, or intangible, owned by each corporation party to the merger shall be vested in the surviving corporation without reversion or impairment;
    3. The surviving corporation shall have all liabilities of each corporation party to the merger;
    4. A proceeding pending against any corporation party to the merger may be continued as if the merger did not occur or the surviving corporation may be substituted in the proceeding for the corporation whose existence ceased;
    5. The articles of incorporation of the surviving corporation shall be amended to the extent provided in the articles of merger; and
    6. The shares of each corporation party to the merger that are to be converted into shares, obligations, or other securities of the surviving or any other corporation or into cash or other property shall be converted, and the former holders of the shares shall be entitled only to the rights provided in the articles of merger or to their rights under Subtitle 13.
  2. When a share exchange takes effect, the shares of each acquired corporation shall be exchanged as provided in the articles of share exchange, and the former holders of the shares shall be entitled only to the exchange rights provided in the articles of share exchange or to their rights under Subtitle 13.

HISTORY: Enact. Acts 1988, ch. 23, § 119, effective January 1, 1989; 2012, ch. 81, § 91, effective July 12, 2012; 2015 ch. 34, § 10, effective June 24, 2015.

NOTES TO DECISIONS

1.Consolidated Company.

The constituent corporations ceased to exist as such and the consolidated corporation became a single new corporation, subject to all laws of the state relating to such corporations. Kentucky Power & Light Co. v. Maysville, 36 F.2d 816, 1929 U.S. Dist. LEXIS 1741 (D. Ky. 1929 ) (decided under prior law).

2.— Assets.

All assets of the constituent corporations passed to the new concern. Taylor v. Citizens' Oil Co., 182 Ky. 350 , 206 S.W. 644, 1918 Ky. LEXIS 386 ( Ky. 1918 ) (decided under prior law). And see Farmers-Exchange Bank v. McDaniel, 266 Ky. 743 , 99 S.W.2d 827, 1936 Ky. LEXIS 743 ( Ky. 1936 ).

3.— Debts.

Corporation purchasing assets of another corporation was liable for debts of selling corporation, whether contract or tort, liquidated or unliquidated, though it did not expressly assume payment, where there was no consideration for the sale, or sale was not in good faith but for purpose of defeating creditors, or where there had been a merger or consolidation, or where purchasing corporation took over from stockholders all stock of selling corporation, or where transaction amounted to mere reincorporation. Payne-Baber Coal Co. v. Butler, 276 Ky. 211 , 123 S.W.2d 273, 1938 Ky. LEXIS 542 ( Ky. 1938 ) (decided under prior law).

Liability of purchasing corporation was for full amount of debt owed by selling corporation, without regard to amount paid for purchase. Payne-Baber Coal Co. v. Butler, 276 Ky. 211 , 123 S.W.2d 273, 1938 Ky. LEXIS 542 ( Ky. 1938 ) (decided under prior law).

4.— Franchises and Property Rights.

Street franchises pass to the consolidated corporation. Louisville v. Cumberland Tel. & Tel. Co., 224 U.S. 649, 32 S. Ct. 572, 56 L. Ed. 934, 1912 U.S. LEXIS 2333 (U.S. 1912); Owensboro v. Cumberland Tel. & Tel. Co., 230 U.S. 58, 33 S. Ct. 988, 57 L. Ed. 1389, 1913 U.S. LEXIS 2678 (U.S. 1913) (decided under prior law).

Consolidation continued in the new corporation all the franchises, and vested in it all the property rights, subject to the terms upon which it was acquired, of the two constituent corporations. Central University of Kentucky v. Walters' Ex'rs, 122 Ky. 65 , 90 S.W. 1066, 28 Ky. L. Rptr. 1041 , 1906 Ky. LEXIS 23 ( Ky. 1906 ) (decided under prior law).

5.— Liabilities.

The consolidated company succeeded to all the liabilities of the constituent companies. Mercer-Lincoln Pine Knob Oil Co. v. Payne, 206 Ky. 848 , 268 S.W. 584, 1925 Ky. LEXIS 1056 ( Ky. 1925 ) (decided under prior law).

6.— Negotiable Paper.

Where two corporations were consolidated and new corporation took over assets, new corporation acquired no new rights as to negotiable paper held by old corporations, and was not a holder in due course as to such paper. National Bank of Lima v. Deaton, 279 Ky. 606 , 131 S.W.2d 495, 1939 Ky. LEXIS 318 ( Ky. 1939 ) (decided under prior law).

7.— Powers.

The consolidated company had no power that was not enjoyed by at least one of its constituent members. Covington Gaslight Co. v. Covington, 58 S.W. 805, 22 Ky. L. Rptr. 796 , 1900 Ky. LEXIS 250 ( Ky. 1900 ) (decided under prior law).

8.— Separate Identity.

Consolidation destroyed nothing except the separate identity of the consolidating corporations. Central University of Kentucky v. Walters' Ex'rs, 122 Ky. 65 , 90 S.W. 1066, 28 Ky. L. Rptr. 1041 , 1906 Ky. LEXIS 23 ( Ky. 1906 ) (decided under prior law).

9.Merged Corporation — Trade Name.

Where plaintiff who owned two unincorporated drug stores and the right to a certain trade name or a derivative thereof incorporated the two stores and used the trade name in both corporations, the trade name and corporate name being the same merged into one, with the trade name becoming the property of the corporation, so that when the two corporations were later merged into the defendants’ two corporations the trade name became the property of the defendants’ surviving corporation under KRS 271.285 (now repealed) and plaintiff could not enjoin the use of the name or recover damages for use of the name. Gregory v. Grantz, 609 S.W.2d 702, 1980 Ky. App. LEXIS 397 (Ky. Ct. App. 1980) (decided under prior law).

10.Pending Derivative Lawsuits.

Shareholder’s appeal of the dismissal of his derivative action was dismissed because, during the pendency of the appeal, as the result of a merger, the shareholder’s stock in the corporation was cancelled; derivative actions required plaintiffs to fairly and adequately represent the interests of the stockholders, and continuous ownership of stock was required. Further, the right to continue any pending derivative lawsuits would have passed from the former stockholders to the surviving corporation. Bacigalupo v. Kohlhepp, 240 S.W.3d 155, 2007 Ky. App. LEXIS 454 (Ky. Ct. App. 2007).

Research References and Practice Aids

ALR

Similarity of ownership or control as basis for charging corporation acquiring assets of another with liability for former owner’s debts. 49 A.L.R.3d 881.

Validity and construction of state statute making successor corporation liable for taxes of predecessor. 65 A.L.R.3d 1181.

Liability of successor corporation for injury or damage caused by product issued by predecessor. 66 A.L.R.3d 824.

Doctrine of potential competition as basis for finding violation of § 7 of Clayton Act (15 USCS § 18). 44 A.L.R. Fed. 412.

Liability of Successor Corporation for Injury or Damage Caused by Product Issued by Predecessor, Based on Successor’s Independent Duty to Warn Third Party of Danger or Defect, 92 A.L.R.5th 227.

Liability of Successor Corporation for Injury or Damage Caused by Product Issued by Predecessor, Based on Merger or Consolidation of Transferor and Transferee, 109 A.L.R.5th 301.

Liability of Successor Corporation for Injury or Damage Caused by Product Issued by Predecessor, Based on Successor’s Express or Implied Agreement to Assume Liability or Where Transfer Was Fraudulent, in Bad Faith, or Without Adequate Consideration, 112 A.L.R.5th 113.

Liability of Successor Corporation for Injury or Damage Caused by Product Issued by Predecessor, Based on “Product Line” Successor Liability, 18 A.L.R.6th 629.

Liability of Successor Corporation for Injury or Damage Caused by Product Issued by Predecessor, Based on Mere Continuation or Continuity of Enterprise Exceptions to Nonliability, 13 A.L.R.6th 355.

271B.11-070. Merger or share exchange with foreign corporation.

  1. One (1) or more foreign corporations may merge or enter into a share exchange with one (1) or more domestic corporations if:
    1. In a merger, the merger is permitted by the law of the state or country under whose law each foreign corporation is incorporated and each foreign corporation complies with that law in effecting the merger;
    2. In a share exchange, the corporation whose shares will be acquired is a domestic corporation, whether or not a share exchange is permitted by the law of the state or country under whose law the acquiring corporation is incorporated;
    3. The foreign corporation complies with KRS 271B.11-050 if it is the surviving corporation of the merger or acquiring corporation of the share exchange; and
    4. Each domestic corporation complies with the applicable provisions of KRS 271B.11-010 to 271B.11-040 and, if it is the surviving corporation of the merger or acquiring corporation of the share exchange, with KRS 271B.11-050 .
  2. Upon the merger or share exchange taking effect, the surviving foreign corporation of a merger and the acquiring foreign corporation of a share exchange shall be deemed:
    1. To appoint the Secretary of State as its agent for service of process in a proceeding to enforce any obligation or the rights of dissenting shareholders of each domestic corporation party to the merger or share exchange;
    2. To agree that it will promptly pay to the dissenting shareholders of each domestic corporation party to the merger or share exchange the amount, if any, to which they are entitled under Subtitle 13; and
    3. To have agreed, to the extent required by Section 200 of the Kentucky Constitution, that the courts of this Commonwealth shall retain jurisdiction over that part of the corporate property within the limits of this Commonwealth in all matters which may arise, as if the transaction had not taken place.
  3. This section shall not limit the power of a foreign corporation to acquire all or part of the shares of one (1) or more classes or series of a domestic corporation through a voluntary exchange or otherwise.

History. Enact. Acts 1988, ch. 23, § 120, effective January 1, 1989.

271B.11-080. Merger of domestic or foreign limited liability companies or limited partnerships with domestic corporations — Shareholder’s liability following merger.

  1. One (1) or more domestic or foreign limited liability companies or limited partnerships may merge with one (1) or more domestic corporations if:
    1. The merger is permitted by the laws of the state or country under whose law each foreign limited liability company or limited partnership is incorporated, organized, or formed, and each foreign limited liability company or limited partnership complies with those laws in effecting the merger;
    2. Each domestic limited liability company party to the merger complies with the applicable provisions of the Kentucky Revised Statutes;
    3. Each domestic limited partnership party to the merger complies with the applicable provisions of KRS Chapter 362;
    4. Each domestic corporation complies with the applicable provisions of KRS 271B.11-010 to 271B.11-040 .
  2. The plan of merger shall set forth:
    1. The name of each constituent business entity that is a party to the merger and the name of the surviving business entity into which each constituent business entity proposes to merge;
    2. The terms and conditions of the proposed merger, including but not limited to, a statement which sets forth whether limited liability is retained by the surviving business entity;
    3. The manner and basis of converting the shares in each corporation and the interests in each business entity that is a party to the merger into interests, shares, or other securities or obligations, as the case may be, of the surviving entity, or of any other business entity, or, in whole or in part, into cash or other property;
    4. The amendments to the articles of organization of a limited liability company, or articles of incorporation of a corporation or certificate of limited partnership, as the case may be, of the surviving business entity as are desired to be effected by the merger, or that no changes are desired;
    5. Other provisions relating to the proposed merger that are deemed necessary or desirable.
  3. The business entity surviving from the merger shall deliver to the Secretary of State for filing articles of merger duly executed by each constituent business entity setting forth:
    1. The name and jurisdiction of formation or organization of each constituent business entity which is to merge;
    2. The plan of merger;
    3. The name of the surviving business entity;
    4. A statement that the plan of merger was duly authorized and approved by each constituent business entity in accordance with the laws applicable to such business entity; and
    5. If the surviving entity is not a business entity organized under the laws of this Commonwealth, a statement that the surviving business entity:
      1. Agrees that it may be served with process in this Commonwealth in any proceeding for enforcement of any obligation of any constituent business entity party to the merger that was organized under the laws of this Commonwealth, as well as for enforcement of any obligation of the surviving business entity arising from the merger; and
      2. Appoints the Secretary of State as its agent for service of process in any such proceeding. The surviving entity shall specify the address to which a copy of the process shall be mailed to it by the Secretary of State.
  4. The articles of merger filed by the surviving entity in accordance with this section shall also be deemed to have been filed for any domestic limited liability company party to the merger in accordance with the applicable sections of the Kentucky Revised Statutes and for any domestic limited partnership party to the merger in accordance with KRS Chapter 362.
  5. Upon merger taking effect, if the surviving entity in the merger is a foreign limited partnership, limited liability company, or corporation, the surviving entity shall be deemed:
    1. To appoint the Secretary of State as its agent for service of process in a proceeding to enforce any obligation or the rights of dissenting shareholders of each domestic corporation party to the merger;
    2. To agree that it will promptly pay to the dissenting shareholders of each domestic corporation party to the merger the amount, if any, to which they are entitled under Subtitle 13 of KRS Chapter 271B; and
    3. To agree, to the extent required by Section 200 of the Constitution, that the courts of this Commonwealth shall retain jurisdiction over that part of the corporate property within the limits of this Commonwealth in all matters which may arise, as if the transaction has not taken place.
  6. If a domestic or foreign limited liability company or limited partnership is the surviving entity of a merger, the surviving domestic or foreign limited liability company or limited partnership shall be considered a surviving corporation for purposes of KRS 271B.11-060 (1).
  7. A partner or, in the case of a limited partnership, a general partner who becomes a shareholder of a corporation as a result of a merger shall remain liable as a partner or general partner, as the case may be, for an obligation incurred by the partnership or limited partnership before the merger takes effect. The partner’s or general partner’s liability for all obligations of the corporation incurred before the merger takes effect shall be that of a shareholder as provided in this chapter. A limited partner who becomes a shareholder as a result of a merger shall remain liable only as a limited partner for an obligation incurred by the limited partnership before the merger takes effect.

History. Enact. Acts 1994, ch. 389, § 111, effective July 15, 1994; 1998, ch. 341, § 8, effective July 15, 1998.

Legislative Research Commission Note.

(3/24/95) Under KRS 7.136(1)(h), the word “or” has been added to subsection (1) of this statute before the phrase “more domestic corporations.” The use of the plural in this phrase and the use of the adjective “each” in paragraph (d) of subsection (1) make it clear from context that the omission of the word “or” constitutes a manifest clerical or typographical error.

Research References and Practice Aids

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

Subtitle 12. Sale of Assets; Business Combinations

271B.12-010. Sale of assets in regular course of business and mortgage of assets.

  1. A corporation may, on the terms and conditions and for the consideration determined by the board of directors:
    1. Sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property in the usual and regular course of business;
    2. Mortgage, pledge, dedicate to the repayment of indebtedness (whether with or without recourse), or otherwise encumber any or all of its property whether or not in the usual and regular course of business; or
    3. Transfer any or all of its property to an entity of which all the shares or all of the limited liability company interests or other equity interests are owned by the corporation.
  2. Unless the articles of incorporation require it, approval by the shareholders of a transaction described in subsection (1) of this section shall not be required.

History. Enact. Acts 1988, ch. 23, § 121, effective January 1, 1989; 2011, ch. 29, § 9, effective June 8, 2011.

Research References and Practice Aids

ALR

Valuation of stock of dissenting stockholders in case of consolidation or merger of corporation, sale of its assets, or the like. 48 A.L.R.3d 430.

271B.12-020. Sale of assets other than in regular course of business.

  1. A corporation may sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property (with or without the good will), otherwise than in the usual and regular course of business, on the terms and conditions and for the consideration determined by the corporation’s board of directors, if the board of directors proposes and its shareholders approve the proposed transaction.
  2. For a transaction to be authorized:
    1. The board of directors shall recommend the proposed transaction to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders with the submission of the proposed transaction; and
    2. The shareholders entitled to vote shall approve the transaction.
  3. The board of directors may condition its submission of the proposed transaction on any basis.
  4. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders’ meeting in accordance with KRS 271B.7-050 . The notice shall also state that the purpose, or one (1) of the purposes, of the meeting is to consider the sale, lease, exchange, or other disposition of all, or substantially all, the property of the corporation and contain or be accompanied by a description of the transaction.
  5. Unless the articles of incorporation or the board of directors (acting pursuant to subsection (3) of this section) require a greater vote or a vote by voting groups, the transaction to be authorized shall be approved by a majority of all the votes entitled to be cast on the transaction.
  6. After a sale, lease, exchange, or other disposition of property is authorized, the transaction may be abandoned (subject to any contractual rights) without further shareholder action.
  7. A transaction that constitutes a distribution is governed by KRS 271B.6-400 and not by this section.

History. Enact. Acts 1988, ch. 23, § 122, effective January 1, 1989.

271B.12-030. Conversion of corporation to limited liability company.

  1. A corporation may be converted to a limited liability company as provided in KRS 275.376 .
  2. A corporation may be converted to a statutory trust as provided in KRS 386A.7-060 .

History. Enact. Acts 2007, ch. 137, § 2, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 2, effective July 15, 2010; 2012, ch. 81, § 92, effective July 12, 2012.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Business Combinations

271B.12-200. Definitions for KRS 271B.12-210 to 271B.12-230.

As used in KRS 271B.12-210 to 271B.12-230 :

  1. “Affiliate,” including the term “affiliated person,” means a person who directly, or indirectly through one (1) or more intermediaries, controls, or is controlled by, or is under common control with, a specified person.
  2. “Associate,” when used to indicate a relationship with any person, means:
    1. Any corporation or organization (other than the corporation or a subsidiary of the corporation) of which such person is an officer, director or partner or is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of equity securities;
    2. Any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and
    3. Any relative or spouse of such person, or any relative of such spouse, any one (1) of whom has the same home as such person or is a director or officer of the corporation or any of its affiliates.
  3. “Beneficial owner,” when used with respect to any voting stock, means a person:
    1. Who, individually or with any of its affiliates or associates, beneficially owns voting stock, directly or indirectly; or
    2. Who, individually or with any of its affiliates or associates, has:
      1. The right to acquire voting stock, whether such right is exercisable immediately or only after the passage of time and whether or not such right is exercisable only after specified conditions are met, pursuant to any agreement, arrangement, or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise;
      2. The right to vote voting stock pursuant to any agreement, arrangement, or understanding; or
      3. Any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting or disposing of voting stock with any other person who beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such shares of voting stock; however, for the purposes of this section and KRS 271B.12-230 the beneficial owner of any voting stock held by, or owned through participation in, any purchase, savings, option, bonus, appreciation, profit sharing, thrift, incentive, pension, stock ownership or similar plan for employees or officers of the corporation or any of its subsidiaries shall be deemed to be the shareholder of record of such voting stock as shown on the stock transfer books of the corporation.
  4. “Business combination” means:
    1. Unless the merger or consolidation does not alter the contract rights of the stock as expressly set forth in the articles of incorporation or change or convert in whole or in part the outstanding shares of stock of the corporation, any merger or consolidation of the corporation or any subsidiary with any interested shareholder or any other corporation, whether or not itself an interested shareholder, which is, or after the merger or consolidation would be, an affiliate or associate of an interested shareholder who was an interested shareholder prior to the transaction;
    2. Any sale, lease, transfer, or other disposition, other than in the ordinary course of business, in one (1) transaction or a series of transactions in any twelve-month period, to any interested shareholder or any affiliate or associate of any interested shareholder, other than the corporation or any subsidiaries, of any assets of the corporation or any subsidiary having, measured at the time the transaction or transactions are approved by the board of directors of the corporation, an aggregate book value as of the end of the corporation’s most recently ended fiscal quarter of five percent (5%) or more of the total market value of the outstanding stock of the corporation or of its net worth as of the end of its most recently ended fiscal quarter;
    3. The issuance or transfer by the corporation, or any subsidiary, in one transaction or a series of transactions in any twelve-month period, of any equity securities of the corporation or any subsidiary which have an aggregate market value of five percent (5%) or more of the total market value of the outstanding stock of the corporation, determined as of the end of the corporation’s most recently ended fiscal quarter prior to the first such issuance or transfer, to any interested shareholder or any affiliate or associate of any interested shareholder, other than the corporation or any of its subsidiaries, except pursuant to the exercise of warrants or rights to purchase securities offered pro rata to all holders of the corporation’s voting stock or any other method affording substantially proportionate treatment to the holders of voting stock;
    4. The adoption of any plan or proposal for the liquidation or dissolution of the corporation in which anything other than cash will be received by an interested shareholder or any affiliate or associate of any interested shareholder; or
    5. Any reclassification of securities, including any reverse stock split; or recapitalization of the corporation; or any merger or consolidation of the corporation with any of its subsidiaries; or any other transaction which has the effect, directly or indirectly, in one transaction or a series of transactions, of increasing by five percent (5%) or more the proportionate amount of the outstanding shares of any class of equity securities of the corporation or any subsidiary which is directly or indirectly beneficially owned by any interested shareholder or any affiliate or associate of any interested shareholder; or
    6. Any receipt by an interested shareholder or any affiliate or associate of such interested shareholder of the benefit directly or indirectly, except proportionately as a shareholder of such corporation, of any loans, advances, guaranties, pledges or other financial assistance, or any tax credits or other tax advantages provided by or through such corporation.
  5. “Common stock” means any stock other than preferred or preference stock.
  6. “Continuing director” means any member of the board of directors who is not an affiliate or associate of an interested shareholder or any of its affiliates, other than the corporation or any of its subsidiaries, and who was a director of the corporation prior to the time the interested shareholder became an interested shareholder, and any successor to such continuing director who is not an affiliate or associate of an interested shareholder or any of its affiliates, other than the corporation or any of its subsidiaries, and was recommended or elected by a majority of the continuing directors at a meeting at which a quorum consisting of a majority of the continuing directors is present.
  7. “Control,” including the terms “controlling,” “controlled by” and “under common control with,” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise, and the beneficial ownership of ten percent (10%) or more of the votes entitled to be cast by a corporation’s voting stock creates a presumption of control.
  8. “Equity security” means:
    1. Any stock or similar security, certificate of interest, or participation in any profit-sharing agreement, voting trust certificate, or certificate of deposit for the foregoing;
    2. Any security convertible, with or without consideration, into an equity security, or any warrant or other security carrying any right to subscribe to or purchase an equity security; or
    3. Any put, call, straddle, or other option, right or privilege of acquiring an equity security from or selling an equity security to another without being bound to do so.
  9. “Independent member” of the board of directors means any director who is not an officer or full-time employee of the corporation or an affiliate or associate of an interested shareholder or any of its affiliates.
  10. “Interested shareholder” means any person, other than the corporation or any of its subsidiaries, who:
    1. Is the beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of the outstanding voting stock of the corporation; or is an affiliate of the corporation and at any time within the five (5) year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of the then outstanding voting stock of the corporation. The term interested shareholder shall not mean any entity or person holding or owning voting stock for, or through participation in, any purchase, savings, option, bonus, appreciation, profit sharing, thrift, incentive, pension, stock ownership or similar plan for employees or officers of the corporation or any of its subsidiaries.
    2. For the purpose of determining whether a person is an interested shareholder, the number of shares of voting stock deemed to be outstanding shall include shares deemed owned by the person through application of subsection (3) of this section, but shall not include any other shares of voting stock which may be issuable pursuant to any agreement, arrangement, or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
  11. “Market value” means:
    1. In the case of stock, the highest closing sale price during the thirty-day period immediately preceding the date in question of a share of such stock on the composite tape for New York stock exchange listed stocks, or, if such stock is not quoted on the composite tape on the New York stock exchange, or if such stock is not listed on such exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty-day period preceding the date in question on the National Association of Securities Dealers, Inc., Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the continuing directors at a meeting of the board of directors at which a quorum consisting of at least a majority of the continuing directors is present; and
    2. In the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the continuing directors at a meeting of the board of directors at which a quorum consisting of at least a majority of the continuing directors is present.
  12. “Subsidiary” means any corporation of which voting stock having a majority of the votes entitled to be cast is owned, directly or indirectly, by the corporation.
  13. “Voting stock” means shares of capital stock of a corporation entitled to vote generally in the election of directors.

History. Enact. Acts 1984, ch. 355, § 1, effective July 13, 1984; 1988, ch. 22, § 1, effective July 15, 1988.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.396 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

271B.12-210. Minimum share vote requirements for approval of business combinations — Limitations on business corporation.

  1. In addition to any vote otherwise required by law or the articles of incorporation of the corporation, a business combination shall either be approved by a majority of the independent members of the board of directors who are also continuing directors, provided that the independent members of the board of directors shall not, for the purposes of this subsection, be required to either approve or disapprove of any proposed business combination, or approved by the affirmative vote of at least:
    1. Eighty percent (80%) of the votes entitled to be cast by outstanding shares of voting stock of the corporation, voting together as a single voting group; and
    2. Two-thirds of the votes entitled to be cast by holders of voting stock other than voting stock beneficially owned by the interested shareholder who is, or whose affiliate is, a party to the business combination or by an affiliate or associate of such interested shareholder, voting together as a single voting group.
  2. Unless a business combination is exempted from the operation of KRS 271B.12-200 to 271B.12-230 in accordance with the terms hereof, the failure to comply with the voting requirements of subsection (1) of this section shall render such business combination void.
  3. Notwithstanding anything to the contrary contained in this chapter (except the provisions of KRS 271B.12-220 (5)(a)), no corporation shall engage in any business combination with any entity or person who is at the time of such business combination an interested shareholder of such corporation, unless such person became an interested shareholder before March 28, 1986, for a period of five (5) years following the date on which such interested shareholder became an interested shareholder unless such business combination is approved by a majority of the independent members of the board of directors of such corporation prior to such date on which the interested shareholder became an interested shareholder. If a good faith proposal is made in writing to the board of directors of such corporation regarding a business combination, the board of directors shall respond, in writing, within thirty (30) days or such shorter period, if any, as may be required by the Securities Exchange Act of 1934, setting forth its reasons for its decision regarding such proposal. If the board of directors does not respond affirmatively in writing within thirty (30) days or such shorter period, if any, as may be required by the Securities Exchange Act of 1934, the independent members of the board of directors shall be deemed to have disapproved the business combination.
  4. In discharging its duties under this section, or otherwise, the board of directors, in considering the best interests of the corporation, may consider in addition to the interests of the corporation’s shareholders, any of the following:
    1. The interests of the corporation’s employees, suppliers, creditors and customers;
    2. The economy of the state and nation;
    3. Community and societal considerations; and
    4. The long-term as well as short-term interests of the corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the corporation.
  5. Notwithstanding KRS 271B.6-020 and any other provision of this chapter, and unless otherwise provided in the articles of incorporation before the creation or issuance of any rights or options as set forth herein, in considering the interests of the corporation’s shareholders, the board of directors of a corporation may, before, on or after July 15, 1988, create and issue rights or options pursuant to KRS 271B.6-240 which may contain provisions which adjust the option price or number of shares issuable under such rights or options in the event of an acquisition of shares or a reorganization, merger, consolidation, sale of assets or other occurrence involving such corporation. Such rights or options may also include conditions that prevent the holder or holders of at least a specified number or percentage of the outstanding shares of the corporation, including subsequent transferees of the holder, from exercising those rights or options.

History. Enact. Acts 1984, ch. 355, § 2, effective July 13, 1984; 1986, ch. 202, § 10, effective March 28, 1986; 1988, ch. 22, § 2, effective July 15, 1988.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.397 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

The Securities and Exchange Act of 1934 referenced in this section is compiled at 15 USCS §§ 78a, et seq.

Research References and Practice Aids

Kentucky Law Journal.

Note, CTS Corp. v. Dynamics Corp. of America: Of State Regulation, Tender Offers, and Necromancy, 77 Ky. L.J. 149 (1988-89).

271B.12-220. Exemptions from minimum share vote requirements.

  1. For purposes of subsection (2) of this section:
    1. “Announcement date” means the first general public announcement of the proposal or intention to make a proposal of the business combination or its first communication generally to shareholders of the corporation, whichever is earlier;
    2. “Determination date” means the date on which an interested shareholder first became an interested shareholder; and
    3. “Valuation date” means:
      1. For a business combination voted upon by shareholders, the latter of the day prior to the date of the shareholders vote or the date twenty (20) days prior to the consummation of the business combination; and
      2. For a business combination not voted upon by shareholders, the date of the consummation of the business combination.
  2. The vote required by KRS 271B.12-210 does not apply to a business combination if each of the following conditions is met:
    1. The aggregate amount of the cash and the market value as of the valuation date of consideration, other than cash to be received per share by holders of common stock in such business combination, is at least equal to the highest of the following:
      1. The highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the interested shareholder for any shares of common stock of the same class or series acquired by it:
        1. Within the five (5) year period immediately prior to the announcement date of the proposal of the business combination;
        2. In the transaction in which it became an interested shareholder, whichever is higher; or
      2. The market value per share of common stock of the same class or series on the announcement date or on the determination date, whichever is higher; or
      3. The price per share equal to the market value per share of common stock of the same class or series determined pursuant to subparagraph 2. of this paragraph, multiplied by the fraction of:
        1. The highest per share price, including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the interested shareholder for any shares of common stock of the same class or series acquired by it within the five (5) year period immediately prior to the announcement date, over
        2. The market value per share of common stock of the same class or series on the first day in such five (5) year period on which the interested shareholder acquired any shares of common stock;
    2. The aggregate amount of the cash and the market value as of the valuation date of consideration other than cash to be received per share by holders of shares of any class or series of outstanding stock other than common stock is at least equal to the highest of the following, whether or not the interested shareholder has previously acquired any shares of a particular class or series of stock:
      1. The highest per share price, including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the interested shareholder for any shares of such class of stock acquired by it:
        1. Within the five (5) year period immediately prior to the announcement date of the proposal of the business combination;
        2. In the transaction in which it became an interested shareholder, whichever is higher; or
      2. The highest preferential amount per share to which the holders of shares of such class of stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation;
      3. The market value per share of such class of stock on the announcement date or on the determination date, whichever is higher; or
      4. The price per share equal to the market value per share of such class of stock determined pursuant to subparagraph 3. of this paragraph, multiplied by the fraction of:
        1. The highest per share price, including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the interested shareholder for any shares of any class of voting stock acquired by it within the five (5) year period immediately prior to the announcement date, over
        2. The market value per share of the same class of voting stock on the first day in such five (5) year period on which the interested shareholder acquired any shares of the same class of voting stock.
    3. In making any price calculation under this section, appropriate adjustments shall be made to reflect any reclassification, including any reverse stock split; recapitalization; reorganization; or any similar transaction which has the effect of reducing the number of outstanding shares of the stock. The consideration to be received by holders of any class or series of outstanding stock is to be in cash or in the same form as the interested shareholder has previously paid for shares of the same class or series of stock. If the interested shareholder has paid for shares of any class of stock with varying forms of consideration, the form of consideration for such class of stock shall be either cash or the form used to acquire the largest number of shares of such class or series of stock previously acquired by it;
      1. After the interested shareholder has become an interested shareholder and prior to the consummation of such business combination: (d) 1. After the interested shareholder has become an interested shareholder and prior to the consummation of such business combination:
        1. There shall have been no failure to declare and pay, at the regular date therefor, any full periodic dividends, whether or not cumulative, on any outstanding preferred stock of the corporation;
        2. There shall have been no reduction in the annual rate of dividends paid on any class or series of stock of the corporation that is not preferred stock, except as necessary to reflect any subdivision of the stock; and an increase in such annual rate of dividends as necessary to reflect any reclassification, including any reverse stock split; recapitalization; reorganization; or any similar transaction which has the effect of reducing the number of outstanding shares of the stock; and
        3. The interested shareholder did not become the beneficial owner of any additional shares of stock of the corporation, except as part of the transaction which resulted in such interested shareholder becoming an interested shareholder or by virtue of proportionate stock splits or stock dividends.
      2. The provisions of sub-subparagraphs a. and b. of subparagraph 1. of this paragraph do not apply if no interested shareholder or an affiliate or associate of the interested shareholder voted as a director of the corporation in a manner inconsistent with such sub-subparagraphs and the interested shareholder, within ten (10) days after any act or failure to act inconsistent with such sub-subparagraphs, notifies the board of directors of the corporation in writing that the interested shareholder disapproves thereof and requests in good faith that the board of directors rectify such act or failure to act.
    1. Whether or not such business combinations are authorized or consummated in whole or in part after July 13, 1984, or after the interested shareholder became an interested shareholder, the requirements of KRS 271B.12-210 do not apply to business combinations that specifically, generally, or generally by types, as to specifically identified or unidentified existing or future interested shareholders or their affiliates or associates, have been approved or exempted therefrom by resolution of the board of directors of the corporation prior to two (2) months after July 13, 1984, or such earlier date as may be irrevocably established by resolution of the board of directors; and (3) (a) Whether or not such business combinations are authorized or consummated in whole or in part after July 13, 1984, or after the interested shareholder became an interested shareholder, the requirements of KRS 271B.12-210 do not apply to business combinations that specifically, generally, or generally by types, as to specifically identified or unidentified existing or future interested shareholders or their affiliates or associates, have been approved or exempted therefrom by resolution of the board of directors of the corporation prior to two (2) months after July 13, 1984, or such earlier date as may be irrevocably established by resolution of the board of directors; and
    2. Unless by its terms a resolution adopted under this subsection is made irrevocable, it may be altered or repealed by the board of directors, but this shall not affect any business combinations that have been consummated, or are the subject of an existing agreement entered into, prior to the alteration or repeal.
    1. Unless the articles of incorporation or bylaws of the corporation specifically provide otherwise, the requirements of KRS 271B.12-210 do not apply to business combinations of a corporation that, on July 13, 1984, had an existing interested shareholder, whether a business combination is with the existing shareholder or with any other person who becomes an interested shareholder, after July 13, 1984, or their present or future affiliates, unless, at any time after July 13, 1984, the board of directors of the corporation elects by resolution, adopted by a majority of the continuing directors at a meeting of the board of directors at which a quorum consisting of at least a majority of the continuing directors is present, to be subject, in whole or in part, specifically, generally, or generally by types, as to specifically identified or unidentified interested shareholders, to the requirements of KRS 271B.12-210 ; (4) (a) Unless the articles of incorporation or bylaws of the corporation specifically provide otherwise, the requirements of KRS 271B.12-210 do not apply to business combinations of a corporation that, on July 13, 1984, had an existing interested shareholder, whether a business combination is with the existing shareholder or with any other person who becomes an interested shareholder, after July 13, 1984, or their present or future affiliates, unless, at any time after July 13, 1984, the board of directors of the corporation elects by resolution, adopted by a majority of the continuing directors at a meeting of the board of directors at which a quorum consisting of at least a majority of the continuing directors is present, to be subject, in whole or in part, specifically, generally, or generally by types, as to specifically identified or unidentified interested shareholders, to the requirements of KRS 271B.12-210;
    2. The articles of incorporation or bylaws of the corporation may provide that if the board of directors adopts a resolution under paragraph (a) of this subsection, the resolution shall be subject to approval of the shareholders in the manner and by the vote specified in the articles of incorporation or the bylaws;
    3. An election under this subsection may be added to but may not be altered or repealed except by an amendment to the articles of incorporation adopted by a vote of shareholders meeting the requirements of subsection (5)(a)2. of this section; and
    4. If a corporation elects under this subsection to be included within the provisions of KRS 271B.12-210 generally, without qualification or limitation, it shall file with the secretary of state articles of amendment, including a copy of the resolution making the election and a statement describing the manner in which the resolution was adopted. The articles of amendment shall be executed in the manner required by KRS 271B.10-060 .
    1. Unless the articles of incorporation of the corporation provide otherwise, the requirements of a shareholder vote and board approval in KRS 271B.12-210 do not apply to any business combination of: (5) (a) Unless the articles of incorporation of the corporation provide otherwise, the requirements of a shareholder vote and board approval in KRS 271B.12-210 do not apply to any business combination of:
      1. A corporation which does not have on the date any interested shareholder became an interested shareholder:
        1. Five hundred (500) or more beneficial owners of its stock;
        2. Its principal executive office located in this state; and
        3. One (1) or more of the following: (i) More than two hundred (200) beneficial owners of its stock residing in this state; (iii) More than ten percent (10%) of its outstanding stock owned by residents of this state; (v) Assets located in this state and owned by, or owned by a person or entity controlled by, the corporation with a value of at least one million dollars ($1,000,000); 2. A corporation whose original articles of incorporation have a provision, or whose shareholders adopt an amendment to the articles of incorporation after July 13, 1984, by a vote of at least eighty percent (80%) of the votes entitled to be cast by outstanding shares of voting stock of the corporation, voting together as a single voting group and two-thirds (2/3) of the votes entitled to be cast by persons, if any, who are not interested shareholders of the corporation, voting together as a single voting group, expressly electing not to be governed by KRS 271B.12-210; or 3. An investment company registered under the federal Investment Company Act of 1940, as amended; a bank or a bank holding company as defined in the federal Bank Holding Company Act of 1956, as amended; a savings and loan holding company as defined in the federal Savings and Loan Holding Company Amendments of 1967, as amended; and a domestic insurer as defined under KRS 304.1-070 ; and
    2. More than ten percent (10%) of the beneficial owners of its stock residing in this state;
    3. More than one hundred (100) employees of the corporation and its subsidiaries working within this state; or
    4. For purposes of subparagraph 1. of paragraph (a) of this subsection, all shareholders of a corporation who have executed an agreement to which the corporation is an executing party governing the purchase and sale of stock of the corporation or a voting trust agreement governing stock of the corporation shall be considered a single beneficial owner of the stock covered by the agreement.

History. Enact. Acts 1984, ch. 355, § 3, effective July 13, 1984; 1988 ch. 22, § 3, effective July 15, 1988; 1988, ch. 23, § 176, effective January 1, 1989.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.398 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

271B.12-230. KRS 271B.12-200 to 271B.12-220 prevail over other provisions of KRS Chapter 271B — Severability of provisions.

  1. The provisions of KRS 271B.12-200 to 271B.12-220 are in addition to and do not repeal any other provisions of KRS Chapter 271B that govern any corporate actions described in KRS 271B.12-200 to 271B.12-220 ; provided, that in the event of a direct conflict between any provision of KRS 271B.12-200 to 271B.12-220 and any other provision of KRS Chapter 271B, the provision of KRS 271B.12-200 to 271B.12-220 shall prevail.
  2. It shall be considered that, for the purposes of KRS 446.090 , it is the intent of the general assembly in enacting KRS 271B.12-200 to 271B.12-220 that any clause, sentence, subparagraph, paragraph, subsection, section, or other part of the above-stated sections or the application thereof to any person or circumstances held to be invalid shall not affect, impair or invalidate the remainder of the stated sections or the application of that part held invalid to any other person or circumstances, but shall be confined in its operation to the clause, sentence, subparagraph, paragraph, subsection, section, or other part thereof directly involved in that holding or to the person or circumstances therein involved.

History. Enact. Acts 1984, ch. 355, § 4, effective July 13, 1984; 1988, ch. 22, § 4, effective July 1, 1988.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.399 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

Subtitle 13. Dissenters’ Rights

Right to Dissent and Obtain Payment for Shares

271B.13-010. Definitions for subtitle.

As used in this subtitle:

  1. “Corporation” means the issuer of the shares held by a dissenter, except that in the case of a merger where the issuing corporation is not the surviving corporation, then, after consummation of the merger, “corporation” shall mean the surviving corporation.
  2. “Dissenter” means a shareholder who is entitled to dissent from corporate action under KRS 271B.13-020 and who exercises that right when and in the manner required by KRS 271B.13-200 to 271B.13-280 .
  3. “Fair value,” with respect to a dissenter’s shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. In any transaction subject to the requirements of KRS 271B.12-210 or exempted by KRS 271B.12-220 (2), “fair value” shall be at least an amount required to be paid under KRS 271B.12-220 (2) in order to be exempt from the requirements of KRS 271B.12-210 .
  4. “Interest” means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances.
  5. “Record shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation.
  6. “Beneficial shareholder” means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder.
  7. “Shareholder” means the record shareholder or the beneficial shareholder.

History. Enact. Acts 1988, ch. 23, § 123, effective January 1, 1989; 1998, ch. 341, § 9, effective July 15, 1998.

NOTES TO DECISIONS

1.“Fair value.”

In setting “fair value” pursuant to KRS 271B.13-010 , the trial court erred in applying a 20 percent marketability discount, absent exceptional circumstances, which made it possible for majority shareholders to squeeze-out a minority shareholder at a price considerably less than the minority shareholder’s proportionate interest in the closely-held family corporation as a whole. Brooks v. Brooks Furniture Mfgrs, Inc., 325 S.W.3d 904, 2010 Ky. App. LEXIS 207 (Ky. Ct. App. 2010), overruled in part, Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 ).

In appraising a dissenter’s shares pursuant to KRS 271B.13-300 following a cash-out merger, a marketability discount was inappropriate at the shareholder level in determining fair value as defined in KRS 271B.13-010 (3), and and use of the Delaware block appraisal method was not necessary. Net asset value could be considered on remand, and an entity-level discount would be permissible. Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 )(Overruling to the extent inconsistent: Ford v. Courier-Journal Job Printing Co., 639 S.W.2d 553, 1982 Ky. App. LEXIS 251 (Ky. Ct. App. 1982), overruled in part, Brooks v. Brooks Furniture Mfgrs, Inc., 325 S.W.3d 904, 2010 Ky. App. LEXIS 207 (Ky. Ct. App. 2010), overruled in part, Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 ).

Because a hypothetical market price for the dissenter’s particular shares as a commodity is not the value being sought in an appraisal proceeding under KRS 271B.13-300 , market adjustments to arrive at such a price, such as discounts for lack of control or lack of marketability, are inappropriate in determining fair value as defined in KRS 271B.13-010 (3). The dissenting shareholder is entitled to the fair value of his or her shares as measured by the proportionate interest those shares represent in the value of the company as a going concern, a value determined in accord with generally accepted valuation concepts and techniques, as to which the Delaware block approach is not required. Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 )(Overruling to the extent inconsistent: Ford v. Courier-Journal Job Printing Co., 639 S.W.2d 553, 1982 Ky. App. LEXIS 251 (Ky. Ct. App. 1982), overruled in part, Brooks v. Brooks Furniture Mfgrs, Inc., 325 S.W.3d 904, 2010 Ky. App. LEXIS 207 (Ky. Ct. App. 2010), overruled in part, Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 ).

Research References and Practice Aids

Kentucky Bench & Bar.

Dolson, Contractual Dissenters’ Rights for Kentucky LLCs, Volume 75, No. 1, January 2011, Ky. Bench & Bar 18.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

271B.13-020. Right to dissent.

  1. A shareholder shall be entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions:
    1. Consummation of a plan of merger to which the corporation is a party:
      1. If shareholder approval is required for the merger by KRS 271B.11-030 or the articles of incorporation and the shareholder is entitled to vote on the merger; or
      2. If the corporation is a subsidiary that is merged with its parent under KRS 271B.11-040 ;
    2. Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan;
    3. Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange, including a sale in dissolution but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one (1) year after the date of sale;
    4. Consummation of a plan of conversion of the corporation into a limited liability company or statutory trust;
    5. An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter’s shares because it:
      1. Alters or abolishes a preferential right of the shares to a distribution or in dissolution;
      2. Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase of the shares;
      3. Excludes or limits the right of the shares to vote on any matter other than a limitation by dilution through issuance of shares or other securities with similar voting rights;
      4. Reduces the number of shares owned by the shareholder to a fraction of a share, if the fractional share so created is to be acquired for cash under KRS 271B.6-040 ; or
      5. In a public benefit corporation, changes the public benefit provisions;
    6. Any transaction subject to the requirements of KRS 271B.12-210 or exempted by KRS 271B.12-220 (2);
    7. Any election by a corporation to become a public benefit corporation or pursuant to the merger of a corporation with and into a public benefit corporation; or
    8. Any corporate action taken pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares.
  2. A shareholder entitled to dissent and obtain payment for his shares under this chapter shall not challenge the corporate action creating his entitlement except by an application for injunctive relief prior to the consummation of the corporate action.

HISTORY: Enact. Acts 1988, ch. 23, § 124, effective January 1, 1989; 2007, ch. 137, § 67, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 67, effective July 15, 2010; 2012, ch. 81, § 93, effective July 12, 2012; 2012, ch. 81, § 93, effective July 12, 2012; 2015 ch. 34, § 11, effective June 24, 2015; 2017 ch. 28, § 8, effective June 29, 2017.

NOTES TO DECISIONS

1.Notice of Merger.

Where no attempt to deceive stockholders was shown, court did not err in finding that corporate officers had no duty to volunteer information on the requirements necessary to qualify as objecting shareholders to a proposed merger. Acree v. E. I. F. C., Inc., 502 S.W.2d 43, 1973 Ky. LEXIS 59 ( Ky. 1973 ) (decided under prior law).

Where corporation could not show that stockholders were given adequate notice of a proposed merger, failure to file a written objection with the corporation before vote on the merger did not prevent them from qualifying as objecting shareholders. Acree v. E. I. F. C., Inc., 502 S.W.2d 43, 1973 Ky. LEXIS 59 ( Ky. 1973 ) (decided under prior law).

Where stockholders were given notice of a corporate reorganization meeting but were not specifically put on notice of a merger, failure to comply with requirement of filing written objections did not preclude them from qualifying as objecting shareholders. Acree v. E. I. F. C., Inc., 502 S.W.2d 43, 1973 Ky. LEXIS 59 ( Ky. 1973 ) (decided under prior law).

2.Computation of Fair Value of Stock.

Where in determining the fair value of the stock of dissenting stockholders, the evidence showed that the court-appointed appraisers considered all the factors or elements that they could possibly have been required to, the appraisers did not err in applying a 25 percent reduction in net asset value of the stock based on its marketability since the discount was not an arbitrary or clearly erroneous figure. Ford v. Courier-Journal Job Printing Co., 639 S.W.2d 553, 1982 Ky. App. LEXIS 251 (Ky. Ct. App. 1982), overruled in part, Brooks v. Brooks Furniture Mfgrs, Inc., 325 S.W.3d 904, 2010 Ky. App. LEXIS 207 (Ky. Ct. App. 2010), overruled in part, Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 ), overruled in part as stated, Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 ) (decided under prior law).

3.Award of Interest.

The trial court did not abuse its discretion in adding an award of interest of eight percent (8%) to the judgment in favor of the stockholders who dissented from a sale of corporate assets where the evidence showed that the purchasing corporation would pay between six (6) and nine (9) percent interest on the purchase price and that an award of eight percent would be fair and equitable under the totality of the circumstances. Ford v. Courier-Journal Job Printing Co., 639 S.W.2d 553, 1982 Ky. App. LEXIS 251 (Ky. Ct. App. 1982), overruled in part, Brooks v. Brooks Furniture Mfgrs, Inc., 325 S.W.3d 904, 2010 Ky. App. LEXIS 207 (Ky. Ct. App. 2010), overruled in part, Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 ), overruled in part as stated, Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 ) (decided under prior law).

4.Remedy.

Although the Legislature intended, as a general rule, that the appraisal remedy provided for in former statute was the only remedy for a dissenting stockholder in the case of a merger, it did not appear likely that it intended dissenting stockholders to be so limited where a merger was being effected in contravention of law, or where some species of fraud was being worked upon the dissenters. Yeager v. Paul Semonin Co., 691 S.W.2d 227, 1985 Ky. App. LEXIS 530 (Ky. Ct. App. 1985) (decided under prior law).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Dolson, Contractual Dissenters’ Rights for Kentucky LLCs, Volume 75, No. 1, January 2011, Ky. Bench & Bar 18.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

ALR

Timeliness and sufficiency of dissenting stockholder’s notice of his objection to consolidation or merger of his demand for payment for his shares. 40 A.L.R.3d 260.

Valuation of stock of dissenting stockholders in case of consolidation or merger of corporation, sale of its assets, or the like. 48 A.L.R.3d 430.

271B.13-030. Dissent by nominees and beneficial owners.

  1. A record shareholder may assert dissenters’ rights as to fewer than all the shares registered in his name only if he shall dissent with respect to all shares beneficially owned by any one (1) person and notify the corporation in writing of the name and address of each person on whose behalf he asserts dissenters’ rights. The rights of a partial dissenter under this subsection shall be determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders.
  2. A beneficial shareholder may assert dissenters’ rights as to shares held on his behalf only if:
    1. He submits to the corporation the record shareholder’s written consent to the dissent not later than the time the beneficial shareholder asserts dissenters’ rights; and
    2. He does so with respect to all shares of which he is the beneficial shareholder or over which he has power to direct the vote.

History. Enact. Acts 1988, ch. 23, § 125, effective January 1, 1989.

Procedure for Exercise of Dissenters’ Rights

271B.13-200. Notice of dissenters’ rights.

  1. If proposed corporate action creating dissenters’ rights under KRS 271B.13-020 is submitted to a vote at a shareholders’ meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters’ rights under this subtitle and the corporation shall undertake to provide a copy of this subtitle to any shareholder entitled to vote at the shareholders’ meeting upon request of that shareholder.
  2. If corporate action creating dissenters’ rights under KRS 271B.13-020 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters’ rights that the action was taken and send them the dissenters’ notice described in KRS 271B.13-220 .

History. Enact. Acts 1988, ch. 23, § 126, effective January 1, 1989.

271B.13-210. Notice of intent to demand payment.

  1. If proposed corporate action creating dissenters’ rights under KRS 271B.13-020 is submitted to a vote at a shareholders’ meeting, a shareholder who wishes to assert dissenters’ rights:
    1. Shall deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and
    2. Shall not vote his shares in favor of the proposed action.
  2. A shareholder who does not satisfy the requirements of subsection (1) of this section shall not be entitled to payment for his shares under this chapter.

History. Enact. Acts 1988, ch. 23, § 127, effective January 1, 1989.

271B.13-220. Dissenters’ notice.

  1. If proposed corporate action creating dissenters’ rights under KRS 271B.13-020 is authorized at a shareholders’ meeting, the corporation shall deliver a written dissenters’ notice to all shareholders who satisfied the requirements of KRS 271B.13-210 .
  2. The dissenters’ notice shall be sent no later than ten (10) days after the date the proposed corporate action was authorized by the shareholders, or, if no shareholder authorization was obtained, by the board of directors, and shall:
    1. State where the payment demand must be sent and where and when certificates for certificated shares must be deposited;
    2. Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received;
    3. Supply a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and requires that the person asserting dissenters’ rights certify whether or not he acquired beneficial ownership of the shares before that date;
    4. Set a date by which the corporation must receive the payment demand, which date may not be fewer than thirty (30), nor more than sixty (60) days after the date the notice provided in subsection (1) of this section is delivered; and
    5. Be accompanied by a copy of this subtitle.

History. Enact. Acts 1988, ch. 23, § 128, effective January 1, 1989.

271B.13-230. Duty to demand payment.

  1. A shareholder who is sent a dissenters’ notice described in KRS 271B.13-220 shall demand payment, certify whether he acquired beneficial ownership of the shares before the date required to be set forth in the dissenters’ notice pursuant to subsection (2)(c) of KRS 271B.13-220 , and deposit his certificates in accordance with the terms of the notice.
  2. The shareholder who demands payment and deposits his share certificates under subsection (1) of this section shall retain all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action.
  3. A shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters’ notice, shall not be entitled to payment for his shares under this subtitle.

History. Enact. Acts 1988, ch. 23, § 129, effective January 1, 1989.

271B.13-240. Share restrictions.

  1. The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under KRS 271B.13-260 .
  2. The person for whom dissenters’ rights are asserted as to uncertificated shares shall retain all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action.

History. Enact. Acts 1988, ch. 23, § 130, effective January 1, 1989.

271B.13-250. Payment.

  1. Except as provided in KRS 271B.13-270 , as soon as the proposed corporate action is taken, or upon receipt of a payment demand, the corporation shall pay each dissenter who complied with KRS 271B.13-230 the amount the corporation estimates to be the fair value of his shares, plus accrued interest.
  2. The payment shall be accompanied by:
    1. The corporation’s balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders’ equity for that year, and the latest available interim financial statements, if any;
    2. A statement of the corporation’s estimate of the fair value of the shares;
    3. An explanation of how the interest was calculated; and
    4. A statement of the dissenter’s right to demand payment under KRS 271B.13-280 .

History. Enact. Acts 1988, ch. 23, § 131, effective January 1, 1989.

271B.13-260. Failure to take action.

  1. If the corporation does not take the proposed action within sixty (60) days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares.
  2. If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it shall send a new dissenters’ notice under KRS 271B.13-220 and repeat the payment demand procedure.

History. Enact. Acts 1988, ch. 23, § 132, effective January 1, 1989.

271B.13-270. After-acquired shares.

  1. A corporation may elect to withhold payment required by KRS 271B.13-250 from a dissenter unless he was the beneficial owner of the shares before the date set forth in the dissenters’ notice as the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action.
  2. To the extent the corporation elects to withhold payment under subsection (1) of this section, after taking the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of his demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter’s right to demand payment under KRS 271B.13-280 .

History. Enact. Acts 1988, ch. 23, § 133, effective January 1, 1989.

271B.13-280. Procedure if shareholder dissatisfied with payment or offer.

  1. A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate (less any payment under KRS 271B.13-250 ), or reject the corporation’s offer under KRS 271B.13-270 and demand payment of the fair value of his shares and interest due, if:
    1. The dissenter believes that the amount paid under KRS 271B.13-250 or offered under KRS 271B.13-270 is less than the fair value of his shares or that the interest due is incorrectly calculated;
    2. The corporation fails to make payment under KRS 271B.13-250 within sixty (60) days after the date set for demanding payment; or
    3. The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within sixty (60) days after the date set for demanding payment.
  2. A dissenter waives his right to demand payment under this section unless he shall notify the corporation of his demand in writing under subsection (1) of this section within thirty (30) days after the corporation made or offered payment for his shares.

History. Enact. Acts 1988, ch. 23, § 134, effective January 1, 1989.

Judicial Appraisal of Shares

271B.13-300. Court action.

  1. If a demand for payment under KRS 271B.13-280 remains unsettled, the corporation shall commence a proceeding within sixty (60) days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the sixty (60) day period, it shall pay each dissenter whose demand remains unsettled the amount demanded.
  2. The corporation shall commence the proceeding in the Circuit Court of the county where a corporation’s principal office (or, if none in this state, its registered office) is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located.
  3. The corporation shall make all dissenters (whether or not residents of this state) whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law.
  4. The jurisdiction of the court in which the proceeding is commenced under subsection (2) of this section shall be plenary and exclusive. The court may appoint one (1) or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters shall be entitled to the same discovery rights as parties in other civil proceedings.
  5. Each dissenter made a party to the proceeding shall be entitled to judgment:
    1. For the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation; or
    2. For the fair value, plus accrued interest, of his after-acquired shares for which the corporation elected to withhold payment under KRS 271B.13-270 .

History. Enact. Acts 1988, ch. 23, § 135, effective January 1, 1989.

NOTES TO DECISIONS

1.Fair Value.

In appraising a dissenter’s shares pursuant to KRS 271B.13-300 following a cash-out merger, a marketability discount was inappropriate at the shareholder level in determining fair value as defined in KRS 271B.13-010 (3), and use of the Delaware block appraisal method was not necessary. Net asset value could be considered on remand, and an entity-level discount would be permissible. Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 )(.Overruling to the extent inconsistent: Ford v. Courier-Journal Job Printing Co., 639 S.W.2d 553, 1982 Ky. App. LEXIS 251 (Ky. Ct. App. 1982), overruled in part, Brooks v. Brooks Furniture Mfgrs, Inc., 325 S.W.3d 904, 2010 Ky. App. LEXIS 207 (Ky. Ct. App. 2010), overruled in part, Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 ).

Because a hypothetical market price for the dissenter’s particular shares as a commodity is not the value being sought in an appraisal proceeding under KRS 271B.13-300 , market adjustments to arrive at such a price, such as discounts for lack of control or lack of marketability, are inappropriate in determining fair value as defined in KRS 271B.13-010 (3). The dissenting shareholder is entitled to the fair value of his or her shares as measured by the proportionate interest those shares represent in the value of the company as a going concern, a value determined in accord with generally accepted valuation concepts and techniques, as to which the Delaware block approach is not required. Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 )(Overruling to the extent inconsistent: Ford v. Courier-Journal Job Printing Co., 639 S.W.2d 553, 1982 Ky. App. LEXIS 251 (Ky. Ct. App. 1982), overruled in part, Brooks v. Brooks Furniture Mfgrs, Inc., 325 S.W.3d 904, 2010 Ky. App. LEXIS 207 (Ky. Ct. App. 2010), overruled in part, Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 2011 Ky. LEXIS 159 ( Ky. 2011 ).

271B.13-310. Court costs and counsel fees.

  1. The court in an appraisal proceeding commenced under KRS 271B.13-300 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under KRS 271B.13-280 .
  2. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable:
    1. Against the corporation and in favor of any or all dissenters, if the court finds the corporation did not substantially comply with the requirements of KRS 271B.13-200 to 271B.13-280 ; or
    2. Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this subtitle.
  3. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited.

History. Enact. Acts 1988, ch. 23, § 136, effective January 1, 1989.

Subtitle 14. Dissolution

Voluntary Dissolution

271B.14-010. Dissolution by incorporators or initial directors.

A majority of the incorporators or initial directors of a corporation that has not issued shares or has not commenced business may dissolve the corporation by delivering to the Secretary of State for filing articles of dissolution that set forth:

  1. The name of the corporation;
  2. The date of its incorporation;
  3. Either:
    1. That none of the corporation’s shares has been issued; or
    2. That the corporation has not commenced business;
  4. That no debt of the corporation remains unpaid;
  5. That the net assets of the corporation remaining after winding up have been distributed to the shareholders, if shares were issued; and
  6. That a majority of the incorporators or initial directors authorized the dissolution.

History. Enact. Acts 1988, ch. 23, § 137, effective January 1, 1989.

NOTES TO DECISIONS

1.Application.

This chapter, by allowing the corporate entity to continue to exist after dissolution to carry on “winding up” activities, continues to provide the traditional corporate protections for shareholders, directors, and officers in their limited activities of “winding up.” 2003 U.S. Dist. LEXIS 13268.

271B.14-020. Dissolution by board of directors and shareholders.

  1. A corporation’s board of directors may propose dissolution for submission to the shareholders.
  2. For a proposal to dissolve to be adopted:
    1. The board of directors shall recommend dissolution to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders; and
    2. The shareholders entitled to vote shall approve the proposal to dissolve as provided in subsection (5) of this section.
  3. The board of directors may condition its submission of the proposal for dissolution on any basis.
  4. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders’ meeting in accordance with KRS 271B.7-050 . The notice shall also state that the purpose, or one of the purposes, of the meeting is to consider dissolving the corporation.
  5. Unless the articles of incorporation or the board of directors (acting pursuant to subsection (3)) of this section require a greater vote or a vote by voting groups, the proposal to dissolve to be adopted shall be approved by a majority of all votes entitled to be cast on that proposal.

History. Enact. Acts 1988, ch. 23, § 138, effective January 1, 1989.

Research References and Practice Aids

ALR

Dissolution of corporation on ground of intracorporate deadlock or dissension. 83 A.L.R.3d 458.

271B.14-030. Articles of dissolution.

  1. At any time after dissolution is authorized, the corporation may dissolve by delivering to the Secretary of State for filing an original and three (3) exact or conformed copies of articles of dissolution setting forth:
    1. The name of the corporation;
    2. The date dissolution was authorized;
    3. If dissolution was approved by the shareholders:
      1. The number of votes entitled to be cast on the proposal to dissolve; and
      2. Either the total number of votes cast for and against dissolution or the total number of undisputed votes cast for dissolution and a statement that the number cast for dissolution was sufficient for approval; and
    4. If voting by voting groups was required, the information required by subsection (1)(c) of this section shall be separately provided for each voting group entitled to vote separately on the plan to dissolve.
  2. The Secretary of State shall immediately forward one (1) of the exact or conformed copies of the articles of dissolution to the secretary of revenue.
  3. A corporation shall be dissolved upon the effective date of its articles of dissolution.

History. Enact. Acts 1988, ch. 23, § 139, effective January 1, 1989.

271B.14-040. Revocation of dissolution.

  1. A corporation may revoke its dissolution within one hundred twenty (120) days of its effective date.
  2. Revocation of dissolution shall be authorized in the same manner as the dissolution was authorized unless that authorization permitted revocation by action of the board of directors alone, in which event the board of directors may revoke the dissolution without shareholder action.
  3. After the revocation of dissolution is authorized, the corporation may revoke the dissolution delivering to the Secretary of State for filing articles of revocation of dissolution, together with a copy of its articles of dissolution, that set forth:
    1. The name of the corporation;
    2. The effective date of the dissolution that was revoked;
    3. The date that the revocation of dissolution was authorized;
    4. If the corporation’s board of directors (or incorporators) revoked the dissolution, a statement to that effect;
    5. If the corporation’s board of directors revoked a dissolution authorized by the shareholders, a statement that revocation was permitted by action by the board of directors alone pursuant to that authorization; and
    6. If shareholder action was required to revoke the dissolution, the information required by subsection (1)(c) or (1)(d) of KRS 271B.14-030 .
  4. Revocation of dissolution shall be effective upon the effective date of the articles of revocation of dissolution.
  5. When the revocation of dissolution is effective, it shall have the effect provided in KRS 14A.7-030 (3).

History. Enact. Acts 1988, ch. 23, § 140, effective January 1, 1989; 2012, ch. 81, § 94, effective July 12, 2012.

271B.14-050. Effect of dissolution.

  1. A dissolved corporation shall continue its corporate existence but may not carry on any business except that appropriate to wind up and liquidate its business and affairs, including:
    1. Collecting its assets;
    2. Disposing of its properties that will not be distributed in kind to its shareholders;
    3. Discharging or making provision for discharging its liabilities, including as appropriate, entering into agreements with creditors for the satisfaction thereof;
    4. Distributing its remaining property among its shareholders according to their interests; and
    5. Doing every other act necessary to wind up and liquidate its business and affairs.
  2. Dissolution of a corporation shall not:
    1. Transfer title to the corporation’s property;
    2. Prevent transfer of its shares or securities, although the authorization to dissolve may provide for closing the corporation’s share transfer records;
    3. Subject its directors or officers to standards of conduct different from those prescribed in Subtitle 8 of this chapter;
    4. Change quorum or voting requirements for its board of directors or shareholders; change provisions for selection, resignation, or removal of its directors or officers or both; or change provisions for amending its bylaws;
    5. Prevent commencement of a proceeding by or against the corporation in its corporate name;
    6. Abate or suspend a proceeding pending by or against the corporation on the effective date of dissolution;
    7. Terminate the authority of the registered agent of the corporation;
    8. Alter the obligations and responsibilities of the corporation as prescribed by applicable federal or state law with regard to the filing or examination of all federal and state tax returns or the payment, assessment, or collection of any federal or state tax due with respect to those returns; or
    9. Abate or suspend KRS 271B.6-220 .

History. Enact. Acts 1988, ch. 23, § 141, effective January 1, 1989; 2007, ch. 137, § 68, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 68, effective July 15, 2010; 2012, ch. 81, § 95, effective July 12, 2012.

NOTES TO DECISIONS

1.Duration of Dissolution Period.

For the purpose of being sued, a corporation was deemed to exist until its debts were paid. Economy Bldg. & Loan Ass'n v. Paris Ice Mfg. Co., 113 Ky. 246 , 68 S.W. 21, 24 Ky. L. Rptr. 107 , 1902 Ky. LEXIS 46 ( Ky. 1902 ).

A corporation, though properly dissolved, was still in existence for purpose of settling its affairs and adjusting or paying the claims of its creditors. Stearns Coal & Lumber Co. v. Douglas, 299 Ky. 314 , 185 S.W.2d 385, 1944 Ky. LEXIS 1045 ( Ky. 1944 ).

2.Real Estate.

Upon dissolution of corporation, through expiration of its charter, the title to the real estate owned by the corporation did not revert to the stockholders. Stearns Coal & Lumber Co. v. Douglas, 299 Ky. 314 , 185 S.W.2d 385, 1944 Ky. LEXIS 1045 ( Ky. 1944 ).

Dissolved corporate entity may not carry on any business other than winding up and liquidating its business and affairs, and thus, in a case involving enforcement of a restrictive covenant, the property owners’ argument that the original corporate developer, which had since been dissolved, was the only entity with approval authority over their proposed garage was without merit. Colliver v. Stonewall Equestrian Estates Ass'n, 139 S.W.3d 521, 2003 Ky. App. LEXIS 307 (Ky. Ct. App. 2003).

3.Production of Corporate Records.

Business owner did not have to produce pre-incorporation documents to the IRS because they were not “corporate records,” but the post-dissolution records had to be produced because they were not personal records and therefore, not subject to the Fifth Amendment privilege against production. 2003 U.S. Dist. LEXIS 13268.

4.Personal Liability.

Where the one owner continued to reach agreements with the construction company that was owed money by one owner’s administratively dissolved corporation, in the years after the money was owed, the one owner could not show that the one owner was not personally liable for the agreement the one owner made to guarantee the construction company payment in return for the construction company executing a lien waiver, which was an agreement the one owner did not fully perform. The one owner was not protected by KRS 271B.14-050 since the one owner’s conduct did not involve winding up the business and even though the one owner would normally be shielded from personal liability as a shareholder, the one owner was not so protected by KRS 271B.6-220 (2) because the administratively dissolved corporation had been dissolved by the time the one owner entered into the agreement. Martin v. Pack's Inc., 358 S.W.3d 481, 2011 Ky. App. LEXIS 187 (Ky. Ct. App. 2011).

Cited:

In re Nix Heating & Air Conditioning, Inc., 108 B.R. 1012, 1990 Bankr. LEXIS 269 (Bankr. W.D. Ky. 1990 ).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

ALR

Criminal proceedings, maintainability against dissolved corporation. 40 A.L.R.2d 1396.

Arbitration proceedings, dissolved corporation’s power to participate in. 71 A.L.R.2d 1121.

271B.14-060. Known claims against dissolved corporation.

  1. A dissolved corporation may dispose of the known claims against it by following the procedure described in this section.
  2. The dissolved corporation shall notify its known claimants in writing of the dissolution at any time after its effective date. The written notice shall:
    1. Describe information that must be included in a claim;
    2. Provide a mailing address where a claim may be sent;
    3. State the deadline, which may not be fewer than one hundred twenty (120) days from the effective date of the written notice, by which the dissolved corporation must receive the claim; and
    4. State that the claim will be barred if not received by the deadline.
  3. A claim against the dissolved corporation shall be barred:
    1. If a claimant who was given written notice under subsection (2) of this section does not deliver the claim to the dissolved corporation by the deadline;
    2. If a claimant whose claim was rejected by the dissolved corporation does not commence a proceeding to enforce the claim within ninety (90) days from the effective date of the rejection notice.
  4. For purposes of this section, “claim” shall not include a contingent liability, a claim based on an event occurring after the effective date of dissolution or any liability to the Commonwealth or the United States for any state or federal tax liability.

History. Enact. Acts 1988, ch. 23, § 142, effective January 1, 1989.

NOTES TO DECISIONS

1.Assets.

Where a corporation was dissolved or consolidated, its assets became a trust fund for payment of its debts. A successor corporation was liable for deficiency assessments against dissolved corporation for income taxes. Reeves v. East Cairo Ferry Co., 289 Ky. 384 , 158 S.W.2d 937, 1942 Ky. LEXIS 554 ( Ky. 1942 ) (decided under prior law).

2.Corporate Obligations.

Liquidation of a corporation did not extinguish obligation due by or to it. Castle's Adm'r v. Acrogen Coal Co., 145 Ky. 591 , 140 S.W. 1034, 1911 Ky. LEXIS 908 ( Ky. 1911 ); Hauger v. International Trading Co., 184 Ky. 794 , 214 S.W. 438, 1919 Ky. LEXIS 144 ( Ky. 1919 ); United States v. Lam, 26 F.2d 830, 1927 U.S. Dist. LEXIS 1772 (W.D. Ky. 1927 ) (decided under prior law).

3.Foreign Corporation.

Former section, pertaining to the rights and remedies of a dissolved corporation in closing out its affairs, did not extend these benefits to foreign corporations, and a foreign corporation that was not qualified or authorized to do business in Kentucky derived its powers and existence solely from the law of the state of creation, and so a foreign corporation, a plaintiff in a civil action, which was dissolved under the laws of the state of its creation, during the pendency of the action, was “dead in law,” and was not capable of prosecution of the action subsequent to the dissolution, and the judgment rendered was void. Leiserson & Adler, Inc. v. Keam, 266 S.W.2d 352, 1954 Ky. LEXIS 822 ( Ky. 1954 ) (decided under prior law).

4.Winding Up.

A corporation had existence beyond its corporate life for the purpose of winding up its affairs. Crabtree v. Petroleum Exploration, Inc., 282 Ky. 32 , 137 S.W.2d 713, 1940 Ky. LEXIS 119 ( Ky. 1940 ) (decided under prior law).

271B.14-070. Unknown claims against dissolved corporation.

  1. A dissolved corporation may also publish notice of its dissolution and request that persons with claims against the corporation present them in accordance with the notice.
  2. The notice shall:
    1. Be published one (1) time in a newspaper of general circulation in the county where the dissolved corporation’s principal office (or, if none in this state, its registered office) is or was last located;
    2. Describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and
    3. State that a claim against the corporation will be barred unless a proceeding to enforce the claim is commenced within two (2) years after the publication of the notice.
  3. If the dissolved corporation publishes a newspaper notice in accordance with subsection (2) of this section, the claim of each of the following claimants shall be barred unless the claimant commences a proceeding to enforce the claim against the dissolved corporation within two (2) years after the publication date of the newspaper notice:
    1. A claimant who did not receive written notice under KRS 271B.14-060 ;
    2. A claimant whose claim was timely sent to the dissolved corporation but not acted on; and
    3. A claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
  4. A claim may be enforced under this section:
    1. Against the dissolved corporation, to the extent of its undistributed assets; or
    2. If the assets have been distributed in liquidation, against a shareholder of the dissolved corporation to the extent of his pro rata share of the claim or the corporate assets distributed to him in liquidation, whichever is less, but a shareholder’s total liability for all claims under this section shall not exceed the total amount of assets distributed to him.

History. Enact. Acts 1988, ch. 23, § 143, effective January 1, 1989.

NOTES TO DECISIONS

1.Time Limitation.

The language of former law barring claims not commenced within two (2) years after the date of dissolution applied only to claims which arose “prior” to dissolution; accordingly, former law could not be applied to bar a plaintiff’s claim that a corporation’s majority shareholder, its accountants, and its attorney were negligent in liquidating the corporation’s assets and, consequently, that the corporation was required to pay additional taxes, penalties, lawyer’s fees, and accountant’s fees, since such a claim could not have arisen until after dissolution and the winding-up period. Gross v. Hougland, 712 F.2d 1034, 1983 U.S. App. LEXIS 25908 (6th Cir. 1983), cert. denied, 465 U.S. 1025, 104 S. Ct. 1281, 79 L. Ed. 2d 684, 1984 U.S. LEXIS 1087 (1984) (decided under prior law).

The stockholders, at the time the corporation became extinct for all purposes, including the two-year period allowed by former section for the winding up of its business, acquired the title to and became the owners of the judgment in favor of the corporation for deficiency in a mortgage foreclosure suit. Levy v. Liebling, 238 F.2d 505, 1956 U.S. App. LEXIS 4427 (6th Cir. 1956), cert. denied, 353 U.S. 936, 77 S. Ct. 812, 1 L. Ed. 2d 759, 1957 U.S. LEXIS 1040 (1957) (decided under prior law).

Administrative Dissolution

271B.14-200. Grounds for administrative dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 144; 2010, ch. 133, § 7) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.7-010 .

271B.14-210. Procedure for and effect of administrative dissolution. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 69; 2010, ch. 133, § 8) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.7-020 .

271B.14-220. Reinstatement following administrative dissolution or revocation under prior law — Exception — Amendment to extend or delete period of duration. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 70; 2010, ch. 133, § 9) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.7-030 .

271B.14-225. Permissibility of merger of subsequent reincorporation with reinstated prior corporation — Effect.

The General Assembly finds and declares it to be the public policy of the Commonwealth of Kentucky that each corporation which was refused reinstatement either orally or in writing and subsequently reincorporated as a second corporation may reinstate the first corporation and merge the second corporation into the first corporation. The first corporation shall then be treated as if it had continuous and uninterrupted existence and that the administrative dissolution or revocation had never occurred.

History. Enact. Acts 1992, ch. 161, § 3, effective April 1, 1992.

Research References and Practice Aids

Northern Kentucky Law Review.

Montague and Muehlenkamp, Kentucky Corporate Law Developments, 21 N. Ky. L. Rev. 413 (1994).

271B.14-230. Appeal from denial of reinstatement. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 147; 1992, ch. 161, § 2) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.7-040 .

Judicial Dissolution

271B.14-300. Grounds for judicial dissolution.

The Circuit Court may dissolve a corporation:

  1. In a proceeding by the Attorney General if it is established that:
    1. The corporation obtained its articles of incorporation through fraud; or
    2. The corporation has continued to exceed or abuse the authority conferred upon it by law;
  2. In a proceeding by a shareholder if it is established that:
    1. The directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered, or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally, because of the deadlock;
    2. The directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal or fraudulent; or
    3. The shareholders are deadlocked in voting power and have failed, for a period that includes at least two (2) consecutive annual meeting dates, to elect successors to directors whose terms have expired;
  3. In a proceeding by a creditor if it is established that:
    1. The creditor’s claim has been reduced to judgment, the execution on the judgment returned unsatisfied, and the corporation is insolvent; or
    2. The corporation has admitted in writing that the creditor’s claim is due and owing and the corporation is insolvent; or
  4. In a proceeding by the corporation to have its voluntary dissolution continued under court supervision.

History. Enact. Acts 1988, ch. 23, § 148, effective January 1, 1989.

NOTES TO DECISIONS

1.Judicial Discretion.

Dismissal of plaintiffs’ claims for dissolution of a corporation brought in federal court was affirmed; the District Court did not abuse its discretion in abstaining because there was no reason to disturb the important state interests in the case. Caudill v. Eubanks Farms, Inc., 301 F.3d 658, 2002 FED App. 0297P, 2002 U.S. App. LEXIS 18145 (6th Cir. Ky. 2002 ).

2.Grounds for Dissolution.

Forfeiture of charter should not be sought for failures or abuses for which adequate penalties are enforceable by criminal action, either under statute or common law. Commonwealth v. Newport, L. & A. Turnpike Co., 97 S.W. 375, 29 Ky. L. Rptr. 1285 (Kan. Ct. App. 1906) (decided under prior law).

Failure of a corporation to engage in business or to comply with the law does not ipso facto forfeit its charter. Reichert v. Ellis Ferry Co., 184 Ky. 150 , 211 S.W. 403, 1919 Ky. LEXIS 19 ( Ky. 1919 ) (decided under prior law).

Minority stockholders were not entitled to a decree dissolving corporation merely because it was not profitable. Weisert v. Kraft, 209 Ky. 741 , 273 S.W. 462, 1925 Ky. LEXIS 592 ( Ky. 1925 ) (decided under prior law).

Agreement between two (2) tobacco warehouse corporations to conduct a joint venture of the two (2) businesses by a committee of six (6) members composed of three (3) directors of each corporation in which venture they were to share equally in the net proceeds and share the losses equally did not furnish grounds for forfeiture of charter proceedings. Commonwealth v. United Warehouse Co., 293 Ky. 502 , 169 S.W.2d 300, 1943 Ky. LEXIS 644 ( Ky. 1943 ) (decided under prior law).

Cited:

Dingus v. Fada Serv. Co., 856 S.W.2d 45, 1993 Ky. App. LEXIS 79 (Ky. Ct. App. 1993).

Research References and Practice Aids

ALR

Estoppel of one selling or conveying property to dissolved or defunct corporation to deny its existence. 20 A.L.R.2d 1084.

What amounts to “oppressive” conduct under statute authorizing dissolution of corporation at suit of minority stockholders. 56 A.L.R.3d 358.

271B.14-310. Procedure for judicial dissolution.

  1. Venue for a proceeding by the Attorney General to dissolve a corporation shall lie in Franklin County. Venue for a proceeding brought by any other party named in KRS 271B.14-300 shall lie in the county where a corporation’s principal office (or, if none in this state, its registered office) is or was last located.
  2. It shall not be necessary to make shareholders parties to a proceeding to dissolve a corporation unless relief is sought against them individually.
  3. A court in a proceeding brought to dissolve a corporation may issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs, take other action required to preserve the corporate assets wherever located, and carry on the business of the corporation until a full hearing can be held.

History. Enact. Acts 1988, ch. 23, § 149, effective January 1, 1989.

NOTES TO DECISIONS

Cited:

Caudill v. Eubanks Farms, Inc., 301 F.3d 658, 2002 U.S. App. LEXIS 18145 (6th Cir. 2002).

271B.14-320. Receivership or custodianship.

  1. A court in a judicial proceeding brought to dissolve a corporation may appoint one (1) or more receivers to wind up and liquidate, or one (1) or more custodians to manage, the business and affairs of the corporation. The court shall hold a hearing, after notifying all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian shall have exclusive jurisdiction over the corporation and all of its property wherever located.
  2. The court may appoint an individual or a domestic or foreign corporation (authorized to transact business in this state) as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.
  3. The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended from time to time. Among other powers:
    1. The receiver:
      1. May dispose of all or any part of the assets of the corporation wherever located, at a public or private sale, if authorized by the court; and
      2. May sue and defend in his own name as receiver of the corporation in all courts of this state; and
    2. The custodian may exercise all of the powers of the corporation, through or in place of its board of directors or officers, to the extent necessary to manage the affairs of the corporation in the best interests of its shareholders and creditors.
  4. The court during a receivership may redesignate the receiver a custodian, and during a custodianship may redesignate the custodian a receiver, if doing so is in the best interests of the corporation, its shareholders, and creditors.
  5. The court from time to time during the receivership or custodianship may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and his counsel from the assets of the corporation or proceeds from the sale of assets.

History. Enact. Acts 1988, ch. 23, § 150, effective January 1, 1989.

NOTES TO DECISIONS

1.Receivers.
2.—Appointment.

Action of board of directors of warehouse corporation in entering into partnership agreement with another warehouse corporation for joint operation of warehouses was not grounds for appointment of a receiver. Kehoe v. United Warehouse Co., 293 Ky. 525 , 169 S.W.2d 604, 1943 Ky. LEXIS 661 ( Ky. 1943 ) (decided under prior law).

Suits for the appointment of a receiver are equitable in nature. Diamonite Mfg. Corp. v. Clark Constr. Co., 446 S.W.2d 285, 1969 Ky. LEXIS 114 ( Ky. 1969 ) (decided under prior law).

3.—Sale of Property.

Where court, in suit by creditor, appointed receiver for corporation, with consent of corporation and other creditors, and receiver, after operating property for several years, reported that he could not find capital to continue operations, the court had jurisdiction to order a sale of the property by the receiver. Max Ams, Inc. v. Barker, 293 Ky. 698 , 170 S.W.2d 45, 1943 Ky. LEXIS 700 ( Ky. 1943 ) (decided under prior law).

4.—Unpaid Subscriptions.

A receiver could collect unpaid subscriptions in one suit to settle the corporate affairs, regardless of the residences of the stockholders. Lock v. Stout, 173 Ky. 304 , 191 S.W. 90, 1917 Ky. LEXIS 460 ( Ky. 1 917). See also James v. Bosworth, 223 Ky. 1 , 2 S.W.2d 1075, 1927 Ky. LEXIS 959 ( Ky. 1927 ) (decided under prior law).

5.—Attorney Fees.

While an order for a receiver’s fees was not error per se, since there was no authority for allowing a fee based on a commission, that fee had to be reversed. However, an award of the receiver’s reasonable attorney fees was proper and allowable under KRS 271B.14-320 (5). Monin v. Monin, 156 S.W.3d 309, 2004 Ky. App. LEXIS 367 (Ky. Ct. App. 2004).

6.—Liability.

Court-appointed receiver for a business, as an officer of the court, was entitled to quasi-judicial immunity related to the performance of the receiver's court-ordered duties as to the claims of a co-owner of the business because no evidence was presented to show that the receiver was either negligent or acted in bad faith in handling the tasks assigned to the receiver. Farmer v. Miller, 496 S.W.3d 485, 2016 Ky. App. LEXIS 121 (Ky. Ct. App. 2016).

271B.14-330. Decree of dissolution.

  1. If after a hearing the court determines that one (1) or more grounds for judicial dissolution described in KRS 271B.14-300 exist, it may enter a decree dissolving the corporation, and the clerk of the court shall deliver a certified copy of the decree to the Secretary of State, who shall file it. The dissolution shall be effective upon the latter of the filing of the decree by the Secretary of State or such later date as is specified in the decree.
  2. The effect of the dissolution shall be as set forth in KRS 271B.14-050 .
  3. After entering the decree of dissolution, the court shall direct the winding up and liquidation of the corporation’s business and affairs, including as provided in KRS 271B.14-320 , and the notification of claimants in accordance with KRS 271B.14-060 and 271B.14-070 .

History. Enact. Acts 1988, ch. 23, § 151, effective January 1, 1989; 2011, ch. 29, § 10, effective June 8, 2011; 2012, ch. 81, § 96, effective July 12, 2012.

Research References and Practice Aids

ALR

Preferred stockholders’ rights, upon liquidation or dissolution, to dividends. 25 A.L.R.2d 788.

Stockholders’ rights to patent, copyright, or trademark owned by corporation on dissolution thereof. 30 A.L.R.2d 938.

Miscellaneous

271B.14-400. Deposit with State Treasurer.

Assets of a dissolved corporation that should be transferred to a creditor, claimant, or shareholder of the corporation who cannot be found or who is not competent to receive them shall be reduced to cash and deposited with the State Treasurer or other appropriate state official for safekeeping. When the creditor, claimant, or shareholder furnishes satisfactory proof of entitlement to the amount deposited, the State Treasurer or other appropriate state official shall pay him or his representative that amount.

History. Enact. Acts 1988, ch. 23, § 152, effective January 1, 1989.

Subtitle 15. Foreign Corporations

Certificate of Authority

271B.15-010. Annual report.

A foreign corporation transacting business in this Commonwealth is subject to KRS 14A.6-010 .

History. Enact. Acts 1988, ch. 23, § 153, effective January 1, 1989; 1990, ch. 199, § 1, effective July 13, 1990; 2007, ch. 137, § 71, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 151, § 55, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed and reenacted without change to the existing language by 2010 Ky. Acts ch. 51, effective 7/15/10, and repealed and reenacted with the new language by 2010 Ky. Acts ch. 151, effective 1/1/2011. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment by ch. 51 not serve to void amendments made by other bills, and these Acts do not appear to be in conflict, therefore, they have been codified together.

NOTES TO DECISIONS

1.Transacting Business in Kentucky.

Where steeplechase association sanctioned race meetings, approved race courses, officials and financial responsibility of sponsoring organizations and prepared booklets and badges for meets, all from its New York office; maintained no offices or employes in Kentucky and conducted all communications by mail and telephone, the association did not transact business in Kentucky so as to require it to obtain a certificate of authority. Commonwealth ex rel. Stephens v. National Steeplechase & Hunt Asso., 612 S.W.2d 347, 1981 Ky. App. LEXIS 220 (Ky. Ct. App. 1981) (decided under prior law).

2.Interstate Commerce.

New York steeplechase association’s leasing of fences and jumps to local racing organizations, was within the exception provided for interstate commerce under former statute and thus such association was not required to obtain a certificate of authority as a foreign business transacting business in Kentucky. Commonwealth ex rel. Stephens v. National Steeplechase & Hunt Asso., 612 S.W.2d 347, 1981 Ky. App. LEXIS 220 (Ky. Ct. App. 1981) (decided under prior law).

3.Isolated Transactions.

Where national steeplechase association driver transported steeplechase jumps to Kentucky, but did not assist local agency in setting them up, and where association’s employes occasionally acted as stewards in race meetings, such meetings each being held three (3) or four (4) days each calendar year, these activities together were isolated transactions so as to fall under exception contained in former statute for interstate commerce and thus association was not required to obtain a certificate of authority as a foreign business transacting business in Kentucky. Commonwealth ex rel. Stephens v. National Steeplechase & Hunt Asso., 612 S.W.2d 347, 1981 Ky. App. LEXIS 220 (Ky. Ct. App. 1981) (decided under prior law).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

271B.15-020. Consequences of transacting business without authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 154) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-020 .

Research References and Practice Aids

ALR

Compliance after commencement of action as affecting application of statute denying access to courts or invalidating contracts where corporation fails to comply with regulatory statute. 6 A.L.R.3d 326.

271B.15-030. Application for certificate of authority — Requirement for agent’s written acceptance of appointment. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 155; 1998, ch. 341, § 10) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-030 .

271B.15-040. Amended certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 156) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-040 .

271B.15-050. Effect of certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 72) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-050 .

271B.15-060. Corporate name of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 73) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-040 .

271B.15-070. Registered office and registered agent of foreign corporation — Requirement for agent’s written acceptance of appointment. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 159; 1998, ch. 341, § 11) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-010 .

271B.15-080. Change of registered office or registered agent of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 160) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-020 .

271B.15-090. Resignation of registered agent of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 161) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-030 .

271B.15-100. Service on foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 162) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-040 .

Withdrawal

271B.15-200. Withdrawal of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 163) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-060 .

Revocation of Certificate of Authority

271B.15-300. Grounds for revocation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 164; 2010, ch. 133, § 10) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-070 .

271B.15-310. Procedure for an effective revocation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 165; 2010, ch. 133, § 11) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-080 .

271B.15-320. Appeal from revocation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 166) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-090 .

Subtitle 16. Records and Reports

Records

271B.16-010. Corporate records.

  1. A corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation.
  2. A corporation shall maintain appropriate accounting records.
  3. A corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, by class of shares showing the number and class of shares held by each.
  4. A corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.
  5. A corporation shall keep a copy of the following records at its principal office:
    1. Its articles or restated articles of incorporation and all amendments to them currently in effect;
    2. Its bylaws or restated bylaws and all amendments to them currently in effect;
    3. Resolutions adopted by its board of directors creating one (1) or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding;
    4. The minutes of all shareholders’ meetings, and records of all action taken by shareholders without a meeting, for the past three (3) years;
    5. All written communications to shareholders generally within the past three (3) years, including the financial statements furnished for the past three (3) years under KRS 271B.16-200 ;
    6. A list of the names and business addresses of its current directors and officers; and
    7. Its most recent annual report delivered to the Secretary of State under KRS 14A.6-010 .

History. Enact. Acts 1988, ch. 23, § 167, effective January 1, 1989; 2010, ch. 151, § 123, effective January 1, 2011.

NOTES TO DECISIONS

1.Inspection Rights.

While KRS 271B.16-010 (2) states that a corporation must maintain “appropriate accounting records,” there is not a corollary statutory right for a shareholder to inspect those records. Therefore, a corporation’s argument that a shareholder was not entitled to inspect requested records because they were not “appropriate” accounting records was unpersuasive. Cardiovascular Specialists, P.S.C. v. Xenopoulos, 328 S.W.3d 215, 2010 Ky. App. LEXIS 216 (Ky. Ct. App. 2010).

2.Corporation as alter ego.

Husband and wife who owned and operated a Kentucky oil and gas drilling company were ordered to pay investors $5,662,662 in compensatory damages plus prejudgment interest because they committed fraud, breach of contract, and conversion when they made misrepresentations that induced an elderly investor, members of his family, and family trusts to invest in nonexistent and worthless gas wells, and the debt was nondischargeable under 11 U.S.C.S. § 523. The court found that the husband and wife were personally liable for the fact that the company breached contracts with the investors because the company was the husband and wife’s alter ego and piercing the corporate veil was necessary to prevent the husband and wife from perpetuating a fraud and committing other illegal acts in the name of the company and then avoiding responsibility by hiding behind the corporate shield; the company did not maintain permanent corporate records, as required by KRS 271B.16-010 , and the husband and wife transferred significant amounts of money from the company to their personal bank accounts and used the money to pay personal expenses. Fontaine v. P&J Resources, Inc. (In re P&J Resources Inc.), 475 B.R. 838, 2012 Bankr. LEXIS 2167 (Bankr. E.D. Ky. 2012 ).

271B.16-020. Inspection of records by shareholders.

  1. A shareholder of a corporation shall be entitled to inspect and copy, during regular business hours at the corporation’s principal office, any of the records of the corporation described in subsection (5) of KRS 271B.16-010 if he gives the corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy.
  2. A shareholder of a corporation shall be entitled to inspect and copy during regular business hours at a reasonable location specified by the corporation any of the following records of the corporation if the shareholder meets the requirements of subsection (3) of this section and gives the corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy:
    1. Excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or board of directors without a meeting, to the extent not subject to inspection under subsection (1) of this section;
    2. Accounting records of the corporation; and
    3. The record of shareholders.
  3. A shareholder may inspect and copy the records described in subsection (2) of this section only if:
    1. His demand is made in good faith and for a proper purpose;
    2. He describes with reasonable particularity his purpose and the records he desires to inspect; and
    3. The records are directly connected with his purpose.
  4. The right of inspection granted by this section shall not be abolished or limited by a corporation’s articles of incorporation or bylaws.
  5. This section shall not affect:
    1. The right of a shareholder to inspect records under KRS 271B.7-200 or, if the shareholder is in litigation with the corporation, to the same extent as any other litigant;
    2. The power of a court, independently of this chapter, to compel the production of corporate records for examination.
  6. For purposes of this section, “shareholder” includes a beneficial owner whose shares are held in a voting trust or by a nominee on his behalf.

History. Enact. Acts 1988, ch. 23, § 168, effective January 1, 1989.

NOTES TO DECISIONS

1.Action for Inspection.

In action by minority shareholder of family business to inspect the books and records of a corporation under subsection (2) of this section, evidence that shareholder’s father had transferred 90 shares to each of his three children and shareholder had transferred her shares back to her father, that she had another action pending to recover these shares and in which she seeks to enjoin corporation from paying dividends on these shares until their ownership is determined, that she had received 14 shares upon distribution of her father’s estate, that she had transferred two (2) shares to each of her six (6) children, that prior to the transfer stockholder’s brother, the secretary-treasurer of the corporation, had advised her that such transfer would cause the corporation to lose its right to file federal tax reports under Subchapter S, that the children of shareholder’s brothers have shares of stock in the corporation, that although shareholder’s husband stated that he would spend $2,000,000 in an effort to destroy the corporation there was no evidence showing that husband had legal control over wife’s stock, nor that he controlled her or her demands and fact that husband was engaged in competition with the corporation was irrelevant to wife’s request, sustained finding that corporation had not met its burden that action for inspection was for an improper purpose. Bennett v. Mack's Supermarkets, Inc., 602 S.W.2d 143, 1979 Ky. LEXIS 324 ( Ky. 1979 ) (decided under prior law).

Where there was a controversy not only as to the ownership of 90 shares of stock but also a controversy as to the propriety of paying dividends on these shares, an action for inspection of the corporate books was for a proper purpose. Bennett v. Mack's Supermarkets, Inc., 602 S.W.2d 143, 1979 Ky. LEXIS 324 ( Ky. 1979 ) (decided under prior law).

2.— Common Law.

The common-law right of a stockholder to inspect all books and papers of the corporation remained in effect in Kentucky and was enforceable by mandatory injunction. Otis-Hidden Co. v. Scheirich, 187 Ky. 423 , 219 S.W. 191, 1920 Ky. LEXIS 139 ( Ky. 1920 ) (decided under prior law).

3.— Laches.

A stockholder, or his agent, had the right of access to the books and records of the corporation at reasonable times and upon reasonable notice, for the purpose of inspection, and failure to exercise the right for several years would not be laches, since it could not prejudice the corporation. Pilcher v. Stadler, 276 Ky. 450 , 124 S.W.2d 475, 1939 Ky. LEXIS 530 ( Ky. 1939 ) (decided under prior law).

4.— Purpose.

While a shareholder could examine the books only for a proper corporate purpose, an intent to destroy a corporation, to bring vexatious suits, or to take unfair advantage for competitive reasons was not considered a proper corporate purpose and denial of access to the books on any of these grounds would be justified. Keeneland Asso. v. Pessin, 484 S.W.2d 849, 1972 Ky. LEXIS 156 ( Ky. 1972 ) (decided under prior law).

5.Motive of Shareholder.

When a shareholder makes a demand to examine the books and records of a corporation and the corporation denies the demand asserting the shareholder is motivated by an improper purpose, the corporation has the burden of proving the affirmative defense that the shareholder’s motive is improper. Bennett v. Mack's Supermarkets, Inc., 602 S.W.2d 143, 1979 Ky. LEXIS 324 ( Ky. 1979 ) (decided under prior law).

6.Litigation Discovery.

During litigation, the procedures allowed under Kentucky’s civil discovery rules are broader than those allowed under KRS 271B.16-020 and KRS 362.409 or KRS 362.1-403 , assuming that the plaintiff has made a colorable claim for something other than mere enforcement of those shareholder/partner statutes. Edwards v. Hickman, 237 S.W.3d 183, 2007 Ky. LEXIS 218 ( Ky. 2007 ).

7.Foreign Corporations.

Minority shareholders’ claim demanding inspection of corporate records under KRS 271B.16-020 (1) failed because foreign corporations, including those incorporated in Delaware, were exempt from inspection pursuant to KRS 271B.15-050 (3).2815 Grand Realty Corp. v. Goose Creek Energy, Inc., 656 F. Supp. 2d 707, 2009 U.S. Dist. LEXIS 84107 (E.D. Ky. 2009 ).

8.Findings.

In a case where a shareholder was seeking corporate records, it was unclear whether the requested records were accounting records of the corporation under KRS 271B.16-020 (2)(b), and there were no findings as to whether the records were directly connected to the shareholder’s alleged purpose of valuing his shares. Therefore, a remand was necessary for a determination of these issues. Cardiovascular Specialists, P.S.C. v. Xenopoulos, 328 S.W.3d 215, 2010 Ky. App. LEXIS 216 (Ky. Ct. App. 2010).

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

ALR

Purposes for which stockholder may exercise right to examine corporate books and records. 15 A.L.R.2d 11.

271B.16-030. Scope of inspection right.

  1. A shareholder’s agent or attorney shall have the same inspection and copying rights as the shareholder he represents.
  2. The right to copy records under KRS 271B.16-020 shall include, if reasonable, the right to receive copies made by photographic, xerographic, or other means.
  3. The corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge shall not exceed the estimated cost of production or reproduction of the records.
  4. The corporation may comply with a shareholder’s demand to inspect the record of shareholders under subsection (2)(c) of KRS 271B.16-020 by providing him with a list of its shareholders that was compiled no earlier than the date of the shareholder’s demand.

History. Enact. Acts 1988, ch. 23, § 169, effective January 1, 1989.

271B.16-040. Court-ordered inspection.

  1. If the corporation does not allow a shareholder who complies with subsection (1) of KRS 271B.16-020 to inspect and copy any records required by that subsection to be available for inspection, the Circuit Court of the county where the corporation’s principal office (or, if none in this state, its registered office) is located may summarily order inspection and copying of records demanded at the corporation’s expense upon application of the shareholder.
  2. If a corporation does not within a reasonable time allow a shareholder to inspect and copy any other record, the shareholder who complies with subsections (2) and (3) of KRS 271B.16-020 may apply to the Circuit Court of the county where the corporation’s principal office (or, if none in this state, its registered office) is located for an order to permit inspection and copying of the records demanded. The court shall dispose of an application under this subsection on an expedited basis.
  3. If the court orders inspection and copying of the records demanded, it shall also order the corporation to pay the shareholder’s costs (including reasonable counsel fees) incurred to obtain the order unless the corporation proves that it refused inspection in good faith because it had a reasonable basis for doubt about the right of the shareholder to inspect the records demanded.
  4. If the court orders inspection and copying of the records demanded, it may impose reasonable restrictions on the use or distribution of the records by the demanding shareholder.

History. Enact. Acts 1988, ch. 23, § 170, effective January 1, 1989.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Reports

271B.16-200. Financial statements for shareholders.

Upon the written request of any shareholder or holder of voting trust certificates for shares of a corporation the corporation shall mail to such shareholder or holder of voting trust certificates its most recent financial statements showing in reasonable detail its assets and liabilities and the results of its operations.

History. Enact. Acts 1988, ch. 23, § 171, effective January 1, 1989.

271B.16-210. Other reports to shareholders — Other requirements of a public benefit corporation.

  1. If a corporation indemnifies or advances expenses to a director under KRS 271B.8-510 to 271B.8-540 in connection with a proceeding by or in the right of the corporation, the corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders’ meeting.
  2. A public benefit corporation shall no less than annually provide its stockholders with a statement as to the corporation’s promotion of the public benefit or public benefits identified in the articles of incorporation and of the best interests of those materially affected by the corporation’s conduct. The statement shall include:
    1. The objectives that the board of directors has established to promote the public benefit or public benefits and interests;
    2. The standards that the board of directors has adopted to measure the corporation’s progress in promoting the public benefit or public benefits and interests;
    3. Objective factual information based on those standards regarding the corporation’s success in meeting the objectives for promoting the public benefit or public benefits and interests; and
    4. An assessment of the corporation’s success in meeting the objectives and promoting the public benefit or public benefits and interests.
  3. The articles of incorporation or bylaws of a public benefit corporation may require that the corporation:
    1. Make the statement described in subsection (2) of this section available to the public; or
    2. Use a third-party standard in connection with, or attain a periodic third-party certification addressing, the corporation’s promotion of the public benefit or public benefits identified in the articles of incorporation or the best interests of those materially affected by the corporation’s conduct.

HISTORY: Enact. Acts 1988, ch. 23, § 172, effective January 1, 1989; 2017 ch. 28, § 9, effective June 29, 2017.

271B.16-220. Annual report.

Each domestic corporation and each foreign corporation qualified to transact business in this Commonwealth is subject to KRS 14A.6-010 .

History. Enact. Acts 1988, ch. 23, § 173, effective January 1, 1989; 2007, ch. 137, § 74, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 74, effective July 15, 2010; 2010, ch. 133, § 12, effective July 15, 2011; repealed and reenact., Acts 2010, ch. 151, § 56, effective January 1, 2011.

Legislative Research Commission Note.

(7/15/2010). This section was amended by 2010 Ky. Acts ch. 133, and repealed and reenacted by 2010 Ky. Acts ch. 51, both effective 7/15/2010. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict; therefore, they have been codified together. Effective 1/1/2011, this section was also repealed and reenacted by the omnibus Kentucky Business Entity Act, 2010 Ky. Acts ch. 151.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Subtitle 17. Transition Provisions

271B.17-010. Application of chapter.

  1. This chapter shall apply to any corporation formed under the laws of this state unless the statutes relating to a corporation of that kind either are inconsistent with this chapter or state that the provisions of this chapter do not apply to it.
  2. Subject to the provisions of subsection (1) of this section, corporations may be organized under this chapter for any lawful purpose or purposes.

History. Enact. Acts 1988, ch. 23, § 191, effective January 1, 1989.

271B.17-020. Application to qualified foreign corporations.

A foreign corporation authorized to transact business in this state on January 1, 1989, shall be subject to this chapter but shall not be required to obtain a new certificate of authority to transact business under this chapter.

History. Enact. Acts 1988, ch. 23, § 192, effective January 1, 1989.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

271B.17-030. Savings provisions.

  1. Except as provided in subsection (2) of this section, the repeal of a statute by 1988 Acts Ch. 23, sec. 248 does not affect:
    1. The operation of the statute or any action taken under it before its repeal;
    2. Any ratification, right, remedy, privilege, obligation, or liability acquired, accrued, or incurred under the statute before its repeal;
    3. Any violation of the statute, or any penalty, forfeiture, or punishment incurred because of the violation, before its repeal; or
    4. Any proceeding, reorganization or dissolution commenced under the statute before its repeal, and the proceeding, reorganization, or dissolution may be completed in accordance with the statute as if it had not been repealed.
  2. If a penalty or punishment imposed for violation of a statute repealed by 1988 Acts Ch. 23, sec. 248 is reduced by this chapter, the penalty or punishment if not already imposed shall be imposed in accordance with this chapter.

History. Enact. Acts 1988, ch. 23, § 193, effective January 1, 1989.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

271B.17-040. Severability of provisions.

If any provision of this chapter or its application to any person or circumstances is held invalid by a court of competent jurisdiction, the invalidity does not affect other provisions or applications of this chapter that can be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable.

History. Enact. Acts 1988, ch. 23, § 84, effective January 1, 1989.

271B.17-050. Acceleration and applicability of effective date.

  1. On January 1, 1989, and thereafter, this chapter shall apply to all domestic corporations in existence on the effective date that were incorporated under the present statutes or any prior law and those incorporated on or after January 1, 1989, to the extent provided in KRS 271B.17-010 .
  2. Before January 1, 1989, the provisions of this chapter shall not apply to any domestic corporation except in accordance with the following:
    1. The corporation’s board of directors may adopt a resolution electing to have the provisions of this chapter (except for KRS 271B.1-220 , 271B.2-010 , 271B.2-030 to 271B.2-070 , 271B.3-010 and 271B.16-220 ) apply to the corporation.
    2. The resolution shall specify a date (after July 15, 1988, and before January 1, 1989) on and after which the provisions will apply to the corporation.
    3. The resolution shall be filed in the office of the Secretary of State before the date specified in subsection (2)(b) of this section.
  3. The provisions of this chapter (except for KRS 271B.1-220 , 271B.2-010 , 271B.2-030 to 271B.2-070 , 271B.3-010 and 271B.16-220 ) apply to each domestic corporation that complies with all the conditions prescribed in subsection (2) of this section. In addition, such a corporation shall continue to comply with the requirements of KRS 271A.396 , 271A.397 , 271A.398 , 271A.399 , 271A.615 , 271A.620 , 271A.625 , 271A.630 , and 271A.635 until January 1, 1989, but it is not subject to the provisions of KRS 271A.010 to 271A.395 ; KRS 271A.400 to 271A.610 ; and KRS 271A.640 to 271A.675 .

History. Enact. Acts 1988, ch. 23, § 194, effective January 1, 1989.

Subtitle 18. Miscellaneous Provisions

271B.18-010. Validity of facsimile signature for corporation debt security.

On any bond, note, debenture or other debt security issued by a corporation, the signature of the officers of the corporation acting in connection with the issuance, and the seal of the corporation may be facsimiles if the instrument is authenticated or countersigned by a trustee or transfer agent, or registered by a registrar, other than the corporation itself or an employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed upon a bond, note, debenture or other debt security shall have ceased to be such officer before such bond, note, debenture or other debt security is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue.

History. Enact. Acts 1972, ch. 274, § 138.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.685 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

271B.18-020. Retroactive validation of existing domestic corporations.

The corporate existence of each domestic corporation which, upon July 1, 1974, is listed as an existing corporation on the current corporate index maintained in the office of the secretary of state and is then engaged in the usual course of its business shall be, and it hereby is, validated retroactively to the date of its incorporation and continued for the period specified in its articles of incorporation and the amendments thereto, or for a period of one (1) year from July 1, 1974, whichever is greater, unless thereafter it is voluntarily dissolved or liquidated pursuant to law, or its separate existence ceases pursuant to KRS 271A.380 , or it has its corporate powers revoked pursuant to KRS 271A.470 , or its charter is repealed or vacated pursuant to KRS Chapter 415.

History. Enact. Acts 1972, ch. 274, § 139; 1974, ch. 158, § 1.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.690 and was renumbered by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

KRS 271A.380 and 271A.470 referred to in this section have been repealed.

271B.18-030. Acceptance of present Constitution.

Any corporation which was in existence at the time of the adoption of the present Constitution of this state and subsequent thereto has filed in the office of the Secretary of State any amendment of its charter or articles of incorporation shall thereby be deemed to have filed therein an acceptance of the provisions of that Constitution.

History. Enact. Acts 1972, ch. 274, § 140.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.695 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

271B.18-040. Purpose of filing articles of incorporation.

The purpose of the provisions of this chapter requiring the filing or recording of the articles of incorporation, amendments thereto, and other papers, is to afford all persons the opportunity of acquiring knowledge of the contents thereof, but no person dealing with the corporation shall be charged with constructive notice of the contents of any such articles or papers by reason of such filing or recording.

History. Enact. Acts 1972, ch. 274, § 141.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.700 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

271B.18-050. Revocation of charters and grants since 1856.

All corporate charters granted and grants made to corporations since February 14, 1856, may be revoked by the General Assembly, unless a contrary intent is plainly expressed; but no revocation or repeal shall impair other rights previously vested.

History. Enact. Acts 1972, ch. 274, § 143.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.710 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Shivel, Organizing the Corporation Under the New Kentucky Business Corporation Act — A Comparison with Prior Law, 61 Ky. L.J. 95 (1972).

271B.18-060. Incorporation for purposes of establishing a foreign trade zone within this state.

Any corporation may be organized and chartered under the provisions of this chapter or under the provisions of KRS 273.161 to 273.400 for the purposes of establishing, operating, and maintaining a foreign trade zone within this state, under the provisions of 19 U.S.C.A. 81, as amended or reenacted, and may apply to the board created under the federal act for a grant of the privilege of establishing, operating, and maintaining such a zone. If the application is granted, the corporation may accept the grant and establish, operate, and maintain such a zone subject to the federal act, as amended or reenacted, and rules adopted thereunder.

History. Enact. Acts 1984, ch. 305, § 2, effective July 13, 1984.

Compiler’s Notes.

This section was formerly compiled as KRS 271A.715 and was renumbered as this section by the Reviser of Statutes pursuant to KRS 7.136 , effective January 1, 1989.

NOTES TO DECISIONS

Cited:

Simpson v. JOC Coal, Inc., 677 S.W.2d 305, 1984 Ky. LEXIS 271 ( Ky. 1984 ).

271B.18-070. Additional penalties for violation of KRS 506.010, 506.030, 506.040, 521.020, or 521.050.

  1. If a domestic corporation is convicted of a violation of KRS 506.010 , 506.030 , 506.040 , 521.020 , or 521.050 , or if an officer, employee, or agent of the corporation is convicted of violating any section specified above under circumstances which bring corporate liability under KRS 502.050(1)(b), the court shall order that the charter of the corporation be suspended for a period of not more than five (5) years for a first offense, ten (10) years for a second offense, and permanently for a third or subsequent offense.
  2. If a foreign corporation is convicted of a violation of any section specified in subsection (1) of this section, or if an officer, employee, or agent of the corporation is convicted of violating any section specified in subsection (1) of this section under circumstances which bring corporate liability under KRS 502.050(1)(b), the court shall order that the corporation not be permitted to do business in Kentucky for the appropriate period specified in subsection (1) of this section.
  3. The penalties specified in this section shall be in addition to any other penalty specified by law for the commission of the offenses listed in subsection (1) of this section.

History. Enact. Acts 1994, ch. 477, § 6, effective July 15, 1994.

CHAPTER 272 Cooperative Corporations and Associations

272.010. Definitions.

  1. As used in KRS 272.020 to 272.044 :
    1. “Cooperative corporation” means a business concern that distributes the net profit of its business by first paying a fixed dividend upon its stock, if any, and then prorating the remainder of its profits as patronage refunds to its stockholders, members or customers, as provided in bylaws;
    2. “Patronage refund” means the portion of net profit returned to member patrons or to all patrons in proportion to their patronage. In the case of an employee cooperative in which only employees are voting members, “patronage” means the amount or value of work performed by an employee, as provided in bylaws;
    3. “Stockholder” means the holder of voting stock in a cooperative corporation organized with shares;
    4. “Member” means the holder of a membership in a cooperative corporation organized with memberships;
    5. “Membership” means a lifetime payment made to a cooperative corporation to secure or provide services, not made in expectation of dividend or profit, and without any redemption value except at time of dissolution. The articles of incorporation or bylaws may specify the conditions under which a membership may be terminated;
    6. “Nonprofit basis” means that no part of the income or profit of the cooperative corporation is distributable to its members, directors or officers except in the form of patronage refunds;
    7. “Entity” includes a domestic or foreign corporation and corporation; not-for-profit corporation; profit and not-for-profit unincorporated association; business or statutory trust; estate; partnership; limited partnership; limited liability company; trust; two (2) or more persons having a joint or common economic interest; and state, United States, and foreign government;
    8. “Name of record with the Secretary of State” means any real, fictitious, reserved, registered, or assumed name of a business entity; and
    9. “Real name” shall have the meaning set forth in KRS 365.015 .
  2. As used in KRS 272.360 to 272.510 , unless the content for such requires otherwise, the term:
    1. “Livestock” shall mean sheep, cattle, hogs, horses, jacks, mules, poultry, or any other animal or bird commonly kept on the farm;
    2. “Farmer” shall mean any individual, firm, partnership, limited partnership, limited liability company, corporation, or farm management group which derives a portion or all of its income from the production of live stock domiciled on a farm within the Commonwealth;
    3. “Member” shall include actual members of the association organized under KRS 272.360 to 272.510 ;
    4. “Association” means any corporation organized under KRS 272.360 to 272.510; and
    5. “Department” shall mean the Department of Agriculture.
  3. Associations organized under KRS 272.360 to 272.510 shall be termed nonprofit inasmuch as they are not organized to make profit for themselves.

History. 883d-1, 883f-2: amend. Acts 1942, ch. 88, § 2; 1966, ch. 208, § 36; 1986, ch. 393, § 1, effective July 15, 1986; 2007, ch. 137, § 75, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 75, effective July 15, 2010; repealed and reenact., Acts 2010, ch. 151, § 135, effective January 1, 2011.

Compiler’s Notes.

A former subsection (2) of this section was repealed by Acts 1966, ch. 208, § 36 and the section was renumbered.

Legislative Research Commission Note.

(1/1/2011). This section was amended by 2010 Ky. Acts ch. 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear in conflict, therefore, they have been codified together.

(6/26/2007). 2007 Ky. Acts ch. 137, sec. 75, subsection (1)(i) cited “Section 164 of this Act.” It is apparent from context that the section referred to should have been Section 163 of the Act, KRS 365.015 . The Reviser of Statutes has made this change under the authority of KRS 7.136 .

NOTES TO DECISIONS

Cited:

Walling v. McCracken County Peach Growers Asso., 50 F. Supp. 900, 1943 U.S. Dist. LEXIS 2515 (W.D. Ky. 1943 ); Ayers v. Burley Tobacco Growers Cooperative Asso., 344 S.W.2d 836, 1961 Ky. LEXIS 264 ( Ky. 1961 ).

Research References and Practice Aids

Cross-References.

Agriculture promotion, KRS Ch. 247.

Corporate and individual property taxes alike, Const., § 174.

Corporate franchise tax, procedure, evaluation of franchise; penalties, KRS 136.050 , 136.120 to 136.170 .

Corporate license tax, corporation included; amount; procedure, KRS 136.070 to 136.100 .

Facsimile signatures and seal on corporation debt security, KRS 271B.18-010 .

Marketing agricultural products, KRS Ch. 260.

Uniform Commercial Code, KRS Ch. 355.

Warehousing, KRS Chs. 251 and 359.

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

272.011. Definition of terms in KRS 272.101 to 272.341. [Renumbered as KRS 272.1001.]

Compiler’s Notes.

This section (Enact. Acts 1966, ch. 208, § 2; 1968, ch. 148, § 1; 1972, ch. 112, § 1) was renumbered by the Reviser of Statutes as KRS 272.1001 .

Cooperative Corporations Generally

272.020. Organization of cooperative corporation — Officers — Votes — Quorum.

  1. Any three (3) or more persons who are residents of this state may organize a cooperative corporation to conduct any agricultural, dairy, mercantile, mining, manufacturing, mechanical, service, or other lawful business, except organizations subject to any of the provisions of the banking laws of this state.
  2. The cooperative corporation shall be organized with shares or with memberships, as provided in articles of incorporation.
  3. The directors of the cooperative corporation shall be elected by the stockholders or members at such times and for such term of office as the bylaws prescribe, and shall hold office until their successors are elected. A majority of the stockholders or members at any regular or special stockholders’ or members’ meeting, legally called, may remove any director or official for cause, and fill the vacancy.
  4. There shall be a president, one (1) or more vice presidents, and a secretary and treasurer, or secretary treasurer, elected annually by and from the directors.
  5. No stockholder or member, regardless of the number of shares he may own, shall have more than one (1) vote upon any proposition.
  6. The articles of incorporation or bylaws of a cooperative corporation may prohibit voting by proxy or voting trusts.
  7. Unless otherwise provided in the articles of incorporation or bylaws, a majority of the stockholders or members entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders or members. In no event shall a quorum consist of less than one-third (1/3) of the stockholders or members entitled to vote, except that the articles of incorporation or bylaws of a cooperative corporation which prohibits both proxies and voting trusts may provide for a lower quorum; but in no event shall the quorum be set lower than one-tenth (1/10) of the stockholders or members entitled to vote or twenty (20) such stockholders or members, whichever is less.

History. 883d-1, 883d-5, 883d-6: amend. Acts 1986, ch. 393, § 2, effective July 15, 1986.

Opinions of Attorney General.

An affirmative declaration may be made in the articles of incorporation to organize as a cooperative corporation under KRS 272.020 to 272.050 , and the applicability of the general business code provisions depends upon whether or not the cooperative corporation is organized with shares or memberships interests. OAG 00-8 .

Research References and Practice Aids

Cross-References.

General corporation law, application, KRS 271B.3-010 .

Voting rights in private corporation, KRS 271B.7-200 to 271B.7-280 .

272.030. Reserve fund.

By a vote of at least two-thirds (2/3) of the stockholders or members, and after the payment of a fixed dividend upon its stock, but before the profits are prorated, any cooperative corporation may create a reserve fund by setting aside each year ten percent (10%) to twenty-five percent (25%) of the remainder of the net profits of its business.

History. 883d-7: amend. Acts 1986, ch. 393, § 3, effective July 15, 1986.

272.040. Cooperative companies may adopt KRS 272.020 to 272.050 — Filing fee.

Any cooperative company may become subject to the provisions of KRS 272.020 to 272.044 by filing with the Secretary of State a declaration signed and sworn to by the president and secretary that the company, by a majority vote of its stockholders or members, has decided to adopt KRS 272.020 to 272.044 . There shall be paid to the Secretary of State a fee of two dollars ($2) for filing the declaration.

History. 883d-8: amend. Acts 1946, ch. 141, § 14; 1986, ch. 393, § 4, effective July 15, 1986; 2010, ch. 151, § 136, effective January 1, 2011.

Opinions of Attorney General.

The payment of the filing fee is a condition precedent for filing documents with the Secretary of State, and the Secretary of State may void the filing and return a document after it has been received, stamped, and filed, if the check for payment of that fee has been dishonored. OAG 89-94 .

272.042. KRS provisions applicable to various cooperative corporation organizations.

Unless otherwise provided in KRS 272.010(1) and KRS 272.020 to 272.044 , a cooperative corporation organized with shares shall be subject to the provisions of KRS Chapter 271B, and a cooperative corporation organized with memberships and operated on a nonprofit basis shall be subject to the provisions of KRS 273.161 to 273.390 .

History. Enact. Acts 1986, ch. 393, § 5, effective July 15, 1986; 2010, ch. 151, § 137, effective January 1, 2011.

272.044. Applicability of KRS 272.010(1) and 272.020 to 272.044.

The provisions of KRS 272.010(1) and 272.020 to 272.044 are applicable only to cooperative associations organized under KRS 272.020 to 272.044 .

History. Enact. Acts 1986, ch. 393, § 6, effective July 15, 1986; 2010, ch. 151, § 138, effective January 1, 2011.

272.050. Limited use of word “cooperative.” [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 76) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-010 (13).

272.060. Reversion of unclaimed distributions. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1958, ch. 5, § 1) was repealed by Acts 1966, ch. 208, § 36.

Cooperative Marketing Associations

272.100. Who may organize; information furnished. [Repealed.]

Compiler’s Notes.

This section (883f-3, 883f-5) was repealed by Acts 1966, ch. 208, § 36.

Agricultural Cooperative Associations

272.1001. Definition of terms in KRS 272.101 to 272.341.

As used in KRS 272.101 to 272.341 , unless the context otherwise requires:

  1. “Agricultural products” includes horticultural, viticultural, floricultural, forestry, dairy, livestock, poultry, bee and any farm products;
  2. “Association” means a corporation organized under, or entitled to the benefits of, KRS 272.121 to 272.341 or a corporation which is organized under any general or special act of this state. Such an association shall be classed as and deemed to be a nonprofit corporation, since its primary object is not to make profits for itself, as such, or to pay dividends or invest its capital, but to provide service and a means whereby its members may have the economic advantage of cooperative action, including a reasonable and fair return for their products or service;
  3. “Member” means the holder of a membership in an association without capital stock (whether evidenced by a certificate of membership or other means of identification, including but not limited to the association’s records) or means the holder of voting stock in an association organized with capital stock;
  4. “Board” means the board of directors of the association;
  5. “Person” includes individuals, firms, partnerships, corporations, and associations;
  6. “Foreign association” means a corporation organized under any general or special act of another state, the United States, or the District of Columbia as a cooperative corporation or association for the mutual benefit of its members and other patrons, and which confines its operations to the purposes specified in the cooperative corporation statutes of the jurisdiction of its incorporation, and restricts the return on stock or membership capital, and the amount of its business with nonmembers to the limits placed thereon by the cooperative corporation statutes of the jurisdiction of its incorporation;
  7. “Corporation” means, except as used in subsections (2) and (6) of this section, a corporation for profit organized under any general or special act of this state or of another state, the United States, or the District of Columbia; and
  8. “Member-association” means an association or foreign association which is a member of another association or foreign association.

History. Enact. Acts 1966, ch. 208, § 2; 1968, ch. 148, § 1; 1972, ch. 112, § 1.

Compiler’s Notes.

This section was formerly compiled as KRS 272.011 .

Opinions of Attorney General.

If an entity organizes as an agricultural cooperative association, that entity is statutorily deemed a nonprofit and may organize with or without stock. OAG 00-8 .

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

272.101. Purpose of law.

In enacting KRS 272.1001 , 272.101 to 272.341 , it is the intention of the General Assembly to promote, foster and encourage the intelligent and orderly production and marketing of agricultural products through cooperation, to eliminate speculation and waste, to make the distribution of agricultural products between producer and consumer as direct as can be efficiently done, and to stabilize the marketing of agricultural products and to provide for the organization and incorporation of agricultural cooperative associations.

History. Enact. Acts 1966, ch. 208, § 1; 1984, ch. 111, § 115, effective July 13, 1984.

272.110. Powers of the association. [Repealed.]

Compiler’s Notes.

This section (883f-4, 883f-6) was repealed by Acts 1966, ch. 208, § 36.

272.111. Association — Purposes.

An association may be organized to engage in any activity in connection with the production, harvesting, marketing, selling, preserving, drying, processing, canning, packing, grading, storing, handling, shipping or utilization of the agricultural products owned, leased, handled or marketed by its members and other farmers, with the manufacture or marketing of the by-products thereof, in connection with the manufacturing, selling, or supplying to its members and other farmers of machinery, equipment or supplies, in the financing of the above-enumerated activities, in performing or furnishing services of economic or educational nature, on a cooperative basis for those engaged in agriculture, or in any one or more of the activities specified herein.

History. Enact. Acts 1966, ch. 208, § 4; 1972, ch. 112, § 2; 1984, ch. 111, § 116, effective July 13, 1984.

272.120. Members of the association. [Repealed.]

Compiler’s Notes.

This section (883f-7) was repealed by Acts 1966, ch. 208, § 36.

272.121. Who may organize — Information as to probable success.

  1. Five (5) or more persons engaged in the production of agricultural products, or one or more associates of such producers, may form an association, with or without capital stock.
  2. The dean of the College of Agriculture of the University of Kentucky shall, upon request, inform any association or group of persons contemplating the organization of an association what the results of a survey of the economic conditions affecting the commodities or service proposed to be handled indicate regarding probable success.

History. Enact. Acts 1966, ch. 208, § 3; 1972, ch. 112, § 3.

272.130. Articles of incorporation; contents; filing; subscriptions to and issuance of capital stock. [Repealed.]

Compiler’s Notes.

This section (883f-8; amend. Acts 1944, ch. 48, § 1; 1946, ch. 141, § 25; 1960, ch. 133, § 1) was repealed by Acts 1966, ch. 208, § 36.

272.131. Articles of association, contents — Filing effect.

  1. The articles of incorporation of each association shall state:
    1. The name of the association that satisfies KRS 14A.3-010 ;
    2. The purposes for which it is formed;
    3. The place where its principal business will be transacted;
    4. The period of duration, which may be perpetual. When the articles of incorporation fail to state the period of duration, it shall be considered perpetual. Any association heretofore or hereafter organized for a period less than perpetual, may, by amendment to its articles of incorporation, extend the period of its duration for a specified period or perpetually;
    5. The names and addresses, not less than five (5), of those who are to serve as directors for the first term or until the election of their successors;
    6. If organized without capital stock, whether the property rights and interest of each member shall be equal or unequal; and if unequal, the articles shall set forth the general rules applicable to all members by which the property rights and interests, respectively, of each member shall be determined and fixed; and the association shall have the power to admit new members who shall be entitled to share in the property of the association with the old members in accordance with the general rules. These provisions of the articles of incorporation shall not be altered, amended, or repealed except by the affirmative vote of not less than two-thirds (2/3) of the votes entitled to be cast by members present in person, or by proxy, if permitted by the bylaws, and voting thereon at any regular or special meeting; and
    7. If organized with capital stock, the authorized amount of the stock and the number of shares into which it is divided and the par value thereof. Capital stock may be divided into preferred and common stock. The articles of incorporation must contain a statement of the number of shares of stock to which preference is granted and the number of shares of stock to which no preference is granted and the nature and extent of the preference and the privileges granted to each. No specific amount of the capital stock authorized is required to be subscribed before the association may transact business with other than its members; the board may determine the amount of capital stock to be issued as the business of the association may justify or demand, from time to time, within the amount of the total authorization.
  2. The articles of incorporation may contain any provision consistent with law with respect to management, regulation, government, financing, indebtedness, membership, the establishment of voting districts and the election of delegates for representative purposes, the issuance, retirement and transfer of its stock, if formed with capital stock, or any provisions relative to the way or manner in which it shall operate with respect to its members, officers, or directors, and any other provisions relating to its affairs; but nothing set forth in this section shall be construed as limiting any of the rights or powers otherwise given to such associations.
  3. The articles of incorporation must be subscribed by the incorporators and acknowledged by one (1) of them before an officer authorized by the laws of this state to take and certify acknowledgments of deeds and conveyances; and shall be filed and recorded in accordance with the statute relating to corporations generally; and when so filed, the articles of incorporation, or certified copies thereof, shall be received in all the courts of this state, and other places, as prima facie evidence of the facts contained therein, and of the due incorporation of the association. A copy of the articles of incorporation, indorsed by the Secretary of State with the fact and time of recording in his office, shall be filed with the dean of the College of Agriculture of the University of Kentucky and with the Commissioner of the Department of Agriculture.

History. Enact. Acts 1966, ch. 208, § 5; 1984, ch. 111, § 117, effective July 13, 1984; 2007, ch. 137, § 77, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 77, effective July 15, 2010; repealed, reenact., and amend., Acts 2010, ch. 151, § 57, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed, reenacted, and amended by 2010 Ky. Acts ch. 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict, therefore, they have been codified together.

Research References and Practice Aids

Cross-References.

Articles of incorporation of corporations generally, KRS 271B.2-020 .

Directors of ordinary private corporation, KRS 271B.8-010 .

Recording corporate instruments, name of draftsman thereon, KRS 382.335 .

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

272.140. Amendment to articles; filing fees for articles or amendments. [Repealed.]

Compiler’s Notes.

This section (883f-8, 883f-9, 883f-32: amend Acts 1946, ch. 141, § 26; 1960, ch. 133, § 2) was repealed by Acts 1966, ch. 208, § 36.

272.141. Amendments to articles, how made — Contents — Filing.

  1. Amendments to the articles of incorporation shall be made in the following manner: The board shall by an affirmative vote of not less than two-thirds (2/3) of its members, present and voting at any regular or special meeting, adopt a resolution approving the proposed amendment and directing that the proposed amendment be submitted to a vote of the association members at any annual or special meeting duly called. Written or printed notice setting forth the proposed amendment, or a summary of the changes to be effected thereby, shall be given to each member of the association entitled to vote at any such meeting, within the time and in the manner provided in KRS 272.161 . The proposed amendment, or amendments, shall be adopted by the affirmative vote of not less than a majority of the votes entitled to be cast by the members present in person, or by proxy (if permitted by the bylaws), and voting at any such meeting.
  2. Notwithstanding the provisions of subsection (1) of this section, an amendment whose only effect is to extend an association’s period of duration may be adopted by the affirmative vote of not less than two-thirds (2/3) of the directors present and voting at any duly called board meeting, and shall become effective when signed and acknowledged by the chairman, or other presiding officer, of the board and filed and recorded pursuant to KRS 272.131 .
  3. The articles of amendment shall set forth:
    1. The name of the association;
    2. The amendment adopted;
    3. A statement setting forth the date of the meeting of the board at which the amendment or amendments were approved; that the meeting was duly called and that a quorum was present; and that a resolution approving the proposed amendment, or amendments, received an affirmative vote of not less than two-thirds (2/3) of the members of the board present and voting at such meeting;
    4. A statement setting forth the date of the meeting of the members of the association at which the amendment was adopted; that the meeting was duly called and that a quorum was present; and that such amendment received an affirmative vote of not less than a majority of the votes entitled to be cast by members present in person, or by proxy (if permitted by the bylaws), and voting at such meeting.
  4. For the recording of articles of incorporation or amendments thereto by the Secretary of State and county clerk, and for the issuance of a certificate of incorporation or certificate of amendment by the Secretary of State, an association shall pay the same fees as are provided for such services in the statutes relating to corporations generally.
  5. A copy of the articles of amendment indorsed by the Secretary of State with the fact and time of recording in his office, shall be filed with the dean of the College of Agriculture of the University of Kentucky, and with the Commissioner of the Department of Agriculture.

History. Enact. Acts 1966, ch. 208, § 6; 1978, ch. 384, § 446, effective June 17, 1978; 1984, ch. 111, § 118, effective July 13, 1984.

NOTES TO DECISIONS

1.Extension of Period of Duration.

Law that permitted the directors to extend the corporate life of the association by amending its articles without the vote of its members did not constitute a substantial impairment of the members’ voting rights. Ayers v. Burley Tobacco Growers Cooperative Asso., 344 S.W.2d 836, 1961 Ky. LEXIS 264 ( Ky. 1961 ) (decided under prior law).

Research References and Practice Aids

Cross-References.

Amendment of articles of corporations generally, KRS 271B.10-010 to 271B.10-090 .

272.145. Effect of amendment to extend corporations duration. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1960, ch. 133, § 3) was repealed by Acts 1966, ch. 208, § 36.

272.150. Bylaws of Association. [Repealed.]

Compiler’s Notes.

This section (883f-10: amend. Acts 1942, ch. 11, §§ 1 and 2) was repealed by Acts 1966, ch. 208, § 36.

272.151. Bylaws, adoption, contents — Withdrawal of member — Rights — Amendment of bylaws.

  1. Each association shall within thirty (30) days after its incorporation, adopt for its government and management a code of bylaws. The affirmative vote of not less than two-thirds (2/3) of the members present and voting at a meeting, of which reasonable notice of the proposed bylaws shall have been given, is sufficient to adopt such bylaws.
  2. An association in its bylaws may provide for any, or all, of the following:
    1. The time, place, and manner of calling and conducting its meetings.
    2. The number of members constituting a quorum.
    3. The right of members to vote by proxy or by mail, or by both, and the conditions, manner, form, and effects of such votes.
    4. The number of directors constituting a quorum.
    5. The offices, qualifications, compensations, duties and terms of office of directors and officers; time of their election, and the mode and manner of giving notice thereof.
    6. Penalties for violations of the bylaws.
    7. The amount of entrance, organization, and membership fees, if any; the manner and method of collection of the same, and the purposes for which they may be used.
    8. The amount which each member shall be required to pay annually, or from time to time, if at all, to carry on the business of the association; the charge, if any, to be paid by each member directly or by utilization of retained earnings for services rendered by the association to him, and the time of payment and the manner of collection; and the marketing agreement between the association and its members, which every member may be required to sign.
    9. The number and qualification of members of the association and the conditions precedent to membership; the method, time, and manner of permitting members to withdraw; the manner of assignment and transfer of the interest of members, and of stock; the conditions upon which, and the time when membership of any member shall cease; the automatic suspension of the rights of a member when he ceases to be eligible to membership in the association, and mode, manner, and effect of the expulsion of a member, manner of determining the value of a member’s interest and provision for its purchase by the association upon the death or withdrawal of a member, or upon the expulsion of a member or forfeiture of his membership, or at the option of the association, by conclusive appraisal by the board.
  3. Unless provided otherwise in an association’s bylaws, the board shall equitably and conclusively appraise the value of a withdrawing or expelled member’s property interest in the association and shall fix the amount thereof in money and shall determine the manner in which the association shall pay the member the value of his interest.
  4. The bylaws of an association may be amended, changed, or altered at any time by the affirmative vote of not less than two-thirds (2/3) of the members of the board present and voting at any regular or special meeting of the board of directors duly called and held.

History. Enact. Acts 1966, ch. 208, § 8; 1968, ch. 148, § 2.

NOTES TO DECISIONS

1.Voting Rights.

Where articles and bylaws expressly provided for revocation of voting rights on grounds of noncooperation and there was no statutory provision that invalidated such articles or bylaws and board of directors carefully followed these provisions in revoking voting rights, their action was valid. Thomason v. Clark County Farm Bureau Tobacco Cooperative, Inc., 259 S.W.2d 64, 1953 Ky. LEXIS 933 ( Ky. 1953 ) (decided under prior law).

Research References and Practice Aids

Cross-References.

Bylaws of private corporations, KRS 271B.2-060 , 271B.2-070 .

272.160. General and special meetings; how called. [Repealed.]

Compiler’s Notes.

This section (883f-11) was repealed by Acts 1966, ch. 208, § 36.

272.161. Meetings, notice.

An association may provide in its bylaws for one or more regular meetings each year. Special meetings of the members of the association may be called by the board; it shall be the board’s duty to call such meetings when ten percent (10%) of the members of the association file with the association secretary a petition demanding a special meeting and specifying the business to be considered at such meeting. Regular or special meetings may be held within or without the state. Notice of all meetings, except as otherwise provided by law or in the articles of incorporation or bylaws, shall be mailed to each member at least ten (10) days prior to the meeting, and in case of special meetings the notice shall state the purposes for which it is called, but the bylaws may provide that all notices, except of proposed amendments to the articles of incorporation, may be given by publication in a periodical or newsletter published by or for the association of which substantially all its members are recipients, or in newspapers whose combined circulation is general in the territory in which the association operates.

History. Enact. Acts 1966, ch. 208, § 9; 1984, ch. 111, § 119, effective July 13, 1984.

272.170. Directors; election; vacancy; compensation; executive committee. [Repealed.]

Compiler’s Notes.

This section (883f-12) was repealed by Acts 1966, ch. 208, § 36.

272.171. Board of directors — Election — Vacancies — Compensation — Executive committee — Action taken without meeting.

  1. The affairs of the association shall be managed by a board of not less than five (5) directors, elected by the members from their own number or from the members of any member-association except as provided in subsection (3) of this section.
  2. The bylaws may provide that the territory in which the association has members shall be divided into districts and that the directors shall be elected according to these districts, either directly or by district delegates elected by the members in that district. In that case the bylaws shall specify the number of directors to be elected by each district, the method of apportioning the directors and of districting the territory covered by the association. The bylaws may provide that primary elections shall be held in each district to elect the directors and that the result of primary elections may be ratified by the next regular meeting of the members of the association or may be considered final as to the association.
  3. The bylaws may provide that one or more directors may be appointed by any public official or commission or by the other directors selected by the members or their delegates. These directors shall represent primarily the interest of the general public in the association. The director appointed need not be a member of the association, but shall have the same rights as other directors. Such directors shall not number more than one-fifth (1/5) of the entire number of directors.
  4. When a vacancy on the board occurs other than by expiration of term, the remaining members of the board shall fill the vacancy for the unexpired term or until the next regular or special meeting of the members, whichever occurs first, by an affirmative vote of not less than a majority of those members present and voting at a duly called regular or special meeting. If the bylaws provide for an election of directors by district, the board shall immediately call a special meeting of the members in that district to fill the vacancy.
  5. An association may provide a fair remuneration for the time actually spent by its officers and directors in its service, and for the service of the members of its executive committee. No director, during the term of his office, shall be a party to a contract for profit with the association differing in any way from the business relations accorded regular members of the association or others, or differing from terms generally current in that district.
  6. The bylaws may provide for an executive committee and may allot to it all the functions and powers of the board, subject to the general direction and control of the board.
  7. Unless otherwise restricted by the articles of incorporation, or bylaws, any action required or permitted to be taken at any meeting of the board or any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the board or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee.
  8. Every director of a corporation, by acceptance of election or appointment as a director, including by service, shall be deemed to have consented to the jurisdiction of the courts of the Commonwealth of Kentucky for any action by, in the name of, or on behalf of the corporation.

History. Enact. Acts 1966, ch. 208, § 11; 1972, ch. 112, § 4; 2012, ch. 81, § 97, effective July 12, 2012.

Research References and Practice Aids

Cross-References.

Directors of ordinary private corporation, KRS 271B.8-300 to 271B.8-330 .

272.180. Election of officers. [Repealed.]

Compiler’s Notes.

This section (883f-13) was repealed by Acts 1966, ch. 208, § 36.

272.181. Officers.

The board shall elect from their number a president and one (1) or more vice presidents. They shall also elect a secretary and a treasurer, who need not be directors or members of the association. The two (2) offices of secretary and treasurer may be combined in one (1) person. The treasurer may be a bank or other depository, and as such shall not be considered as an officer but as a function of the board and the secretary shall perform the usual accounting duties of the treasurer, except that the funds shall be deposited only as authorized by the board. The bylaws of the association may authorize the creation and fix the responsibilities of any other office. Every officer of a corporation, by acceptance of election or appointment as an officer, including by service, shall be deemed to have consented to the jurisdiction of the courts of the Commonwealth of Kentucky for any action by, in the name of, or on behalf of the corporation.

History. Enact. Acts 1966, ch. 208, § 1; 2012, ch. 81, § 98, effective July 12, 2012.

272.190. Membership certificate; when issued; voting; liability; limitations on transfer and ownership. [Repealed.]

Compiler’s Notes.

This section (883f-14) was repealed by Acts 1966, ch. 208, § 36.

272.191. Who may become members.

  1. Under terms and conditions prescribed in its bylaws, an association may admit as members (or issue voting stock to) only persons engaged in the production of agricultural products, including tenants and landlords who receive any part of the crop raised on the leased premises or one or more associations of such producers. An association or foreign association may be the sole member or holder of all the voting stock of an association or of a foreign association.
  2. If any member of an association organized or brought hereunder be other than a natural person, such member may be represented by an individual, delegate, associate, officer, or member thereof, duly authorized in writing.
  3. Associations organized hereunder may become members of other associations.

History. Enact. Acts 1966, ch. 208, § 10; 1972, ch. 112, § 5.

NOTES TO DECISIONS

1.Issue of Subsidiary’s Stock.

The issue of stock in a subsidiary warehousing corporation could by its bylaws or articles be restricted to members of the corporation association. Carpentor v. Dummit, 221 Ky. 67 , 297 S.W. 695, 1927 Ky. LEXIS 647 ( Ky. 1927 ) (decided under prior law).

272.200. Removal of officer or director. [Repealed.]

Compiler’s Notes.

This section (883f-15) was repealed by Acts 1966, ch. 208, § 36.

272.201. Membership certificate — Capital stock — Payment for — Voting rights — Purchase or redemption of stock.

  1. When a member of an association established without capital stock has paid the membership fee in full, the member shall receive notice of such membership whether by a certificate of membership, letter, or otherwise. Such membership shall not be transferable except as may be prescribed in the articles of incorporation and bylaws of the association.
  2. No association shall issue capital stock until it has been fully paid for. Promissory notes may be accepted by an association as full or partial payment. An association may hold the stock as security for the payment of the note, but retention as security shall not affect a member’s right to vote.
  3. An association, in its bylaws, may limit the amount of voting stock which one (1) member may own. No member of an association composed solely of producers of agricultural products shall be allowed to control more than forty-nine percent (49%) of such association’s voting power.
  4. An association, in its bylaws, may provide that no member shall have more than one (1) vote.
  5. An association organized under KRS 272.101 to 272.341 whose members are one (1) or more associations may determine by its bylaws the number of votes to which each member-association is entitled and provide for the appointment or election of delegates to cast the votes and to represent the member-associations at all membership meetings.
  6. An association organized with stock may issue preferred stock, with or without the right to vote. Such stock may be redeemable or retirable by the association on terms and conditions provided for by the articles of incorporation and printed on the face of the certificate.
  7. The voting stock of an association shall be transferable only to persons engaged in the production of agricultural products or to associations of such persons. Such restrictions must be printed upon every certificate of voting stock.
  8. Except when its debts exceed fifty percent (50%) of its assets, an association may purchase for cash its capital stock at book value or par value, whichever is less, and may call such stock for redemption on the same basis pursuant to a plan for rotating ownership of such stock set forth in its articles of incorporation or in its bylaws. The determination of book value by the board of directors shall be incontestable except for fraud.

History. Enact. Acts 1966, ch. 208, § 13; 1972, ch. 112, § 6; 2010, ch. 133, § 13, effective July 15, 2010.

Research References and Practice Aids

Cross-References.

Acquisition of own shares by ordinary private corporation, KRS 271B.6-310 .

Voting rights in ordinary corporation, KRS 271B.7-200 to 271B.7-280 .

Northern Kentucky Law Review.

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

272.203. Liability of shareholder or member.

  1. A purchaser from an association of its own shares shall not be liable to the association or its creditors with respect to the shares except to pay the consideration for which the shares were authorized to be issued or specified in the subscription agreement.
  2. Unless otherwise provided in the articles of incorporation, a shareholder or a member of an association shall not be personally liable for the acts or debts of the association, except that he or she may become personally liable by reason of his or her own acts or conduct.

History. Enact. Acts 2010, ch. 133, § 3, effective July 15, 2010.

272.205. Member may withdraw on amendment of articles.

When an amendment to the articles of incorporation is adopted pursuant to subsection (2) of KRS 272.141 , such an amendment shall be without prejudice to the right of any member or stockholder to withdraw from the association as permitted by subsection (2) of KRS 272.151 .

History. Enact. Acts 1966, ch. 208, § 7.

272.210. Referendum. [Repealed.]

Compiler’s Notes.

This section (883f-16) was repealed by Acts 1966, ch. 208, § 36.

272.211. Powers of association.

An association has the following powers:

  1. To engage in any activity in connection with the producing, marketing, selling, harvesting, preserving, drying, processing, canning, packaging, grading, storing, handling, or utilization of any agricultural products produced or delivered to it by its members and others; or the manufacturing or marketing of the by-products thereof; or in connection with the purchase, hiring, or use by its members and others of supplies, machinery, or furnishing services of economic or educational nature; or in any one (1) or more of the activities specified in this section;
  2. To limit its business activities to those performed only for its members. If an association transacts business with nonmembers, the same must not exceed in amount the total business transacted by the association for its members;
  3. To borrow money without limitation as to amount of indebtedness, and to make advances to members and others;
  4. To act as the agent or representative of any members, or others, in any of the activities referred to in subsection (1) of this section;
  5. To acquire, hold, own, and sell, transfer, pledge or guarantee the payment of dividends or interest on, or in the retirement or redemption of, shares of the capital stock or bonds of any association or corporation;
  6. To establish and accumulate reasonable reserves;
  7. To buy, hold, and exercise all privileges of ownership, over such real or personal property as is necessary or convenient for the conduct and operation of, or incidental to, the business of the association;
  8. To do each and every thing necessary, suitable, or proper for the accomplishment of any one (1) or more of the purposes, or the attainment of any one or more of the objectives herein enumerated; or conducive to or expedient for the interest or benefit of the association; and to contract accordingly; and to exercise and possess all powers, rights, and privileges necessary or incidental to the purposes for which the association is organized or to the activities in which it is engaged; and in addition, any other rights, powers, and privileges granted by the laws of this state to corporations generally, except such as are inconsistent with the express provisions of KRS 272.101 to 272.341 , and to do any such thing anywhere; and
  9. To sue and be sued in its corporate name.

History. Enact. Acts 1966, ch. 208, § 16; 1968, ch. 148, § 3; 1984, ch. 111, § 120, effective July 13, 1984.

NOTES TO DECISIONS

1.Sales Restrictions.

A milk distributing association could refuse to sell or permit its members to sell to an independent distributor. Hy-Grade Dairies v. Falls City Milk Producers' Ass'n, 261 Ky. 25 , 86 S.W.2d 1046, 1935 Ky. LEXIS 588 ( Ky. 1935 ) (decided under prior law).

2.Interference with Competitor.

A milk distributing association could not interfere tortiously with the business of a competitor. Hy-Grade Dairies v. Falls City Milk Producers' Ass'n, 261 Ky. 25 , 86 S.W.2d 1046, 1935 Ky. LEXIS 588 ( Ky. 1935 ) (decided under prior law).

3.Compulsory Delivery.

An association could not compel a member to deliver to it agricultural products not contemplated by its charter. Brame v. Dark Tobacco Growers' Co-op. Ass'n, 212 Ky. 185 , 278 S.W. 597, 1925 Ky. LEXIS 1102 ( Ky. 1925 ) (decided under prior law).

272.220. Marketing contract. [Repealed.]

Compiler’s Notes.

This section (883-f) was repealed by Acts 1966, ch. 208, § 36.

272.221. Exclusive contracts for agricultural products — Damages for violation — Injunctive relief — Notice to landlord or tenant.

  1. An association and its members may make and execute contracts, requiring the members to obtain specified services exclusively from the association or to sell, during any designated period of time, all or any specified part of the members’ agricultural products or specified commodities exclusively to or through the association subject to the right of any member to be released at a designated period in each year, by giving prescribed notice. Such contracts may provide that the association may sell or resell the products of its members, with or without taking title thereto, and pay over to its members the resale price, or the pool price in case of pooling of sales, after deducting all necessary selling, overhead, and other costs and expenses, including interest or dividends on stock, not exceeding eight percent (8%) per annum, and any other deduction authorized by the bylaws or such marketing contracts.
  2. An association’s bylaws or contracts with members may fix, as liquidated damages, specific sums to be paid by a member to the association if he breaches any provision of the contract and may provide that the member shall pay all costs, premiums for bonds, expenses and fees, in case any action is brought upon the contract by the association. Liquidated damage provisions in contracts with members shall be enforceable in the courts of this state and shall not be regarded as penalties.
  3. If a breach or threatened breach of a contract with a member exists, an association shall be entitled to an injunction to prevent the breach or further breach of the contract, and to a decree of specific performance thereof. Pending the adjudication of such an action, and upon filing a verified complaint showing the breach or threatened breach, and upon filing a sufficient bond, the association shall be entitled to a temporary restraining order and preliminary injunction against members.
  4. A landowner, or lessee, of land on which any agricultural products marketed or to be marketed by an association are being raised or are to be raised, may by registered letter addressed to an association, ask for information as to whether his tenant, or landlord as the case may be, is a member of the association, or has signed a contract with the association, and may request information as to the terms of such contract. The request shall state the full name and address of the person inquired about. An association shall, within ten (10) days after receipt of such a request, furnish the information in writing to the person so inquiring. If an association fails to furnish the information properly requested, in any litigation that arises between that association and the person so inquiring, it shall be presumed, in the absence of evidence to the contrary, that that person was without notice that the person inquired about was a member of the association or had signed a contract with the association, or that the person inquiring knew the terms of the contract.

History. Enact. Acts 1966, ch. 208, § 17.

NOTES TO DECISIONS

1.Anti-Trust.

Contracts pursuant to provision that provided for marketing contracts between the association and its members restricting the sale of agricultural products to or through the association did not violate either the Sherman Anti-Trust Act or the common law. Potter v. Dark Tobacco Growers' Co-op. Ass'n, 201 Ky. 441 , 257 S.W. 33, 1923 Ky. LEXIS 329 ( Ky. 1923 ) (decided under prior law).

2.Liquidated Damages.

Sums fixed in marketing contract were liquidated damages, not a penalty, and were collectible. Potter v. Dark Tobacco Growers' Co-op. Ass'n, 201 Ky. 441 , 257 S.W. 33, 1923 Ky. LEXIS 329 ( Ky. 1923 ) (decided under prior law).

3.Injunction.

Injunction was the proper relief to compel delivery. Feagain v. Dark Tobacco Growers' Co-op. Ass'n, 202 Ky. 801 , 261 S.W. 607, 1924 Ky. LEXIS 826 ( Ky. 1924 ) (decided under prior law).

4.Landlord and Tenant.

A tenant knowing of the landlord’s contract was bound to conform thereto. Feagain v. Dark Tobacco Growers' Co-op. Ass'n, 202 Ky. 801 , 261 S.W. 607, 1924 Ky. LEXIS 826 ( Ky. 1924 ) (decided under prior law).

The marketing agreement had to be construed as a part of every rental contract or lease of land for the purpose of raising farm products which the member made with reference to land owned by him or in which he had an interest or over which he had control. Dark Tobacco Growers' Co-op. Ass'n v. Daniels, 215 Ky. 67 , 284 S.W. 399, 1926 Ky. LEXIS 650 ( Ky. 1926 ) (decided under prior law).

The landlord was liable for failing to require tenant to deliver crop according to the marketing contract. Dark Tobacco Growers' Co-op. Ass'n v. Daniels, 215 Ky. 67 , 284 S.W. 399, 1926 Ky. LEXIS 650 ( Ky. 1926 ) (decided under prior law).

272.230. Remedies for breach of contract. [Repealed.]

Compiler’s Notes.

This section (883f-18) was repealed by Acts 1966, ch. 208, § 36.

272.231. Interest of association in other associations.

An association may organize, form, acquire, operate, own, control, have an interest in, own all or a portion of the stock of, or be the sole member of any other association, foreign association or corporation (hereinafter referred to as a subsidiary association). An association may have included in the articles of incorporation or bylaws of a subsidiary association provisions for the control or management of the subsidiary association by the association to such extent as shall by the board of the association, and the members of the subsidiary association be declared to be for the best interests of the association and the subsidiary association, respectively. Such provisions may be so included in the articles of incorporation or bylaws of a subsidiary association and may by way of illustration, but not of limitation, include the following:

  1. Representation of the association on the board or other governing body of the subsidiary association, upon such terms as may be deemed advisable.
  2. Ownership by the association of the sole or other interest in the subsidiary association represented by capital stock of any class thereof or otherwise, to such extent and upon such terms, and with such voting power, as may be deemed advisable.
  3. Participation by the association in the savings of the subsidiary association to such extent and upon such terms as shall be deemed advisable.

History. Enact. Acts 1966, ch. 208, § 20; 1968, ch. 148, § 4; 1972, ch. 112, § 7.

Opinions of Attorney General.

An agricultural cooperative association organized under this chapter may merge with a cooperative corporation organized for profit under the laws of another state. OAG 72-650 .

272.240. Payment for property or interest purchased, by capital stock. [Repealed.]

Compiler’s Notes.

This section (883f-19), was repealed by Acts 1966, ch. 208, § 36.

272.241. Sale, lease or exchange of all assets — Procedure — Mortgage or pledge of assets.

  1. A sale, lease, or exchange of all, or substantially all of the property and assets of an association may be made upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property, real or personal, including shares of any association, or corporation, as may be authorized in the following manner: The board shall adopt a resolution recommending such sale, lease, or exchange and directing that it be submitted to a vote at a meeting of the association members, which may be at either an annual or a special meeting. Written or printed notice of the meeting shall be given to each member of the association entitled to vote at such meeting. The notice shall state that the proposed sale, lease, or exchange will be considered and acted upon at the meeting, and a statement of the terms of the proposed sale, lease, or exchange shall be included in or inclosed with such notice. Each notice shall be mailed by first-class mail at a time that not less than ten (10) full days shall elapse between the date of mailing the notice and the date of the meeting, and shall be mailed to each member of the association at his last known address as it appears on the records of the association. The proposed sale, lease, or exchange shall be adopted by the affirmative vote of not less than two-thirds (2/3) of the votes entitled to be cast by members present, in person or by proxy (if permitted by the bylaws), and voting at any such meeting.
  2. A mortgage or pledge of, or any other security interest in, all or any part of the property of an association may be made by authority of its board, unless otherwise provided in its articles of incorporation or bylaws.

History. Enact. Acts 1966, ch. 208, § 27.

272.250. Annual report; duty of Dean. [Repealed.]

Compiler’s Notes.

This section (883f-20) was repealed by Acts 1966, ch. 208, § 36.

272.251. Contracts — Joint employment by associations.

An association may, upon resolution adopted by its board, enter into necessary and proper contracts and agreements for the more economical carrying on of its business. Two (2) or more associations may, by agreement, unite in employing or may separately employ the same personnel, means and agencies for carrying on their businesses.

History. Enact. Acts 1966, ch. 208, § 32.

272.260. Exemptions of member to extend to association. [Repealed.]

Compiler’s Notes.

This section (883f-21) was repealed by Acts 1966, ch. 208, § 36.

272.261. Removal of officers or directors — Procedure.

  1. Any member may bring charges against an officer or director by filing them in writing with the secretary of the association, together with a petition signed by ten percent (10%) of the membership, requesting the officer’s or director’s removal. The removal shall be voted upon at the next regular or special meeting of the association. By an affirmative vote of not less than two-thirds (2/3) of the votes entitled to be cast by members present in person, or by proxy (if permitted by the bylaws), and voting, the association may remove such officer or director. The director or officer against whom such charges have been brought shall be informed in writing of the charges prior to the meeting, and shall have an opportunity at the meeting to be heard in person or by counsel, and to present witnesses; and, the person, or persons, bringing the charges shall have the same opportunity.
  2. If an association’s bylaws provide for election of directors by districts, the petition for removal of a director must be signed by not less than twenty percent (20%) of the members residing in the district from which the director was elected. The board may call a special meeting of the members residing in that district to consider the removal of the director. By an affirmative vote of not less than two-thirds (2/3) of the votes entitled to be cast by members present in person, or by proxy (if permitted by the bylaws), and voting, at such meeting duly called and held, the director in question shall be removed from office; except that this section does not apply to directors appointed under subsection (3) of KRS 272.171 .

History. Enact. Acts 1966, ch. 208, § 14; 1968, ch. 148, § 5.

272.270. Interest in other corporations. [Repealed.]

Compiler’s Notes.

This section (883f-23) was repealed by Acts 1966, ch. 208, § 36.

272.271. Board’s decision referred to membership, when. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1966, ch. 208, § 15) was repealed by Acts 1968, ch. 148, § 8.

272.280. Contracts with other associations. [Repealed.]

Compiler’s Notes.

This section (883f-24) was repealed by Acts 1966, ch. 208, § 36.

272.281. Exemptions of members applicable to association.

Any exemption applying to agricultural products in the possession or under the control of an individual producer shall apply similarly to such products delivered by its members, in the possession or under the control of the association.

History. Enact. Acts 1966, ch. 208, § 19.

272.285. Payment of small amounts due deceased member.

  1. If a member of an association dies; and six (6) months or more after his death the association has in its possession moneys not in excess of two hundred dollars ($200) which would have been distributable and payable to such member except for his death; and no administrator or executor has been appointed for his estate or the estate has been closed; then such an association, without making any publication of notice, may disburse such moneys in the following order:
    1. To the surviving spouse of the deceased member; if none, then
    2. To pay any unsatisfied claims for funeral expenses or reimbursement to any person for the payment thereof, then
    3. To any adult person of the class of those nearest of kin to the deceased, for the benefit of all members of such class.
  2. In making such disbursements an association is responsible and liable only for the exercise of good faith and reasonable care and shall have no further responsibility or liability with respect to such moneys or their application or disbursement.

History. Enact. Acts 1966, ch. 208, § 18.

272.290. Existing associations entitled to adopt KRS 272.100 to 272.350. [Repealed.]

Compiler’s Notes.

This section (883f-25) was repealed by Acts 1966, ch. 208, § 36.

272.291. Unclaimed dividends, stocks, etc., disposal of.

Any association organized or operated under KRS 272.101 to 272.341 , or any agricultural cooperative association organized under the provisions of KRS Chapter 271B and meeting the requirements of an agricultural cooperative as set forth in Chapter 27, Section 1, 42 U.S. Statutes, p. 388 (Title 7, Sec. 291, U.S.C.A.), or any cooperative association organized under KRS Chapter 279 may recover, after a period of five (5) years, any unclaimed stocks, dividends, patronage refunds, or book equities for which the owner cannot be found and which are the result of distributable savings of the cooperative. The mailing of these stocks, dividends, patronage refunds, or book equities to the last-known address of the individual involved as recorded on the records of the cooperative shall be evidence of a bona fide attempt to deliver the same to the individual. When the notice to the individual of these amounts has been returned by the U.S. mail and the amounts have not been called for, after five (5) years, the amounts involved may be placed in the income of the cooperative for the year in which such determination is made and redistributed to the patrons of that year.

History. Enact. Acts 1966, ch. 208, § 30; 1972, ch. 274, § 148.

272.295. Association not unlawful restraint of trade.

No association, foreign association, or agreements between associations and their members shall be considered a conspiracy, a combination in restraint of trade, an illegal monopoly, an attempt to lessen competition or to fix prices arbitrarily or create a combination or pool in violation of any law of this state.

History. Enact. Acts 1966, ch. 208, § 31.

NOTES TO DECISIONS

1.Pools, Trusts and Monopolies.

There was in Kentucky neither any statutory nor common law against pools, trusts and monopolies. Liberty Warehouse Co. v. Burley Tobacco Growers’ Co-op. Ass’n, 208 Ky. 643 , 271 S.W. 695, 1925 Ky. LEXIS 358 ( Ky. 1925 ), aff’d, Liberty Warehouse Co. v. Burley Tobacco Growers’ Co-operative Marketing Ass’n, 276 U.S. 71, 48 S. Ct. 291, 72 L. Ed. 473, 1928 U.S. LEXIS 62 (1928) (decided under prior law).

272.300. Associations are not in restraint of trade. [Repealed.]

Compiler’s Notes.

This section (883f-28, 883f-34) was repealed by Acts 1966, ch. 208, § 36.

272.301. Merger of associations.

  1. Two (2) or more associations, either with or without capital stock, may merge into any one of such associations pursuant to a plan of merger as provided in this section.
  2. The board of each association shall, by resolution duly adopted, approve a plan of merger setting forth:
    1. The names of the associations proposing to merge, and the name of the association into which they propose to merge (hereinafter referred to as the surviving association).
    2. The name which the surviving association is to have, which name may be that of any of the associations involved in the merger.
    3. The terms and conditions of the proposed merger.
    4. A statement of any changes in the articles of incorporation of the surviving association to be effected by such merger.
    5. Such other provisions, not inconsistent with law as are deemed necessary or desirable.

History. Enact. Acts 1966, ch. 208, § 21.

272.305. Consolidation of associations.

  1. Two (2) or more associations, either with or without capital stock, may consolidate into a new association pursuant to a plan of consolidation as provided in this section.
  2. The board of each association shall, by resolution duly adopted, approve a plan of consolidation setting forth:
    1. The names of the associations proposing to consolidate, and the name of the new association into which they propose to consolidate (hereinafter referred to as the new association). The name of the new association may be that of any of the associations involved in the consolidation;
    2. The terms and conditions of the proposed consolidation;
    3. With respect to the new association, all of the appropriate statements required to be set forth in articles of incorporation and bylaws of associations organized under KRS 272.101 to 272.341 ; and
    4. Such other provisions, not inconsistent with law, as are deemed necessary or desirable.

History. Enact. Acts 1966, ch. 208, § 22.

272.310. Association to reply to inquiries concerning its members and contracts. [Repealed.]

Compiler’s Notes.

This section (883f-36, 883f-37) was repealed by Acts 1966, ch. 208, § 36.

272.311. Merger or consolidation — Procedures — Articles to be filed and recorded — Contents — Effect.

  1. A plan of merger or consolidation shall be adopted in the following manner:
    1. The board of each merging or consolidating association shall adopt a resolution approving the proposed plan, and directing that it be submitted to a vote at a meeting of the association members, which may be at either an annual or a special meeting. Written or printed notice of the meeting shall be given to each member of the association entitled to vote at such meeting. The notice shall state that the proposed plan of merger or consolidation will be considered and acted upon at the meeting, and a copy or a summary of the plan of merger or plan of consolidation shall be included in or enclosed with such notice. Each notice shall be mailed by first-class mail at such time that not less than ten (10) full days shall elapse between the date of mailing the notice and the date of the meeting, and shall be mailed to each member of the association at his last known address as it appears on the records of the association. The proposed plan shall be adopted by the affirmative vote of not less than two-thirds (2/3) of the votes entitled to be cast by members present in person, or by proxy (if permitted by the bylaws), and voting at such meeting;
    2. By the affirmative vote of not less than two-thirds (2/3) of its members, the board of directors of a parent association may approve on behalf of a wholly-owned subsidiary association a plan of merger or consolidation; and
    3. After the approval by the members, and at any time prior to the filing of articles of merger or articles of consolidation, the merger or consolidation may be abandoned pursuant to provisions set forth in the plan of merger or consolidation.
  2. Upon the approval of the members, articles of merger or articles of consolidation shall be executed, filed and recorded as provided in KRS 271B.11-050 . A copy of the articles of merger or articles of consolidation endorsed by the Secretary of State, with the fact and time of recording in his office, shall be filed with the dean of the College of Agriculture of the University of Kentucky and with the Commissioner, Department of Agriculture.
  3. The articles of merger or the articles of consolidation shall set forth:
    1. The plan of merger or the plan of consolidation; and
    2. A statement setting forth the date of the meeting of the members of each association at which the plan was adopted; that the meeting was duly called and that a quorum was present; and that such plan received an affirmative vote of not less than two-thirds (2/3) of the votes entitled to be cast by members.
  4. The time when the merger or consolidation is effected is determined by the provisions of KRS 271B.11-060 .
  5. When the merger or consolidation has been effected:
    1. The several associations, parties to the plan of merger or plan of consolidation, shall be a single association which, in the case of a merger, shall be the association designated as the surviving association, and, in the case of a consolidation, shall be the new association;
    2. The separate existence of all associations which are parties to the plan of merger or plan of consolidation, except the surviving association or new association, shall cease;
    3. The surviving association or new association shall have all the rights, privileges, franchises, immunities, and powers and shall be subject to all the duties and liabilities of an association organized under KRS 272.101 to 272.341 ;
    4. The surviving association or new association shall, to the extent consistent with its articles of incorporation as established or changed by the merger or consolidation, possess all the rights, privileges, immunities, and franchises, of both public and private nature, of each of the merging or consolidating associations; and all property, real, personal and mixed; and all debts due on any account; and all choses in action; and every other interest, of or belonging to or due to each of the associations so merged or consolidated, shall be taken and deemed to be transferred to and vested in such surviving association or new association without further act or deed; and the title to any real estate, wheresoever situated, or any interest therein, shall vest in the surviving association or new association and shall not revert or be in any way impaired by reason of the merger or consolidation;
    5. The surviving association or new association shall be responsible for all the liabilities, contracts or other obligations and penalties of each of the associations so merged or consolidated; and any claim existing or action or proceeding, civil or criminal, pending by or against any of the associations may be prosecuted as if the merger or consolidation had not taken place, or the surviving association or new association may be substituted in its place; and any judgments rendered against any of the merged or consolidated associations may be enforced against the surviving association or new association. Neither the rights of creditors nor any liens upon the property of any merged or consolidated association shall be impaired by the merger or consolidation; and
    6. The articles of incorporation of a surviving association shall be deemed to be amended to the extent, if any, that changes in its articles of incorporation are stated in the plan of merger. The articles of consolidation of a new association shall be deemed to be its articles of incorporation.

History. Enact. Acts 1966, ch. 208, §§ 23 to 25; 1968, ch. 148, § 6; 1972, ch. 274, §§ 149, 150; 1988, ch. 23, § 177, effective January 1, 1989.

272.315. Merger or consolidation with foreign associations, rights of members — Enforcement.

  1. One (1) or more associations organized under KRS 272.101 to 272.341 and one (1) or more foreign associations, or corporations, may be merged or consolidated into an association of this state or an association, or corporation, of another state, the United States, or the District of Columbia, if such merger or consolidation is permitted by the laws under which each such foreign association, or corporation, is organized.
  2. Each domestic association shall comply with KRS 272.101 to 272.341 with respect to the merger or consolidation, as the case may be, of domestic associations, and each foreign association, or corporation, shall comply with the applicable provisions of the laws under which it is organized.
  3. If a surviving association or new association is an association, or corporation, of another state, the United States, or the District of Columbia, it shall comply with the provisions of KRS 272.335 with respect to foreign associations if it is to transact business in this state; and if after the merger or consolidation it transacts no business in this state, the courts of this state have jurisdiction in actions to enforce any obligation of any constituent association of this state and service of process may be made upon the secretary of state for such purpose.
  4. If a surviving association or new association is an association of this state, the effect of the merger or consolidation shall be the same as in KRS 272.311 . If a surviving association or new association is to be an association, or corporation, of another state, the United States, or the District of Columbia, the effect of such merger or consolidation shall be the same as in KRS 272.311 , except insofar as the laws under which it is organized provide otherwise.
  5. If a surviving association or new association is not an association of this state, then:
    1. The rights of any member of any constituent association, that is an association of this state, to receive notice of objectors’ rights, to file his objection, upon such objection to demand and receive payment of the fair market value of his stock or other property rights or interests in the constituent association, or to avail himself of any equitable relief to which he would be entitled if the surviving association or new association were an association of this state, shall not be impaired; and
    2. The courts of this state have jurisdiction in actions to enforce the rights against the surviving association referred to in paragraph (a) of this subsection, or new association regardless of whether or not such association is otherwise subject to the jurisdiction of the courts of this state and in any such action service of process may be made upon the Secretary of State as if the surviving association or new association were transacting business in this state.

History. Enact. Acts 1966, ch. 208, § 26.

Opinions of Attorney General.

An agricultural cooperative association is authorized to merge or consolidate with a for-profit corporation organized under the laws of another state. OAG 72-650 .

A Kentucky agricultural cooperative association may merge with a Kentucky for-profit corporation or with a foreign for-profit corporation (affirming and extending OAG 72-650 ). OAG 73-539 .

272.320. Failure to furnish information; presumption. [Repealed.]

Compiler’s Notes.

This section (883f-38) was repealed by Acts 1966, ch. 208, § 36.

272.321. Member objecting to merger or consolidation to be paid for stock — Value, how fixed — Disposal of shares.

  1. A member of a constituent association to be affected by a merger or consolidation may give to the association prior to or at the meeting of its members to which the proposal of merger or consolidation is submitted to a vote, written notice that he objects to such proposal. Within twenty (20) days after the date on which the vote was taken, such member may, unless he votes in favor of the proposal, make written demand on the association for payment of the fair market value of his stock or other property rights or interest in the association. Such demands shall state the number and class of shares of stock owned by him or the nature and amount of other property rights or interest owned by him in the association. In addition to any other right he may have in law or equity, a member giving such notice shall be entitled, if and when the merger or consolidation is effected, to be paid by the surviving association, or new association, the fair market value of such stock, or other property rights or interests, as of the day prior to the date on which the vote was taken, subject only to the surrender by him of the certificate, or certificates of such stock or other evidence of ownership or other property rights or interests.
  2. If within thirty (30) days after the date upon which the objecting member tendered his written demand for payment of his stock or other property rights or interest, the fair market value of such stock or other property rights or interests is agreed upon between the member and the surviving association, the payment therefor shall be made within sixty (60) days after the date of such agreement, upon surrender of the certificate or other evidence of such property rights or interests, whereupon the member shall cease to have any interest in such stock or other property rights or interest in the association.
  3. If, during the thirty (30) day period mentioned in the preceding subsection, the member and the surviving association or new association do not agree as to the fair market value of such stock or other property rights or interests, the member may, within sixty (60) days thereafter, file a petition in the Circuit Court of the county in which the surviving association or new association has its registered office or principal place of business asking for the appointment of three (3) disinterested appraisers to appraise the fair market value of his stock or other property rights or interests. A summons, together with a copy of the petition, shall be served on the surviving association or new association at least twenty (20) days prior to a hearing on the petition by the court. The award of the appraisers, or a majority of them, if no exceptions be filed thereto within ten (10) days after the award has been filed in court, shall be confirmed by the court, and when confirmed shall be final and conclusive, and the member, upon depositing with the court the proper stock certificates or other evidence of such property rights or interests, shall be entitled to judgment against the association for the appraised value thereof as of the day prior to the date on which the vote was taken. If either party files exceptions to the award of the appraisers within ten (10) days after the award has been filed in court, the case shall be transferred to the civil issue docket of the Circuit Court for trial and shall be there tried in the same manner, as near as may be practicable, as is provided for the trial of cases under the eminent domain law of this state, and with the same right of appeal to the Court of Appeals. The court shall assess the cost of the proceedings as it deems equitable. Upon payment of the judgment, the surviving association or new association is entitled to have the member’s stock certificates or other evidence of such property rights or interests surrendered to it by the clerk of the court. Unless the member files such a petition within the time prescribed, he, his assigns and heirs claiming under him shall have no right to payment hereunder, but in that event nothing herein shall impair his status as a member.
  4. If the notices sent to members in connection with any meeting to vote upon a proposed merger or consolidation make no reference to the provisions of subsection (1) of this section, a member entitled to but through lack of actual knowledge did not avail himself of the provisions of this section, unless he voted for the proposal, is entitled, if he so demands in writing within one (1) year after the date on which the vote was taken on the proposed merger or consolidation, to recover from the surviving association or new association any actual damage which he suffered from failure of the association of which he was a member to make such reference.
  5. The liability to pay for stock or other property rights or interests or to pay damages imposed by subsection (4) of this section on an association extends to the surviving association or new association.
  6. Shares of stock acquired by an association, a surviving association, or a new association pursuant to the payment of an agreed fair market value thereof or to payment of a judgment entered therefor may be held and disposed of by such association as in the case of other treasury shares.
  7. This section does not apply to a merger if on the date of the filing of the articles of merger the surviving association is the owner of all outstanding shares of the other association or associations, domestic or foreign, participating in the merger and if the merger makes no changes in the relative rights of the members of the surviving association.
  8. No member of a constituent association to be affected by a merger or consolidation, who objects thereto and makes written demand for payment of the fair market value of his stock or other property rights or interests in the association, as provided in this section, is entitled to payment at any time prior to the time that he would otherwise be entitled to payment pursuant to valid provisions of such stock, or valid provisions of the articles of incorporation or bylaws of the association, in effect on the date of the vote for such merger or consolidation.

History. Enact. Acts 1966, ch. 208, § 28; 1976 (Ex. Sess.), ch. 14, § 259, effective January 2, 1978; 1984, ch. 111, § 121, effective July 13, 1984.

272.325. Dissolution of association — Procedure.

  1. An association may discontinue its operations, settle its affairs, and voluntarily dissolve upon the affirmative vote of not less than two-thirds (2/3) of the votes entitled to be cast by its members present in person, or by proxy (if permitted by the bylaws), and voting, or if the association has adopted a delegate plan of voting, upon the affirmative vote of not less than two-thirds (2/3) of the delegates present in person and voting, at any annual or special meeting duly called and convened.
  2. An association so determining to dissolve and wind up, shall designate a committee of three (3) of its members, who shall, on behalf of the association and within the time fixed in their designation, or any extension thereof, liquidate the association’s assets, pay its debts and expenses, including as appropriate entering into agreements with creditors for the satisfaction thereof, and divide its net assets among the members and stockholders pursuant to its articles of incorporation, bylaws, or contracts with members; upon final settlement by such committee, the association shall be dissolved. The committee shall prepare a report of the proceedings had under this section. The report shall be subscribed by the committee members and acknowledged by them before an officer authorized by the law of this state to certify acknowledgments of deeds and conveyances; and shall be filed and recorded in accordance with the statute relating to corporations generally, and when so filed the report, or certified copies thereof, shall be received in all the courts of this state, and other places, as prima facie evidence of the facts contained therein, and of the due dissolution of such association. A copy of the report, indorsed by the Secretary of State with the fact and time of recording in his office, shall be filed with the dean of the College of Agriculture of the University of Kentucky and with the Commissioner, Department of Agriculture.
  3. After the payment of the association’s debts and after provision has been made for the retirement of its capital stock outstanding, if any, at par and accruals thereon, and other fixed obligations, if any, held by members, the net assets remaining if no provision is made in the association’s articles of incorporation, bylaws, or contracts with members may be distributed to members and other patrons by distribution based on dollar volume of purchases by such members and patrons or other unit of measure or on products marketed as shown by the association books over the preceding five (5) fiscal years or if the estimated cost of making such distribution, in the opinion of the committee approximate more than fifty percent (50%) of the amount available for distribution, the association may dispose of its net assets by converting them to cash and paying the money over to the College of Agriculture of the University of Kentucky, or to any nonprofit farm organization operating within the areas served by the cooperative.

History. Enact. Acts 1966, ch. 208, § 29; 1974, ch. 159, § 1; 2012, ch. 81, § 99, effective July 12, 2012.

272.330. Failure to request information; presumption. [Repealed.]

Compiler’s Notes.

This section (883f-39) was repealed by Acts 1966, ch. 208, § 36.

272.331. Association formed under prior law subject to this law — Rights.

An association, or corporation, heretofore formed under or subject to statutes repealed by the 1966 Act [272.010(2); 272.060 ; 272.100 to 272.350 ], shall continue under and be subject to the provisions of this chapter as if incorporated hereunder; but all rights of property and contract which accrued before June 16, 1966 shall continue to be governed by the law under which such rights accrued. An association, also may continue to use its existing name, type of operations, bylaws, forms of marketing contracts, methods of financing and requirements as to reserves insofar as valid under prior laws unless expressly contrary to the provisions of KRS 272.101 to 272.341 .

History. Enact. Acts 1966, ch. 208, § 33.

272.333. KRS 136.060 not applicable to membership certificates, stock, or other evidence of member, shareholder or patron interest.

The provisions of KRS 136.060 shall not apply to the issuance of membership certificates, shares of stock or any other evidence of member, shareholder, or patron interest by any such agricultural cooperative association.

History. Enact. Acts 1968, ch. 148, § 7; 1976, ch. 12, § 1, effective March 1, 1976; 2019 ch. 151, § 78, effective June 27, 2019.

Legislative Research Commission Notes.

(4/27/2018). KRS 136.070 was repealed in 2018 Ky. Acts chs. 171 and 207, but a conforming amendment was not made to this statute to address the reference it contains to KRS 136.070 . The Reviser of Statutes has determined that making such a conforming change during the 2018 codification exceeds the permissible correction of manifest clerical or typographical errors under KRS 7.136(1)(h). Therefore, the reference to KRS 136.070 remains unchanged and would have to be changed pursuant to future legislative action.

272.335. Foreign association doing business.

A foreign association may be authorized to transact business in this Commonwealth upon compliance with the provisions of KRS 14A.9-010 .

History. Enact. Acts 1966, ch. 208, § 34; 1972, ch. 112, § 8; 1972, ch. 274, § 151; 1988, ch. 23, § 178, effective January 1, 1989; 2010, ch. 151, § 58, effective January 1, 2011; 2011, ch. 29, § 11, effective June 8, 2011.

Legislative Research Commission Note.

(6/8/2011). 2011 Ky. Acts ch. 29, sec. 24, provides that the amendments to this section in 2011 Ky. Acts ch. 29, sec. 11, are retroactive to January 1, 2011.

272.340. Mortgage on crops under marketing contract; disposition of proceeds upon foreclosure. [Repealed.]

Compiler’s Notes.

This section (883f-40, 883f-41) was repealed by Acts 1966, ch. 208, § 36.

272.341. Association without capital stock subject to Chapter 271B.

The provisions of KRS Chapter 271B shall apply, so far as appropriate, to every association with or without capital stock heretofore or hereafter organized or domesticated under this chapter, except where the provisions of such laws are in conflict with or inconsistent with this chapter.

History. Enact. Acts 1966, ch. 208, § 35; 1972, ch. 274, § 152.

272.345. Association personnel indemnified against personal liability — Compromise settlements — Prior approval — Payment of expenses and costs — Purchase of insurance.

  1. Each director, officer, employee or agent of an association organized or operating under KRS 272.121 to 272.341 , or his personal representative, or any person who is or was serving at the request of an association as a director, officer, employee or agent of another association, corporation, partnership, joint venture, trust or other enterprise or entity, or such person’s personal representative, shall be indemnified by the association against claims, liabilities, expenses, and costs actually and necessarily incurred by him or his estate in connection with, or arising out of, any action in which he is made a party by reason of his being, or having been, an officer, director, employee, or agent, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the association, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
  2. The right of indemnification herein provided for shall also apply with respect to any amount paid in compromise of any such claim asserted against such director, officer, employee or agent (including expenses and costs actually and necessarily incurred in connection therewith); provided the board of directors of the association shall have first approved such proposed compromise settlement and determined that the director, officer, employee or agent involved was acting in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the association; but in taking such action any director involved shall not be qualified to vote thereon, and if for this reason a quorum of the board cannot be obtained to vote on such matter it shall be determined by a committee of three (3) disinterested shareholders appointed by the shareholders at a duly called special meeting, or at a regular meeting.
  3. Expenses and costs (including attorney’s fees) incurred by a director, officer, employee or agent in defending an action as aforesaid may be paid by the association in advance of the final disposition of such action upon receipt of an undertaking by or on behalf of such director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the association.
  4. The right of indemnification herein provided for shall not be exclusive of any other rights to which an officer, director, employee or agent may be entitled under any bylaw, agreement, vote of shareholders, vote of disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity (including, without limitation, serving at the request of the association as a director, officer, employee or agent of another association, corporation, partnership, joint venture, trust or other enterprise or entity), and shall continue as to any person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of any heirs, executors and administrators of any such person.
  5. An association shall have the power to purchase and maintain insurance on behalf of any person who is or was an officer, director, employee or agent of the association, or is or was serving at the request of the association as a director, officer, employee or agent of another association, corporation, partnership, joint venture, trust or other enterprise or entity, against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such, whether or not such association would have the power to indemnify him against such liability under the provisions of this section.

History. Enact. Acts 1972, ch. 112, § 9; 1984, ch. 111, § 122, effective July 13, 1984.

272.350. Limitation of the use of term “cooperative.” [Repealed.]

Compiler’s Notes.

This section (883f-22, 883f-34) was repealed by Acts 1966, ch. 208, § 36.

Cooperative Livestock Protective Associations

272.360. Legislative policy as to cooperative livestock protective associations.

In order to promote, foster, and encourage the raising of livestock in the state and for the further purpose of permitting livestock producers to organize under the laws of Kentucky and form cooperative livestock corporations whereby the members thereof may associate themselves together for protection under the laws of the state and through such association provide a suitable means to the members and for reimbursing said members for losses of livestock due to depredation, disease and death caused by attacks from dogs and other causes, KRS 272.360 to 272.510 are enacted.

History. Enact. Acts 1942, ch. 88, § 1.

272.370. Who may organize.

Any twenty (20) or more farmers who are residents of one (1) or not more than five (5) counties of this state, whether they own the land they farm or not, may form a nonprofit livestock protective corporation without capital stock under the provisions of KRS 272.360 to 272.510 .

History. Enact. Acts 1942, ch. 88, § 3.

272.380. Purpose of associations.

An association may be organized in any section of the state for the purpose of affording protection to the farmers in that locality in the raising of livestock on their farms.

History. Enact. Acts 1942, ch. 88, § 4.

272.390. Articles of incorporation — What to set forth.

Each association formed under KRS 272.360 to 272.510 must prepare and file articles of incorporation, setting forth:

  1. The name of the association that satisfies KRS 14A.3-010 ;
  2. The place where its principal business will be transacted;
  3. The term for which it is to exist; the number of directors thereof which must not be less than five (5) and may be any number in excess thereof; the term of office of such directors; and the names and addresses of those who are to serve as incorporating directors for the first term, or until election and qualification of their successors; and
  4. The property rights of the members and whether the interest of each member will be equal or unequal; and if unequal, the rule or rules applicable to all members by which the property rights and interests, respectively, of each member shall be determined and fixed; and provision for the admission of new members who shall be entitled to share in the property of the association with the old members, in accordance with such general rule or rules.

History. Enact. Acts 1942, ch. 88, § 5; 2007, ch. 137, § 78, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 78, effective July 15, 2010; repealed, reenact., and amend., Acts 2010, ch. 151, § 59, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed, reenacted, and amended by 2010 Ky. Acts ch. 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict, therefore, they have been codified together.

(6/26/2007). The numbering of subsections in this section has been altered by the Reviser of Statutes from the numbering in 2007 Ky. Acts ch. 137, sec. 78, under the authority of KRS 7.136 .

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

272.400. Amendments to articles.

The articles of incorporation may be altered or amended at any regular or special meeting called for that purpose. An amendment must first be approved by two-thirds (2/3) of the directors and then adopted by a vote representing a majority of all the members of the association. Amendments, when so adopted, shall be recorded in accordance with the provisions of the general corporation law of this state, except that the fee to be charged by the Secretary of State for filing such an amendment shall be one dollar ($1).

History. Enact. Acts 1942, ch. 88, § 6; 1946, ch. 141, § 27.

Research References and Practice Aids

Cross-References.

Filing of amendments to articles of ordinary private corporation, KRS 271B.10-060 .

272.410. Subscription and filing of articles — Fees.

The articles of incorporation shall be signed, acknowledged, filed and recorded in accordance with the provisions of the general corporation law of this state, and, in addition, a quadruplicate of the articles, indorsed by the Secretary of State with the fact and time of recording of the articles in his office, shall be filed with the Department of Agriculture within ten (10) days after the articles have been recorded in the office of the Secretary of State. After the articles have been duly filed and recorded, and a certificate of incorporation has been issued, the corporation may proceed to do business. For recording the articles and issuing a certificate of incorporation the Secretary of State shall be entitled to a fee of two dollars and fifty cents ($2.50). For recording the articles the county clerk shall be entitled to a fee specified in KRS 64.012 , which fees shall be in lieu of all other fees charged by either of such officers.

History. Enact. Acts 1942, ch. 88, § 7; 1946, ch. 141, § 28; 1978, ch. 384, § 447, effective June 17, 1978; 1980, ch. 21, § 1, effective July 15, 1980.

Research References and Practice Aids

Cross-References.

Filing of articles of ordinary corporation, KRS 271B.1-200 to 271B.1-290 .

272.420. Bylaws.

Each association incorporated under KRS 272.360 to 272.510 must, within thirty (30) days after its incorporation, adopt for its government and management a code of bylaws, not inconsistent with the powers granted by KRS 272.360 to 272.510 . Such bylaws shall be adopted by a majority of the board of directors. Each association, under its bylaws, may provide for any or all of the following matters:

  1. The time, place, and manner of calling and conducting its meetings.
  2. The number of members constituting a quorum.
  3. The right of members to vote by proxy or by mail or both; and the conditions, manner, form, and effect of such votes.
  4. The number of directors constituting a quorum.
  5. The qualifications, compensation, and duties and term of office of directors and officers, the time of their election and the mode and manner of giving notice thereof.
  6. Penalties for violations of the bylaws.
  7. The amount of entrance, organization, and membership fees, if any; the manner and method of collection of the same; and the purposes for which they may be used.
  8. The amount which each member shall be required to pay annually or from time to time, if at all, to carry on the business of the association; the charge, if any, to be paid by each member or stockholder for services rendered by the association to him and the time of payment and the manner of collection.
  9. The method of appraisal of livestock and the manner of payment of indemnities for same.
  10. The number and qualification of members of the association and the conditions precedent to membership; the method, time, and manner of permitting members to withdraw; the manner of assignment and transfer of the interest of members; the conditions upon which and time when membership of any member shall cease; the automatic suspension of the rights of a member when he ceases to be eligible to membership in the association; and the mode, manner, and effect of the expulsion of a member; the manner of determining the value of a member’s interest and provision for its purchase by the association upon the death or withdrawal of a member, or upon the explusion of a member or forfeiture of his membership, or, at the option of the association, the purchase at a price fixed by conclusive appraisal by the board of directors, in which case the board of directors shall equitably and conclusively appraise his property interests in the association and shall fix the amount thereof in money, which shall be paid to him within one (1) year after such expulsion or withdrawal.

History. Enact. Acts 1942, ch. 88, § 8.

272.430. Meetings.

In its bylaws, each association shall provide for one (1) or more regular meetings annually. The board of directors shall have the right to call a special meeting at any time; and ten percent (10%) of the members may file a petition stating the specific business to be brought before the association and demand a special meeting at any time. Such meeting must thereupon be called by the directors. Notice of all meetings, together with a statement of the purposes thereof, shall be mailed to each member at least ten (10) days prior to the meeting; provided, however, that the bylaws may require instead that such notice may be given by publication in a newspaper of general circulation, published at the principal place of business of the association.

History. Enact. Acts 1942, ch. 88, § 9.

272.440. Board of directors.

  1. The affairs of the association shall be managed by a board of not less than five (5) directors, elected by the members from their own number. The bylaws may provide that the territory in which the association has members shall be divided into districts and that the directors shall be elected according to such districts, either directly or by district delegates elected by the members in that district. In such a case the bylaws shall specify the number of directors to be elected by each district, the manner and method of reapportioning the directors and of redistricting the territory covered by the association. The bylaws may provide that primary elections shall be held in each district to elect the directors apportioned to such districts and that the result of all such primary elections may be ratified by the next regular meeting of the association or may be considered final as to the association. The bylaws may provide that one or more directors may be appointed by any public official or commission or by the other directors selected by the members or their delegates. Such directors shall represent primarily the interest of the general public in such associations. The director or directors so appointed need not be members of the association, but shall have the same powers and rights as other directors. Such directors shall not number more than one-fifth (1/5) of the entire number of directors.
  2. An association may provide a fair remuneration for the time actually spent by its officers and directors in its service and for the service of the members of its executive committee. No director, during the term of his office, shall be a party to a contract for profit with the association differing in any way from the business relations accorded regular members of the association or others, or differing from terms generally current in that district.
  3. The bylaws may provide for an executive committee and may allot to such committee all the functions and powers of the board of directors, subject to the general direction and control of the board.
  4. When a vacancy on the board of directors occurs other than by expiration of term, the remaining members of the board, by a majority vote, shall fill the vacancy, unless the bylaws provide for an election of directors by district. In such a case the board of directors shall immediately call a special meeting of the members in that district to fill the vacancy.

History. Enact. Acts 1942, ch. 88, § 10.

272.450. Officers.

The directors shall elect from their number a president and one or more vice presidents. They shall also elect a secretary and a treasurer, who need not be directors or members of the association; and they may combine the two (2) latter offices and designate the combined office as secretary-treasurer; or unite both functions and titles in one (1) person. The treasurer may be a bank or any depository, and as such shall not be considered as an officer, but as a function of the board of directors. In such case, the secretary shall perform the usual accounting duties of the treasurer, excepting that the funds shall be deposited only as and where authorized by the board of directors.

History. Enact. Acts 1942, ch. 88, § 11.

272.460. Removal of officer or director.

  1. Any member may bring charges against an officer or director by filing them in writing with the secretary of the association, together with a petition signed by five percent (5%) of the members, requesting the removal of the officer or director in question. The removal shall be voted upon at the next regular or special meeting of the association and, by a vote of a majority of the members, the association may remove the officer or director and fill the vacancy. The director or officer against whom such charges have been brought shall be informed in writing of the charges previous to the meeting and shall have an opportunity at the meeting to be heard in person or by counsel and to present witnesses; and the person or persons bringing the charges against him shall have the same opportunity.
  2. In case the bylaws provide for election of directors by districts with primary elections in each district, then the petition of removal of a director must be signed by twenty percent (20%) of the members residing in the district from which he was elected. The board of directors must call a special meeting of the members residing in that district to consider the removal of the director; and by a vote of the majority of the members of that district, the director in question shall be removed from office.

History. Enact. Acts 1942, ch. 88, § 12.

272.470. Referendum on action of board of directors.

Upon demand of one-third (1/3) of the entire board of directors any matter that has been approved or passed by the board must be referred to the entire membership for decision at the next special or regular meeting; provided, however, that a special meeting may be called for that purpose.

History. Enact. Acts 1942, ch. 88, § 13.

272.480. Other corporations may become livestock protective associations — Procedure.

  1. Any corporation or association organized under previously existing statutes may, by a majority vote of its members, be brought under the provisions of KRS 272.360 to 272.510 by limiting its membership and adopting the other restrictions as provided herein. It shall make out in duplicate a statement signed and sworn to by its directors to the effect that the corporation or association has, by a majority vote of the members, decided to accept the benefits and be bound by the provisions of KRS 272.360 to 272.510 and has authorized all changes accordingly. Articles of incorporation shall be filed as herein required except that they shall be signed by the members of the then board of directors. The filing fee shall be the same as for filing an amendment to articles of incorporation.
  2. Where any association may be incorporated under KRS 272.360 to 272.510 , all contracts heretofore made by or on behalf of same by the promoters thereof in anticipation of such association becoming incorporated under the laws of this state, whether such contracts be made by or in the name of some corporation organized elsewhere and when same would have been valid if entered into subsequent to the passage of KRS 272.360 to 272.510 , are hereby validated as if made after the passage of those sections.

History. Enact. Acts 1942, ch. 88, § 14.

272.490. Members not liable for debts of association.

  1. No member shall be liable for the debts of the association to an amount exceeding the sum remaining unpaid on the member’s membership fee, including any unpaid balance on any promissory notes given in payment thereof.
  2. Subsection (1) of this section shall not affect the liability of a member of an association for his or her own negligence, wrongful acts, or misconduct.

History. Enact. Acts 1942, ch. 88, § 15; 2010, ch. 133, § 14, effective July 15, 2010.

Research References and Practice Aids

Northern Kentucky Law Review.

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

272.500. Department of Agriculture to assist in organizing associations.

The state Department of Agriculture of the Commonwealth of Kentucky is hereby directed to assist in the organization of any association desiring to incorporate under the provisions of KRS 272.360 to 272.510 when requested to do so in writing by any twenty (20) or more eligible persons residing within the state.

History. Enact. Acts 1942, ch. 88, § 17.

272.510. Associations not subject to insurance laws.

Associations incorporated under the provisions of KRS 272.360 to 272.510 shall be exempt from the provisions of law, now or hereafter enacted, relating to insurance companies or other organizations of a like or similar nature.

History. Enact. Acts 1942, ch. 88, § 18.

Penalties

272.990. Penalties.

  1. Any corporation, association or company using the word “cooperative” as part of its name in violation of KRS 272.044 shall be fined not less than fifty dollars ($50) nor more than one thousand dollars ($1,000), and may be enjoined from doing business under that name by any corporation, or stockholder thereof, organized under KRS 272.020 to 272.044 .
  2. Any individual or any corporation whose officers or employees knowingly induce or attempt to induce any member to break his marketing contract with an association or who maliciously and knowingly spreads false reports about the finances or management of any association shall be fined not less than one hundred dollars ($100) nor more than one thousand dollars ($1,000) for each offense, and shall be liable to the association aggrieved in a civil suit in the penal sum of five hundred dollars ($500) for each offense.
  3. Any person conducting a warehouse in this state who persuades or permits any member of any association to breach his marketing contract with the association by receiving his products for sale, auction or display contrary to the terms of any marketing contract of which the offender has notice shall be liable to the association aggrieved in a civil suit in the penal sum of five hundred dollars ($500) for each offense, and shall also pay the association a reasonable attorney’s fee and all the costs of the action against him. The association may obtain an injunction against such warehouseman to prevent further breaches and a multiplicity of actions.

History. 883d-9, 883f-26, 883f-27; 2010, ch. 151, § 139, effective January 1, 2011.

NOTES TO DECISIONS

1.Constitutionality.

Subsection (3) of this section does not deprive a warehouse company of equal protection of the laws or conflict with the due process clause of U.S. Const., Amend. 14. Liberty Warehouse Co. v. Burley Tobacco Growers' Co-operative Marketing Ass'n, 276 U.S. 71, 48 S. Ct. 291, 72 L. Ed. 473, 1928 U.S. LEXIS 62 (U.S. 1928).

Subsection (3) of this section is not unconstitutional on the grounds of improper classification or special legislation. Liberty Warehouse Co. v. Burley Tobacco Growers' Co-op. Ass'n, 208 Ky. 643 , 271 S.W. 695, 1925 Ky. LEXIS 358 ( Ky. 1925 ), aff'd, 276 U.S. 71, 48 S. Ct. 291, 72 L. Ed. 473, 1928 U.S. LEXIS 62 (U.S. 1928).

There is no constitutional objection to penalizing a warehouse company when it induces a member of the association to violate his contract in the manner set out in subsection (3) of this section and the penalty is not to compensate the association for damage, but to punish the warehouse company for doing the act prohibited by the statute, thus there is no double remedy given to the association for the violation of the contracts of its members. Liberty Warehouse Co. v. Burley Tobacco Growers' Co-op. Ass'n, 208 Ky. 643 , 271 S.W. 695, 1925 Ky. LEXIS 358 ( Ky. 1925 ), aff'd, 276 U.S. 71, 48 S. Ct. 291, 72 L. Ed. 473, 1928 U.S. LEXIS 62 (U.S. 1928).

Subsection (3) of this section did not violate the U.S. Const. Amend. 14 or Const., § 59(29) by denying to warehouse company equal protections of the laws on ground that there is no provision for it to recover an attorney’s fee against the association if the association’s action to recover the penalty is dismissed for the warehouse company is not liable for the penalty or the attorney’s fee unless it is guilty of a violation of the law. Liberty Warehouse Co. v. Burley Tobacco Growers' Co-op. Ass'n, 208 Ky. 643 , 271 S.W. 695, 1925 Ky. LEXIS 358 ( Ky. 1925 ), aff'd, 276 U.S. 71, 48 S. Ct. 291, 72 L. Ed. 473, 1928 U.S. LEXIS 62 (U.S. 1928).

Cited:

Hy-Grade Dairies v. Falls City Milk Producers’ Ass’n, 261 Ky. 25 , 86 S.W.2d 1046, 1935 Ky. LEXIS 588 ( Ky. 1935 ).

Research References and Practice Aids

Cross-References.

Spreading false rumor about bank or insurance company, penalty, KRS 434.310 .

272.991. Additional penalties for violation of KRS 506.010, 506.030, 506.040, 521.020, or 521.050.

  1. If a domestic cooperative corporation or association is convicted of a violation of KRS 506.010 , 506.030 , 506.040 , 521.020 , or 521.050 , or if an officer, employee, or agent of the corporation or association is convicted of violating any section specified above under circumstances which bring corporate liability under KRS 502.050(1)(b), the court shall order that the charter of the corporation or association be suspended for a period of not more than five (5) years for a first offense, ten (10) years for a second offense, and permanently for a third or subsequent offense.
  2. If a foreign cooperative corporation or association is convicted of violating any section specified in subsection (1) of this section, or if an officer, employee, or agent of the corporation or association violates any of those sections under circumstances which bring corporate liability under KRS 502.050(1)(b), the court shall order that the corporation or association not be permitted to do business in Kentucky for the appropriate period specified in subsection (1) of this section.
  3. The penalties specified in this section shall be in addition to any other penalty specified by law for the commission of the offenses listed in subsection (1) of this section.

History. Enact. Acts 1994, ch. 477, § 7, effective July 15, 1994.

CHAPTER 272A Kentucky Uniform Limited Cooperative Association Act

SUBCHAPTER 1. General Provisions

272A.1-010. Short title.

This chapter may be cited as the Kentucky Uniform Limited Cooperative Association Act.

History. Enact. Acts 2012, ch. 160, § 1, effective July 12, 2012.

272A.1-020. Definitions.

As used in this chapter:

  1. “Appropriate court” means the Circuit Court for the county of the Commonwealth in which the limited cooperative association’s principal office is located or, if none, the county in which the registered office is or was last located;
  2. “Articles of association” means the articles of association of a limited cooperative association required by KRS 272A.3-010 . The term includes the articles as amended or restated;
  3. “Board of directors” means the board of directors of a limited cooperative association;
  4. “Bylaws” means the bylaws of a limited cooperative association. The term includes the bylaws as amended or restated;
  5. “Certificate of authority” means a certificate issued by the Secretary of State pursuant to KRS 14A.2-140 ;
  6. “Contribution,” except as used in KRS 272A.10-080 (3), means a benefit that a person provides to a limited cooperative association to become or remain a member or in the person’s capacity as a member;
  7. “Cooperative” means a limited cooperative association or an entity organized under any cooperative law of any jurisdiction;
  8. “Director” means a director of a limited cooperative association;
  9. “Distribution,” except as used in KRS 272A.10-070 (5), means a transfer of money or other property from a limited cooperative association to a member because of the member’s financial rights or to a transferee of a member’s financial rights;
  10. “Entity” means an entity or a foreign entity, both as defined in KRS 14A.1-070 ;
  11. “Financial rights” means the right to participate in allocations and distributions as provided in Subchapters 10 and 12 of this chapter, but does not include rights or obligations under a marketing contract governed by Subchapter 7 of this chapter;
  12. “Foreign cooperative” means an entity organized in a jurisdiction other than this Commonwealth under a law similar to this chapter;
  13. “Governance rights” means the right to participate in governance of a limited cooperative association;
  14. “Investor member” means a member that has made a contribution to a limited cooperative association and:
    1. Is not required by the organic rules to conduct patronage with the association in the member’s capacity as an investor member in order to receive the member’s interest; or
    2. Is not permitted by the organic rules to conduct patronage with the association in the member’s capacity as an investor member in order to receive the member’s interest;
  15. “Limited cooperative association” means an association organized under this chapter;
  16. “Member” means a person that is admitted as a patron member or investor member, or both, in a limited cooperative association. The term does not include a person that has dissociated as a member;
  17. “Member’s interest” means the interest of a patron member or investor member under KRS 272A.6-010 ;
  18. “Members meeting” means an annual members meeting or special meeting of members;
  19. “Organic law” means the statute providing for the creation of an entity or principally governing its internal affairs;
  20. “Organic rules” means the articles of association and bylaws of a limited cooperative association;
  21. “Organizer” means an individual who signs the initial articles of association;
  22. “Patron member” means a member that has made a contribution to a limited cooperative association and:
    1. Is required by the organic rules to conduct patronage with the association in the member’s capacity as a patron member in order to receive the member’s interest; or
    2. Is permitted by the organic rules to conduct patronage with the association in the member’s capacity as a patron member in order to receive the member’s interest;
  23. “Patronage” means business transactions between a limited cooperative association and a person which entitle the person to receive financial rights based on the value or quantity of business done between the association and the person;
  24. “Person” means an individual, entity, public corporation, government or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity;
  25. “Principal office” means the principal executive office of a limited cooperative association or foreign cooperative, whether or not in this state;
  26. “Record,” used as a noun, means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form;
  27. “Required information” means the information a limited cooperative association is required to maintain under KRS 272A.1-120 ;
  28. “Secretary” means the officer designated pursuant to KRS 272A.8-210 (2);
  29. “Sign” means, with present intent to authenticate or adopt a record:
    1. To execute or adopt a tangible symbol; or
    2. To attach to or logically associate with the record an electronic symbol, sound, or process;
  30. “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States;
  31. “Transfer” includes an assignment, conveyance, deed, bill of sale, lease, mortgage, security interest, encumbrance, gift, and transfer by operation of law;
  32. “Voting group” means any combination of one (1) or more voting members in one (1) or more districts or classes that under the organic rules or under this chapter are entitled to vote and can be counted together collectively on a matter at a members meeting;
  33. “Voting member” means a member that, under the organic law or organic rules, has a right to vote on matters subject to vote by members under the organic law or organic rules; and
  34. “Voting power” means the total current power of members to vote on a particular matter for which a vote may or is to be taken.

History. Enact. Acts 2012, ch. 160, § 2, effective July 12, 2012.

272A.1-030. Limited cooperative association subject to amendment or repeal of chapter.

A limited cooperative association governed by this chapter is subject to any amendment or repeal of this chapter.

History. Enact. Acts 2012, ch. 160, § 3, effective July 12, 2012.

272A.1-040. Nature of limited cooperative association.

  1. A limited cooperative association organized under this chapter is an autonomous, unincorporated association of persons united to meet their mutual interests through a jointly owned enterprise primarily controlled by those persons, which permits combining:
    1. Ownership, financing, and receipt of benefits by the members for whose interests the association is formed; and
    2. Separate investments in the association by members who may receive returns on their investments and a share of control.
  2. The fact that a limited cooperative association does not have one (1) or more of the characteristics described in subsection (1) of this section does not alone prevent the association from being formed under and governed by this chapter, nor does it alone provide a basis for an action against the association.

History. Enact. Acts 2012, ch. 160, § 4, effective July 12, 2012.

272A.1-050. Purpose and duration of limited cooperative association.

  1. A limited cooperative association is an entity distinct from its members.
  2. A limited cooperative association may be organized for any lawful purpose, whether or not for profit.
  3. This chapter does not alter or amend any law that governs the licensing and regulation of an individual or entity in carrying on a specific business or profession even if that law permits the business or profession to be conducted by a limited cooperative association, a foreign cooperative, or its members.
  4. A limited cooperative association may not conduct an activity that, under law of this state other than this chapter, may be conducted only by an entity that meets specific requirements for the internal affairs of that entity unless the organic rules of the association conform to those requirements.
  5. Unless the articles of association state a term for a limited cooperative association’s existence, the association has perpetual duration.

History. Enact. Acts 2012, ch. 160, § 5, effective July 12, 2012.

272A.1-060. Powers.

  1. A limited cooperative association may sue and be sued in its own name and do all things necessary or convenient to carry on its activities.
  2. An association may maintain an action against a member for harm caused to the association by the member’s violation of a duty to the association or of the organic law or organic rules.
  3. A member of a limited cooperative association shall not be a proper party to a proceeding by or against a limited cooperative association, solely by reason of being a member of the limited cooperative association, except if the object of the proceeding is to enforce a member’s right against or liability to the limited cooperative association or as otherwise provided in an operating agreement.

History. Enact. Acts 2012, ch. 160, § 6, effective July 12, 2012.

272A.1-070. Governing law.

The law of this Commonwealth governs:

  1. The internal affairs of a limited cooperative association; and
  2. The liability of a member as member and a director as director for the debts, obligations, or other liabilities of a limited cooperative association.

History. Enact. Acts 2012, ch. 160, § 7, effective July 12, 2012.

272A.1-080. Supplemental principles of law.

  1. It shall be the policy of the General Assembly through this chapter to give maximum effect to the principles of freedom of contract and to the enforceability of organic rules. Unless displaced by particular provisions of this chapter, the principles of law and equity shall supplement this chapter.
  2. Although this chapter is in derogation of common law, the rules of construction that require strict construction of statutes which are in derogation of common law shall not apply to its provisions.
  3. This chapter shall not be construed to:
    1. Impair the obligations of any contract existing when this chapter, or any amendment of it, becomes effective;
    2. Affect any action or proceeding begun before the chapter or amendment takes effect; or
    3. Affect any right accrued before the chapter or amendment takes effect.
  4. Written organic rules may provide that the interest of any member who fails to make any contribution that the member is obligated to make or who otherwise violates an obligation undertaken in the organic rules shall be subject to specified penalties or specified consequences for failure. The penalty or consequence may take the form of:
    1. Reducing or eliminating the defaulting member’s proportionate interest in the limited cooperative association;
    2. Subordinating the member’s interest to that of nondefaulting members;
    3. A forced sale of that interest;
    4. Forfeiture of his or her interest;
    5. The lending by other members of the amount necessary to meet the defaulting member’s commitment;
    6. A fixing of the value of his or her interest by appraisal or by formula and redemption or sale of the interest at such; or
    7. Other penalty or consequence.
  5. Written organic rules may provide rights to any person, including a person who is not a member or not otherwise a party to the organic rules, to the extent set forth therein.
  6. Except to the extent set forth in the written organic rules, a limited cooperative association is bound by and is a party to the organic rules.
  7. Action validly taken pursuant to one (1) provision of this chapter shall not be deemed invalid solely because it is identical or similar in substance to an action that could have been taken pursuant to some other provision of this chapter but fails to satisfy one (1) or more requirements prescribed by such other provision.
  8. No member or other person shall have a vested property right resulting from any provision of the organic rules which may not be modified by its amendment or as otherwise permitted by law.
  9. Each party to the organic rules shall discharge all duties and exercise all rights consistently with the obligation of good faith and fair dealing. The obligation of good faith and fair dealing may not be eliminated in the organic rules, but the parties may prescribe the standards by which the performance of the obligation is to be measured provided the standards are not manifestly unreasonable.
  10. To the extent the organic rules do not otherwise provide, this chapter shall govern relations among the limited cooperative association, the members, the directors, and the assignees.
  11. For purposes of KRS 141.0401 , each limited cooperative association with investor members shall be a limited liability pass-through entity, except to the extent of patronage activities or dividends.

History. Enact. Acts 2012, ch. 160, § 8, effective July 12, 2012.

272A.1-090. Relation to restraint of trade and antitrust laws.

No cooperative, foreign cooperative, or agreements between cooperatives and their members shall be considered a conspiracy, a combination in restraint of trade, an illegal monopoly, or an attempt to lessen competition, fix prices arbitrarily, or create a combination or pool in violation of any law of this state.

History. Enact. Acts 2012, ch. 160, § 9, effective July 12, 2012.

272A.1-100. Name.

The name of a limited cooperative association shall satisfy the requirements of KRS 14A.3-010 .

History. Enact. Acts 2012, ch. 160, § 10, effective July 12, 2012.

272A.1-110. Effect of organic rules.

  1. The relations between a limited cooperative association and its members are consensual. Unless required, limited, or prohibited by this chapter, the organic rules may provide for any matter concerning the relations among the members of the association and between the members and the association, the activities of the association, and the conduct of its activities.
  2. The matters referred to in paragraphs (a) to (k) of this subsection may be varied only in the articles of association. The articles may:
    1. State a term of existence for the association under KRS 272A.1-050 ;
    2. Limit or eliminate the acceptance of new or additional members by the initial board of directors under KRS 272A.3.020;
    3. Vary the limitations on the obligations and liability of members for association obligations under KRS 272A.5-030 ;
    4. Require a notice of an annual members meeting to state a purpose of the meeting under KRS 272A.5-070 ;
    5. Vary the board of directors meeting quorum under KRS 272A.8-150 ;
    6. Vary the matters the board of directors may consider in making a decision under KRS 272A.8-190 ;
    7. Specify causes of dissolution under KRS 272A.12-020 ;
    8. Delegate amendment of the bylaws to the board of directors pursuant to KRS 272A.4-050 ;
    9. Provide for member approval of asset dispositions under KRS 272A.15-010 ;
    10. Subject to KRS 272A.8-190 , provide for the elimination or limitation of liability of a director to the association or its members for money damages pursuant to KRS 272A.8-180 ;
    11. Provide for permitting or making obligatory indemnification under KRS 272A.9-010 ; and
    12. Provide for any matters that may be contained in the organic rules, including those under subsection (3) of this section.
  3. The matters referred to in paragraphs (a) to (y) of this subsection may be varied only in the organic rules. The organic rules may:
    1. Require more information to be maintained under KRS 272A.1-120 or provided to members under KRS 272A.5-040 ;
    2. Provide restrictions on transactions between a member and an association under KRS 272A.1-130 ;
    3. Provide for the percentage and manner of voting on amendments to the organic rules by district, class, or voting group under KRS 272A.4-040 ;
    4. Provide for the percentage vote required to amend the bylaws concerning the admission of new members under KRS 272A.4-050 ;
    5. Provide for terms and conditions to become a member under KRS 272A.5-010 ;
    6. Restrict the manner of conducting members meetings under KRS 272A.5-050 and 272A.5-060 ;
    7. Designate the presiding officer of members meetings under KRS 272A.5-050 and 272A.5-060 ;
    8. Require a statement of purposes in the annual meeting notice under KRS 272A.5-070 ;
    9. Increase quorum requirements for members meetings under KRS 272A.5-090 and for board of directors meetings under KRS 272A.8-150 ;
    10. Allocate voting power among members, including patron members and investor members, and provide for the manner of member voting and action as permitted by 272A.5-100 , 272A.5-110 , 272A.5-120 , 272A.5-130 , 272A.5-140 , and 272A.5-150 ;
    11. Authorize investor members and expand or restrict the transferability of members’ interests to the extent provided in KRS 272A.6-020 , 272A.6-030 ,  and 272A.6-040 ;
    12. Provide for enforcement of a marketing contract under KRS 272A.7-040 ;
    13. Provide for qualification, election, terms, removal, filling vacancies, and member approval for compensation of directors in accordance with KRS 272A.8-030 , 272A.8-040 , 272A.8-050 , 272A.8-070 , 272A.8-090 , and 272A.8-100 ;
    14. Restrict the manner of conducting board meetings and taking action without a meeting under KRS 272A.8-110 and 272A.8-120 ;
    15. Provide for frequency, location, notice, and waivers of notice for board meetings under KRS 272A.8-130 and 272A.8-140 ;
    16. Increase the percentage of votes necessary for board action under KRS 272A.8-160 ;
    17. Provide for the creation of committees of the board of directors and matters related to the committees in accordance with KRS 272A.8-170 ;
    18. Provide for officers and their appointment, designation, and authority under KRS 272A.8-210 ;
    19. Provide for forms and values of contributions under KRS 272A.10-020 ;
    20. Provide for remedies for failure to make a contribution under KRS 272A.10-030 ;
    21. Provide for the allocation of profits and losses of the association, distributions, and the redemption or repurchase of distributed property other than money in accordance with KRS 272A.10-040 , 272A.10-050 , 272A.10-060 , and 272A.10-070 ;
    22. Specify when a member’s dissociation is wrongful and the liability incurred by the dissociating member for damage to the association under KRS 272A.11-010 (2) and (3);
    23. Provide the personal representative, or other legal representative of, a deceased member or a member adjudged incompetent with additional rights under KRS 272A.11-030 ;
    24. Increase the percentage of votes required for board of director approval of:
      1. A resolution to dissolve under KRS 272A.12-050 ;
      2. A proposed amendment to the organic rules under KRS 272A.4-020 ;
      3. A plan of merger under KRS 272A.16-050 (1); and
      4. A proposed disposition of assets under KRS 272A.15-030 ; and
    25. Vary the percentage of votes required for member approval of:
      1. A resolution to dissolve under KRS 272A.12-050 ;
      2. An amendment to the organic rules under KRS 272A.4-050 ;
      3. A plan of merger under KRS 272A.16-060 ; and
      4. A disposition of assets under KRS 272A.15-040 .
  4. The organic rules shall address members’ contributions pursuant to KRS 272A.10-010 .

History. Enact. Acts 2012, ch. 160, § 11, effective July 12, 2012.

272A.1-120. Required information.

  1. Subject to subsection (2) of this section, a limited cooperative association shall maintain in a record available at its principal office:
    1. A list containing the name, last known street address and, if different, mailing address, and term of office of each director and officer;
    2. The initial articles of association and all amendments to and restatements of the articles, together with a signed copy of any power of attorney under which any article, amendment, or restatement has been signed;
    3. The initial bylaws and all amendments to and restatements of the bylaws;
    4. All filed articles of merger and statements of conversion;
    5. All financial statements of the association for the six (6) most recent years;
    6. The six (6) most recent annual reports delivered by the association to the Secretary of State;
    7. The minutes of members meetings for the six (6) most recent years;
    8. Evidence of all actions taken by members without a meeting for the six (6) most recent years;
    9. A list containing:
      1. The name, in alphabetical order, and last known street address and, if different, mailing address of each patron member and each investor member; and
      2. If the association has districts or classes of members, information from which each current member in a district or class may be identified;
    10. The federal income tax returns, any state and local income tax returns, and any tax reports of the association for the six (6) most recent years;
    11. Accounting records maintained by the association in the ordinary course of its operations for the six (6) most recent years;
    12. The minutes of directors meetings for the six (6) most recent years;
    13. Evidence of all actions taken by directors without a meeting for the six (6) most recent years;
    14. The amount of money contributed and agreed to be contributed by each member;
    15. A description and statement of the agreed value of contributions other than money made and agreed to be made by each member;
    16. The times at which, or events on the happening of which, any additional contribution is to be made by each member;
    17. For each member, a description and statement of the member’s interest or information from which the description and statement can be derived; and
    18. All communications concerning the association made in a record to all members, or to all members in a district or class, for the six (6) most recent years.
  2. If a limited cooperative association has existed for less than the period for which records must be maintained under subsection (1) of this section, the period records shall be kept is the period of the association’s existence.

History. Enact. Acts 2012, ch. 160, § 12, effective July 12, 2012.

272A.1-130. Dual capacity — Business transactions of member with limited cooperative association.

  1. A person may have a patron member’s interest and an investor member’s interest.
  2. When a person acts as a patron member, the person is subject to this chapter and the organic rules governing patron members.
  3. When a person acts as an investor member, the person is subject to this chapter and the organic rules governing investor members.
  4. Subject to KRS 272A.8-180 and 272A.8-190 and except as otherwise provided in the organic rules or a specific contract relating to a transaction, a member may lend money to and transact other business with a limited cooperative association in the same manner as a person that is not a member.

History. Enact. Acts 2012, ch. 160, § 13, effective July 12, 2012.

272A.1-140. Registered office and agent.

A limited cooperative association shall designate and continuously maintain in this Commonwealth a registered office and agent registered in accordance with KRS 14A.4-010 .

History. Enact. Acts 2012, ch. 160, § 14, effective July 12, 2012.

SUBCHAPTER 2. Filings with the Secretary of State

272A.2-010. Signing of records delivered for filing to Secretary of State.

A record delivered by or on behalf of a limited cooperative association to the Secretary of State for filing shall be executed as provided in KRS 14A.2-020 .

History. Enact. Acts 2012, ch. 160, § 15, effective July 12, 2012.

272A.2-020. Signing and filing of records pursuant to judicial order.

  1. If a person required by this chapter to sign or to deliver a record to the Secretary of State for filing does not do so, the appropriate court, upon petition of an aggrieved person, may order:
    1. The person to sign the record and deliver it to the Secretary of State for filing; or
    2. Delivery of the unsigned record to the Secretary of State for filing.
  2. An aggrieved person under subsection (1) of this section, other than the limited cooperative association or foreign cooperative to which the record pertains, shall make the association or foreign cooperative a party to the action brought to obtain the order.
  3. An unsigned record filed pursuant to this section by the Secretary of State is effective.

History. Enact. Acts 2012, ch. 160, § 16, effective July 12, 2012.

272A.2-030. Liability for inaccurate information in filed record.

If a record delivered to the Secretary of State for filing under this chapter and filed by the Secretary of State contains inaccurate information, a person that suffers a loss by reliance on the information may recover damages for the loss from a person that signed the record or caused another to sign it on the person’s behalf and knew at the time the record was signed that the information was inaccurate.

History. Enact. Acts 2012, ch. 160, § 17, effective July 12, 2012.

272A.2-040. Annual report for Secretary of State.

A limited cooperative association shall deliver to the Secretary of State for filing an annual report as provided for in KRS 14A.6-010 .

History. Enact. Acts 2012, ch. 160, § 18, effective July 12, 2012.

272A.2-050. Filing fees.

The Secretary of State shall collect the following fees when the documents described in this section are delivered for filing:

  1. Articles of association  . . . . . $40.00
  2. Amendment of articles of association  . . . . . $40.00
  3. Restatement of articles of association  . . . . . $40.00
  4. Amended restatement of articles of association  . . . . . $80.00
  5. Articles of dissolution for a domestic limited cooperative association  . . . . . $40.00
  6. Articles of merger  . . . . . $50.00
  7. Articles of correction  . . . . .  $20.00
  8. Any other document required or permitted to be filed by this chapter  . . . . . $15.00

History. Enact. Acts 2012, ch. 160, § 19, effective July 12, 2012.

SUBCHAPTER 3. Organization

272A.3-010. Organizers — Formation of limited cooperative association — Articles of association.

  1. A limited cooperative association shall be organized by one (1) or more organizers.
  2. To form a limited cooperative association, an organizer of the association shall deliver articles of association to the Secretary of State for filing. The limited cooperative association is formed when articles of association that comply with subsection (3) of this section are filed by the Secretary of State, and are effective as determined under KRS 14A.2-070 .
  3. The articles of association shall include:
    1. The name of the association;
    2. The purposes for which the association is formed;
    3. The mailing address of the association’s principal office;
    4. The name and street address of the association’s initial registered office and registered agent that comply with KRS 14A.4-010 ;
    5. The name and street address and, if different, mailing address of each organizer; and
    6. The term for which the association is to exist if other than perpetual.
  4. Subject to KRS 272A.1-110 , articles of association may contain any other provisions in addition to those required by subsection (3) of this section not inconsistent with this chapter.

History. Enact. Acts 2012, ch. 160, § 20, effective July 12, 2012.

272A.3-020. Organization of limited cooperative association.

  1. After a limited cooperative association is formed:
    1. If initial directors are named in the articles of association, the initial directors shall hold an organizational meeting to adopt initial bylaws and carry on any other business necessary or proper to complete the organization of the association; or
    2. If initial directors are not named in the articles of association, the organizers shall designate the initial directors and call a meeting of the initial directors to adopt initial bylaws and carry on any other business necessary or proper to complete the organization of the association.
  2. Before the beginning of the initial meeting of the board of directors, an organizer who knows that information in the filed articles of association was inaccurate when the articles were filed or has become inaccurate due to changed circumstances shall promptly:
    1. Cause the articles to be corrected as provided in KRS 14A.2-090 ; or
    2. Deliver an amendment to the Secretary of State for filing pursuant to KRS 272A.4-070 .
  3. Unless the articles of association otherwise provide, the initial directors may cause the limited cooperative association to accept members, including those necessary for the association to begin business.
  4. Initial directors need not be members.
  5. An initial director serves until a successor is elected and qualified at a members meeting or the director is removed, resigns, is adjudged incompetent, or dies.

History. Enact. Acts 2012, ch. 160, § 21, effective July 12, 2012.

272A.3-030. Bylaws.

  1. Bylaws shall be in a record and, if not stated in the articles of association, shall include:
    1. A statement of the capital structure of the limited cooperative association, including:
      1. The classes or other types of members’ interests and relative rights, preferences, and restrictions granted to or imposed upon each class or other type of member’s interest; and
      2. The rights to share in profits or distributions of the association;
    2. A statement of the method for admission of members;
    3. A statement designating voting and other governance rights, including which members have voting power and any restriction on voting power;
    4. A statement that a member’s interest is transferable if it is to be transferable, and a statement of the conditions upon which it may be transferred;
    5. A statement concerning the manner in which profits and losses are allocated and distributions are made among patron members and, if investor members are authorized, the manner in which profits and losses are allocated and how distributions are made among investor members and between patron members and investor members;
    6. A statement concerning:
      1. Whether persons that are not members but conduct business with the association may be permitted to share in allocations of profits and losses and receive distributions; and
      2. The manner in which profits and losses are allocated and distributions are made with respect to those persons; and
    7. A statement of the number and terms of directors or the method by which the number and terms are determined.
  2. Subject to KRS 272A.1-110 and the articles of association, bylaws may contain any other provision for managing and regulating the affairs of the association.
  3. In addition to amendments permitted under Subchapter 4 of this chapter, the initial board of directors may amend the bylaws by a majority vote of the directors at any time before the admission of members.

History. Enact. Acts 2012, ch. 160, § 22, effective July 12, 2012.

SUBCHAPTER 4. Amendment of Organic Rules

272A.4-010. Authority to amend organic rules.

  1. A limited cooperative association may amend its organic rules for any lawful purpose. In addition, the initial board of directors may amend the bylaws of an association under KRS 272A.3-030 .
  2. Unless the organic rules otherwise provide, a member does not have a vested property right resulting from any provision in the organic rules, including a provision relating to the management, control, capital structure, distribution, entitlement, purpose, or duration of the limited cooperative association.

History. Enact. Acts 2012, ch. 160, § 23, effective July 12, 2012.

272A.4-020. Notice and action on amendment of organic rules.

  1. Except as provided in KRS 272A.4-010 (1) and 272A.4-050 (6), the organic rules of a limited cooperative association may be amended only at a members meeting. An amendment may be proposed by either:
    1. A majority of the board of directors, or a greater percentage if required by the organic rules; or
    2. One (1) or more petitions signed by at least ten percent (10%) of the patron members or at least ten percent (10%) of the investor members.
  2. The board of directors shall call a members meeting to consider an amendment proposed pursuant to subsection (1) of this section. The meeting shall be held not later than ninety (90) days following the proposal of the amendment by the board or receipt of a petition. The board shall mail or otherwise transmit or deliver in a record to each member:
    1. The proposed amendment, or a summary of the proposed amendment and a statement of the manner in which a copy of the amendment in a record may be reasonably obtained by a member;
    2. A recommendation that the members approve the amendment, or if the board determines that because of conflict of interest or other special circumstances it should not make a favorable recommendation, the basis for that determination;
    3. A statement of any condition of the board’s submission of the amendment to the members; and
    4. Notice of the meeting at which the proposed amendment will be considered, which shall be given in the same manner as notice for a special meeting of members.

History. Enact. Acts 2012, ch. 160, § 24, effective July 12, 2012.

272A.4-030. Method of voting on amendment of organic rules.

  1. A substantive change to a proposed amendment of the organic rules may not be made at the members meeting at which a vote on the amendment occurs.
  2. A nonsubstantive change to a proposed amendment of the organic rules may be made at the members meeting at which the vote on the amendment occurs and need not be separately voted upon by the board of directors.
  3. A vote to adopt a nonsubstantive change to a proposed amendment to the organic rules shall be by the same percentage of votes required to pass a proposed amendment.

History. Enact. Acts 2012, ch. 160, § 25, effective July 12, 2012.

272A.4-040. Voting by district, class, or voting group.

  1. This section applies if the organic rules provide for voting by district or class, or if there is one (1) or more identifiable voting groups that a proposed amendment to the organic rules would affect differently from other members with respect to matters identified in KRS 272A.4-050 (5)(a) to (e). Approval of the amendment requires the same percentage of votes of the members of that district, class, or voting group required in KRS 272A.4-050 and 272A.5-120 .
  2. If a proposed amendment to the organic rules would affect members in two (2) or more districts or classes entitled to vote separately under subsection (1) of this section in the same or a substantially similar way, the districts or classes affected shall vote as a single voting group unless the organic rules otherwise provide for separate voting.

History. Enact. Acts 2012, ch. 160, § 26, effective July 12, 2012.

272A.4-050. Approval of amendment.

  1. Subject to KRS 272A.4-040 and subsections (3) and (4) of this section, an amendment to the articles of association shall be approved by:
    1. At least two-thirds (2/3) of the voting power of members present at a members meeting called under KRS 272A.4-020 ; and
    2. If the limited cooperative association has investor members, at least a majority of the votes cast by patron members, unless the organic rules require a greater percentage vote by patron members.
  2. Subject to KRS 272A.4-040 and subsections (3) to (6) of this section, an amendment to the bylaws shall be approved by:
    1. At least a majority vote of the voting power of all members present at a members meeting called under KRS 272A.4-020 , unless the organic rules require a greater percentage; and
    2. If the limited cooperative association has investor members, a majority of the votes cast by patron members, unless the organic rules require a larger affirmative vote by patron members.
  3. The organic rules may require that the percentage of votes under subsection (1)(a) or (2)(a) of this section be:
    1. A different percentage that is not less than a majority of members voting at the meeting;
    2. Measured against the voting power of all members; or
    3. A combination of paragraphs (a) and (b) of this subsection.
  4. Consent in a record by a member shall be delivered to a limited cooperative association before delivery of an amendment to the articles of association or restated articles of association for filing pursuant to KRS 272A.4-070 , if as a result of the amendment the member will have:
    1. Personal liability for an obligation of the association; or
    2. An obligation or liability for an additional contribution.
  5. The vote required to amend bylaws shall satisfy the requirements of subsection (1) of this section if the proposed amendment modifies:
    1. The equity capital structure of the limited cooperative association, including the rights of the association’s members to share in profits or distributions, or the relative rights, preferences, and restrictions granted to or imposed upon one (1) or more districts, classes, or voting groups of similarly situated members;
    2. The transferability of a member’s interest;
    3. The manner or method of allocation of profits or losses among members;
    4. The quorum for a meeting and the rights of voting and governance; or
    5. Unless otherwise provided in the organic rules, the terms for admission of new members.
  6. Except for the matters described in subsection (5) of this section, the articles of association may delegate amendment of all or a part of the bylaws to the board of directors without requiring member approval.
  7. If the articles of association delegate amendment of bylaws to the board of directors, the board shall provide a description of any amendment of the bylaws made by the board to the members in a record not later than thirty (30) days after the amendment, but the description may be provided at the next annual members meeting if the meeting is held within the thirty (30) day period.

History. Enact. Acts 2012, ch. 160, § 27, effective July 12, 2012.

272A.4-060. Restated articles of association.

A limited cooperative association, by the affirmative vote of a majority of the board of directors taken at a meeting for which the purpose is stated in the notice of the meeting, may adopt restated articles of association that contain the original articles as previously amended. Restated articles may contain amendments if the restated articles are adopted in the same manner and with the same vote as required for amendments to the articles under KRS 272A.4-050 . Upon filing, restated articles supersede the existing articles and all amendments.

History. Enact. Acts 2012, ch. 160, § 28, effective July 12, 2012.

272A.4-070. Amendment or restatement of articles of association — Filing.

  1. To amend its articles of association, a limited cooperative association shall deliver to the Secretary of State for filing an amendment of the articles, or restated articles of association or articles of conversion or merger pursuant to Subchapter 16 of this chapter, which contain one (1) or more amendments of the articles of association, stating:
    1. The name of the association;
    2. The date of filing of the association’s initial articles; and
    3. The changes the amendment makes to the articles as most recently amended or restated.
  2. If restated articles of association are adopted, the restated articles may be delivered to the Secretary of State for filing in the same manner as an amendment.
  3. Upon filing, an amendment of the articles of association or other record containing an amendment of the articles which has been properly adopted by the members is effective as provided in KRS 14A.2-070 .

History. Enact. Acts 2012, ch. 160, § 29, effective July 12, 2012.

SUBCHAPTER 5. Members

272A.5-010. Members — Becoming a member.

  1. To begin business, a limited cooperative association shall have at least two (2) patron members unless the sole member is a cooperative.
  2. A person becomes a member:
    1. As provided in the organic rules;
    2. As the result of a merger or conversion under Subchapter 16 of this chapter; or
    3. With the consent of all the members.

History. Enact. Acts 2012, ch. 160, § 30, effective July 12, 2012.

Legislative Research Commission Note.

(7/12/2012). The reference to “Subchapter 116” in subsection (2)(b) of 2012 Ky. Acts ch. 160, sec. 30, has been changed in codification to “Subchapter 16.” This manifest clerical or typographical error has been corrected by the Reviser of Statutes under the authority of KRS 7.136(1).

272A.5-020. No power as member to bind association.

A member, solely by reason of being a member, may not act for or bind the limited cooperative association.

History. Enact. Acts 2012, ch. 160, § 31, effective July 12, 2012.

272A.5-030. Liability as member for association’s obligations.

  1. Unless the articles of association otherwise provide, a debt, obligation, or other liability of a limited cooperative association is solely that of the association and is not the debt, obligation, or liability of a member solely by reason of being a member.
  2. Notwithstanding subsection (1) of this section, under the written organic rules or under another written agreement, a member may agree to be obligated personally for any of the debts, obligations, and liabilities of the limited cooperative association.
  3. Subsection (1) of this section shall not affect the liability of a member of a limited cooperative association for his or her own negligence, wrongful acts, or misconduct.

History. Enact. Acts 2012, ch. 160, § 32, effective July 12, 2012.

272A.5-040. Right of member to information.

  1. Not later than ten (10) business days after receipt of a demand made in a record, a limited cooperative association shall permit a member to obtain, inspect, and copy in the association’s principal office required information listed in KRS 272A.1-120 (1)(a) to (h) during regular business hours. A member need not have any particular purpose for seeking the information. The association is not required to provide the same information listed in KRS 272A.1-120 (1)(b) to (h) to the same member more than once during a six (6) month period.
  2. On demand made in a record received by the limited cooperative association, a member may obtain, inspect, and copy in the association’s principal office required information listed in KRS 272A.1-120 (1)(i), (j), (l), (m), (p), and (r) during regular business hours, if:
    1. The member seeks the information in good faith and for a proper purpose reasonably related to the member’s interest;
    2. The demand includes a description with reasonable particularity of the information sought and the purpose for seeking the information;
    3. The information sought is directly connected to the member’s purpose; and
    4. The demand is reasonable.
  3. Not later than ten (10) business days after receipt of a demand pursuant to subsection (2) of this section, a limited cooperative association shall provide, in a record, the following information to the member that made the demand:
    1. If the association agrees to provide the demanded information:
      1. What information the association will provide in response to the demand; and
      2. A reasonable time and place at which the association will provide the information; or
    2. If the association declines to provide some or all of the demanded information, the association’s reasons for declining.
  4. A person dissociated as a member may obtain, inspect, and copy information available to a member under subsection (1) or (2) of this section by delivering a demand in a record to the limited cooperative association in the same manner and subject to the same conditions applicable to a member under subsection (2) of this section if:
    1. The information pertains to the period during which the person was a member in the association; and
    2. The person seeks the information in good faith.
  5. A limited cooperative association shall respond to a demand made pursuant to subsection (4) of this section in the manner provided in subsection (3) of this section.
  6. Not later than ten (10) business days after receipt by a limited cooperative association of a demand made by a member in a record, but not more often than once in a six (6) month period, the association shall deliver to the member a record stating the information with respect to the member required by KRS 272A.1-120 (1)(q).
  7. A limited cooperative association may impose reasonable restrictions, including nondisclosure restrictions, on the use of information obtained under this section. Except as to limitations set forth in organic rules to which a member requesting inspection has assented, in a dispute concerning the reasonableness of a restriction under this subsection, the association has the burden of proving reasonableness.
  8. A limited cooperative association may charge a person that makes a demand under this section the reasonable costs of copying, limited to the costs of labor and material.
  9. A person that may obtain information under this section may obtain the information through an attorney or other agent. A restriction imposed on the person under subsection (7) of this section or by the organic rules applies to the attorney or other agent.
  10. The rights stated in this section do not extend to a person as transferee.
  11. The organic rules may require a limited cooperative association to provide more information than required by this section, and the organic rules may establish conditions and procedures for providing the information.

History. Enact. Acts 2012, ch. 160, § 33, effective July 12, 2012.

272A.5-050. Annual meeting of members.

  1. Members shall meet annually at a time provided in the organic rules or set by the board of directors not inconsistent with the organic rules.
  2. An annual members meeting may be held inside or outside the Commonwealth of Kentucky at the place stated in the organic rules or selected by the board of directors not inconsistent with the organic rules.
  3. Unless the organic rules otherwise provide, members may attend or conduct an annual members meeting through any means of communication if all members attending the meeting can communicate with each other during the meeting.
  4. The board of directors shall report, or cause to be reported, at the association’s annual members meeting the association’s business and financial condition as of the close of the most recent fiscal year.
  5. Unless the organic rules otherwise provide, the board of directors shall designate the presiding officer of the association’s annual members meeting.
  6. Failure to hold an annual members meeting does not affect the validity of any action by the limited cooperative association.

History. Enact. Acts 2012, ch. 160, § 34, effective July 12, 2012.

272A.5-060. Special meeting of members.

  1. A special meeting of members may be called only:
    1. As provided in the organic rules;
    2. By a majority vote of the board of directors on a proposal stating the purpose of the meeting;
    3. By demand in a record signed by members holding at least twenty percent (20%) of the voting power of the persons in any district or class entitled to vote on the matter that is the purpose of the meeting stated in the demand; or
    4. By demand in a record signed by members holding at least ten percent (10%) of the total voting power of all the persons entitled to vote on the matter that is the purpose of the meeting stated in the demand.
  2. A demand under subsection (1)(c) or (d) of this section shall be submitted to the officer of the limited cooperative association charged with keeping its records.
  3. Any voting member may withdraw its demand under subsection (1)(c) or (d) of this section before receipt by the limited cooperative association of demands sufficient to require a special meeting of members.
  4. A special meeting of members may be held inside or outside this state at the place stated in the organic rules or selected by the board of directors not inconsistent with the organic rules.
  5. Unless the organic rules otherwise provide, members may attend or conduct a special meeting of members through the use of any means of communication if all members attending the meeting can communicate with each other during the meeting.
  6. Only business within the purpose or purposes stated in the notice of a special meeting of members may be conducted at the meeting.
  7. Unless the organic rules otherwise provide, the presiding officer of a special meeting of members shall be designated by the board of directors.

History. Enact. Acts 2012, ch. 160, § 35, effective July 12, 2012.

272A.5-070. Notice of members meeting.

  1. A limited cooperative association shall notify each member of the time, date, and place of a members meeting at least ten (10) and not more than sixty (60) days before the meeting.
  2. Unless the articles of association otherwise provide, notice of an annual members meeting need not include any purpose of the meeting.
  3. Notice of a special meeting of members shall include each purpose of the meeting as contained in the demand under KRS 272A.5-060 (1)(c) or (d) or as voted upon by the board of directors under KRS 272A.5-060 (1)(b).
  4. Notice of a members meeting shall be given in a record unless oral notice is reasonable under the circumstances.

History. Enact. Acts 2012, ch. 160, § 36, effective July 12, 2012.

272A.5-080. Waiver of notice.

  1. A member may waive notice of a members meeting before, during, or after the meeting.
  2. A member’s participation in a members meeting is a waiver of notice of that meeting unless the member objects to the meeting at the beginning of the meeting or promptly upon the member’s arrival at the meeting and does not thereafter vote for or assent to action taken at the meeting.

History. Enact. Acts 2012, ch. 160, § 37, effective July 12, 2012.

272A.5-090. Quorum of members.

Unless the organic rules otherwise require a greater number of members or percentage of the voting power, the voting member or members present at a members meeting constitute a quorum.

History. Enact. Acts 2012, ch. 160, § 38, effective July 12, 2012.

272A.5-100. Voting by patron members — Determination of voting power of patron member.

  1. Except as provided by subsections (2) and (3) of this section, each patron member has one (1) vote.
  2. The organic rules may allocate voting power among patron members on the basis of one (1) or a combination of the following:
    1. One (1) member, one (1) vote;
    2. Use or patronage;
    3. Equity; or
    4. If a patron member is a cooperative, the number of its patron members.
  3. The organic rules may provide for the allocation of patron member voting power by districts or class, or any combination thereof.

History. Enact. Acts 2012, ch. 160, § 39, effective July 12, 2012.

272A.5-110. Voting by investor members.

If the organic rules provide for investor members, each investor member has one (1) vote, unless the organic rules otherwise provide. The organic rules may provide for the allocation of investor member voting power by class, classes, or any combination of classes.

History. Enact. Acts 2012, ch. 160, § 40, effective July 12, 2012.

272A.5-120. Voting requirements for members.

If a limited cooperative association has both patron and investor members, the following rules apply:

  1. The total voting power of all patron members may not be less than a majority of the entire voting power entitled to vote;
  2. Action on any matter is approved only upon the affirmative vote of at least a majority of:
    1. All members voting at the meeting unless more than a majority is required by Subchapter 4, 12, 15, or 16 of this chapter or the organic rules; and
    2. Votes cast by patron members unless the organic rules require a larger affirmative vote by patron members; and
  3. The organic rules may provide for the percentage of the affirmative votes that must be cast by investor members to approve the matter.

History. Enact. Acts 2012, ch. 160, § 41, effective July 12, 2012.

272A.5-130. Manner of voting — Proxies.

  1. Unless the organic rules otherwise provide, voting by a proxy at a members meeting is prohibited. This subsection does not prohibit delegate voting based on district or class.
  2. If voting by a proxy is permitted, a patron member may appoint only another patron member as a proxy and, if investor members are permitted, an investor member may appoint only another investor member as a proxy.
  3. The organic rules may provide for the manner of and provisions governing the appointment of a proxy.
  4. The organic rules may provide for voting on any question by ballot delivered by mail or voting by other means on questions that are subject to vote by members.

History. Enact. Acts 2012, ch. 160, § 42, effective July 12, 2012.

272A.5-140. Action without a meeting.

  1. Unless the organic rules require that action be taken only at a members meeting, any action that may be taken by the members may be taken without a meeting if each member entitled to vote on the action consents in a record to the action.
  2. Consent under subsection (1) of this section may be withdrawn by a member in a record at any time before the limited cooperative association receives a consent from each member entitled to vote.
  3. Consent to any action may specify the effective date or time of the action.

History. Enact. Acts 2012, ch. 160, § 43, effective July 12, 2012.

272A.5-150. Districts and delegates — Classes of members.

  1. The organic rules may provide for the formation of geographic districts of patron members and:
    1. For the conduct of patron member meetings by districts and the election of directors at the meetings; or
    2. That districts may elect district delegates to represent and vote for the district at members meetings.
  2. A delegate elected under subsection (1)(b) of this section has one (1) vote unless voting power is otherwise allocated by the organic rules.
  3. The organic rules may provide for the establishment of classes of members, for the preferences, rights, and limitations of the classes, and:
    1. For the conduct of members meetings by classes and the election of directors at the meetings; or
    2. That classes may elect class delegates to represent and vote for the class in members meetings.
  4. A delegate elected under subsection (3)(b) of this section has one (1) vote unless voting power is otherwise allocated by the organic rules.

History. Enact. Acts 2012, ch. 160, § 44, effective July 12, 2012.

SUBCHAPTER 6. Member’s Interest in Limited Cooperative Association

272A.6-010. Member’s interest.

A member’s interest:

  1. Is personal property;
  2. Consists of:
    1. Governance rights;
    2. Financial rights; and
    3. The right or obligation, if any, to do business with the limited cooperative association; and
  3. May be in certificated or uncertificated form.

History. Enact. Acts 2012, ch. 160, § 45, effective July 12, 2012.

272A.6-020. Patron and investor members’ interests.

  1. Unless the organic rules establish investor members’ interests, a member’s interest is a patron member’s interest.
  2. Unless the organic rules otherwise provide, if a limited cooperative association has investor members, while a person is a member of the association, the person:
    1. If admitted as a patron member, remains a patron member;
    2. If admitted as an investor member, remains an investor member; and
    3. If admitted as a patron member and investor member, remains a patron and investor member if not dissociated in one (1) of the capacities.

History. Enact. Acts 2012, ch. 160, § 46, effective July 12, 2012.

272A.6-030. Transferability of member’s interest.

  1. The provisions of this chapter relating to the transferability of a member’s interest are subject to the Uniform Commercial Code as enacted in the Commonwealth of Kentucky in KRS Chapter 355.
  2. Unless the organic rules otherwise provide, a member’s interest other than financial rights is not transferable.
  3. Unless a transfer is restricted or prohibited by the organic rules, a member may transfer the member’s financial rights in the limited cooperative association.
  4. The terms of any restriction on transferability of financial rights shall be:
    1. Set forth in the organic rules and the member records of the association; and
    2. Conspicuously noted on any certificates evidencing a member’s interest.
  5. A transferee of a member’s financial rights, to the extent the rights are transferred, has the right to share in the allocation of profits or losses and to receive the distributions to the member transferring the interest to the same extent as the transferring member. A transferee of a member’s financial rights does not become a member upon transfer of the financial rights unless the transferee is admitted as a member by the limited cooperative association and has no governance rights in the association.
  6. Except as provided in the organic rules, a member who has conveyed all of the member’s financial rights shall remain a member.
  7. A limited cooperative association need not give effect to a transfer under this section until the association has notice of the transfer.
  8. A transfer of a member’s financial rights in violation of a restriction on transfer contained in the organic rules is ineffective as to a person having notice of the restriction at the time of transfer.

History. Enact. Acts 2012, ch. 160, § 47, effective July 12, 2012.

272A.6-040. Security interest and set-off.

  1. A member or transferee may create an enforceable security interest in its financial rights in a limited cooperative association.
  2. Unless the organic rules otherwise provide, a member may not create an enforceable security interest in the member’s governance rights in a limited cooperative association.
  3. The organic rules may provide that a limited cooperative association has a security interest in the financial rights of a member to secure payment of any indebtedness or other obligation of the member to the association. A security interest provided for in the organic rules is enforceable under, and governed by, Article 9 of KRS Chapter 355.
  4. Unless the organic rules otherwise provide, a member may not compel the limited cooperative association to offset financial rights against any indebtedness or obligation owed to the association.

History. Enact. Acts 2012, ch. 160, § 48, effective July 12, 2012.

272A.6-050. Charging order.

  1. This section provides the exclusive remedy by which the judgment creditor of a member or the assignee of a member may satisfy a judgment out of the judgment debtor’s limited financial rights in a limited cooperative association.
  2. On application to a court of competent jurisdiction by a judgment creditor of a member or a member’s assignee, a court may charge the judgment debtor’s financial rights in the association with payment of the unsatisfied amount of the judgment. To the extent so charged, the judgment creditor has only the rights of a transferee and shall have no right to participate in the management or to cause the dissolution of the association. The court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor in respect of the financial rights and make all other orders, directions, accounts, and inquiries the judgment debtor might have made or which the circumstances of the case may require to give effect to the charging order.
  3. A charging order constitutes a lien on and the right to receive distributions made with respect to the judgment debtor’s financial rights. A charging order does not of itself constitute an assignment of the financial rights.
  4. The court may order a foreclosure upon the financial rights subject to the charging order at any time. The purchaser of the financial rights at the foreclosure sale has the rights of a transferee. At any time before foreclosure, the charged financial rights may be redeemed:
    1. By the judgment debtor;
    2. With property other than property of the association, by one (1) or more of the other members; and
    3. With association property, by the association with the consent of all members whose financial rights are not so charged.
  5. This section does not deprive a member or a member’s assignee of the benefit of any exemption laws applicable to the member’s or assignee’s financial rights.
  6. The association is not a necessary part to an application for a charging order. Service of the charging order on an association may be made by the court granting the charging order or as the court should otherwise direct.
  7. This section does not apply to the enforcement of a judgment by a limited cooperative association against a member of that association.
  8. This section shall apply to the issuance of a charging order against the interest of a member or assignee of a member of a foreign limited cooperative association.

HISTORY: Enact. Acts 2012, ch. 160, § 49, effective July 12, 2012; 2017 ch. 193, § 9, effective June 29, 2017.

SUBCHAPTER 7. Marketing Contracts

272A.7-010. Definition of marketing contract.

As used in this subchapter, “marketing contract” means a contract between a limited cooperative association and another person that need not be a patron member:

  1. Requiring the other person to sell, or deliver for sale or marketing on the person’s behalf, a specified part of the person’s products, commodities, or goods exclusively to or through the association or any facilities furnished by the association; or
  2. Authorizing the association to act for the person in any manner with respect to the products, commodities, or goods.

History. Enact. Acts 2012, ch. 160, § 50, effective July 12, 2012.

272A.7-020. Marketing contracts — Title and enforcement.

  1. If a marketing contract provides for the sale of products, commodities, or goods to a limited cooperative association, the sale transfers title to the association upon delivery or at any other specific time expressly provided by the contract.
  2. A marketing contract may:
    1. Authorize a limited cooperative association to create an enforceable security interest in the products, commodities, or goods delivered; and
    2. Allow the association to sell the products, commodities, or goods delivered and pay the sales price on a pooled or other basis after deducting selling costs, processing costs, overhead, expenses, and other charges.
  3. Some or all of the provisions of a marketing contract between a patron member and a limited cooperative association may be contained in the organic rules.

History. Enact. Acts 2012, ch. 160, § 51, effective July 12, 2012.

272A.7-030. Duration of marketing contracts.

The initial duration of a marketing contract may not exceed ten (10) years, but the contract may be self-renewing for additional periods not exceeding five (5) years each. Unless the contract provides for another manner or time for termination, either party may terminate the contract by giving notice in a record at least ninety (90) days before the end of the current term.

History. Enact. Acts 2012, ch. 160, § 52, effective July 12, 2012.

272A.7-040. Remedies for breach of marketing contract.

  1. Damages to be paid to a limited cooperative association for breach or anticipatory repudiation of a marketing contract may be liquidated, but only at an amount or under a formula that is reasonable in light of the actual or anticipated harm caused by the breach or repudiation assessed as of the time of the making of the marketing contract. A provision that so provides is not a penalty or otherwise unreasonable.
  2. Upon a breach of a marketing contract, whether by anticipatory repudiation or otherwise, a limited cooperative association may seek:
    1. An injunction to prevent further breach; and
    2. Specific performance.
  3. The remedies in this section are in addition to any other remedies available to an association under law other than this chapter.

History. Enact. Acts 2012, ch. 160, § 53, effective July 12, 2012.

SUBCHAPTER 8. Board of Directors — Officers

272A.8-010. Board of directors.

  1. A limited cooperative association shall have a board of directors of at least three (3) individuals, unless the association has fewer than three (3) members. If the association has fewer than three (3) members, the number of directors may not be fewer than the number of members.
  2. The affairs of a limited cooperative association shall be managed by, or under the direction of, the board of directors. The board may adopt policies and procedures that do not conflict with the organic rules or this chapter.
  3. An individual is not an agent for a limited cooperative association solely by being a director.

History. Enact. Acts 2012, ch. 160, § 54, effective July 12, 2012.

272A.8-020. Liability as director for limited cooperative association’s obligations.

  1. A debt, obligation, or other liability of a limited cooperative association is solely that of the association and is not a debt, obligation, or liability of a director solely by reason of being a director. An individual is not personally liable, directly or indirectly, for an obligation of an association solely by reason of being a director.
  2. Subsection (1) of this section shall not affect the liability of a director of an association for his or her own negligence, wrongful acts, or misconduct.

History. Enact. Acts 2012, ch. 160, § 55, effective July 12, 2012.

272A.8-030. Director qualifications.

  1. Unless the organic rules otherwise provide, and subject to subsection (3) of this section, each director of a limited cooperative association shall be an individual who is a member of the association or an individual who is designated by an entity member for purposes of qualifying and serving as a director. Initial directors need not be members.
  2. Unless the organic rules otherwise provide, a director may be an officer or employee of the limited cooperative association.
  3. If the organic rules provide for nonmember directors, the number of nonmember directors may not exceed:
    1. One (1), if there are two (2) through four (4) directors;
    2. Two (2), if there are five (5) through eight (8) directors; or
    3. One-third (1/3) of the total number of directors if there are at least nine (9) directors.
  4. The organic rules may provide qualifications for directors in addition to those in this section.

History. Enact. Acts 2012, ch. 160, § 56, effective July 12, 2012.

272A.8-040. Election of directors and composition of board.

  1. Unless the organic rules require a greater number:
    1. The number of directors that must be patron members may not be fewer than:
      1. One (1), if there are two (2) or three (3) directors;
      2. Two (2), if there are four (4) or five (5) directors;
      3. Three (3), if there are six (6) through eight (8) directors; or
      4. One-third (1/3) of the directors if there are at least nine (9) directors; and
    2. A majority of the board of directors shall be elected exclusively by patron members.
  2. Unless the organic rules otherwise provide, if a limited cooperative association has investor members, the directors who are not elected exclusively by patron members are elected by the investor members.
  3. Subject to subsection (1) of this section, the organic rules may provide for the election of all or a specified number of directors by one (1) or more districts or classes of members.
  4. Subject to subsection (1) of this section, the organic rules may provide for the nomination or election of directors by districts or classes, directly or by district delegates.
  5. If a class of members consists of a single member, the organic rules may provide for the member to appoint a director or directors.
  6. Unless the organic rules otherwise provide, cumulative voting for directors is prohibited.
  7. Except as otherwise provided by the organic rules, subsection (5) of this section, or KRS 272A.3-020 , 272A.5-140 , 272A.5-150 , and 272A.8-090 , member directors shall be elected at an annual members meeting.
  8. Every director of a limited cooperative association, by acceptance of election or appointment as a director, including by service, shall be deemed to have consented to the jurisdiction of the courts of the Commonwealth of Kentucky for any action by, in the name of, or on behalf of the association.

History. Enact. Acts 2012, ch. 160, § 57, effective July 12, 2012.

272A.8-050. Term of directors.

  1. Unless the organic rules otherwise provide, and subject to subsections (3) and (4) of this section and KRS 272A.3-020 (5), the term of a director expires at the annual members meeting following the director’s election or appointment. The term of a director may not exceed three (3) years.
  2. Unless the organic rules otherwise provide, a director may be reelected.
  3. Except as otherwise provided in subsection (4) of this section, a director continues to serve until a successor director is elected or appointed and qualifies or the director is removed, resigns, is adjudged incompetent, or dies.
  4. Unless the organic rules otherwise provide, a director does not serve the remainder of the director’s term if the director ceases to qualify to be a director.

History. Enact. Acts 2012, ch. 160, § 58, effective July 12, 2012.

272A.8-060. Resignation of director.

A director may resign at any time by giving notice in a record to the limited cooperative association. Unless the notice states a later effective date, a resignation is effective when the notice is received by the association.

History. Enact. Acts 2012, ch. 160, § 59, effective July 12, 2012.

272A.8-070. Removal of director.

  1. Members may remove a director with or without cause.
  2. A member or members holding at least ten percent (10%) of the total voting power entitled to be voted in the election of a director may demand removal of the director by one (1) or more signed petitions submitted to the officer of the limited cooperative association charged with keeping its records.
  3. Upon receipt of a petition for removal of a director, an officer of the association or the board of directors shall:
    1. Call a special meeting of members to be held not later than forty-five (45) days after receipt of the petition by the association; and
    2. Mail or otherwise transmit or deliver in a record to the members entitled to vote on the removal, and to the director to be removed, notice of the meeting which complies with KRS 272A.5-070 .
  4. A director is removed if the votes in favor of removal are equal to or greater than the votes required to elect the director.

History. Enact. Acts 2012, ch. 160, § 60, effective July 12, 2012.

272A.8-080. Suspension of director by board.

  1. A board of directors may suspend a director if, considering the director’s course of conduct and the inadequacy of other available remedies, immediate suspension is necessary for the best interests of the association and the director is engaging, or has engaged, in:
    1. Fraudulent conduct with respect to the association or its members;
    2. Gross abuse of the position of director;
    3. Intentional or reckless infliction of harm on the association; or
    4. Any other behavior, act, or omission as provided by the organic rules.
  2. A suspension under subsection (1) of this section is effective for thirty (30) days unless the board of directors calls and gives notice of a special meeting of members for removal of the director before the end of the thirty (30) day period, in which case the suspension is effective until adjournment of the meeting or the director is removed.

History. Enact. Acts 2012, ch. 160, § 61, effective July 12, 2012.

272A.8-090. Vacancy on board.

  1. Unless the organic rules otherwise provide, a vacancy on the board of directors shall be filled:
    1. Within a reasonable time by majority vote of the remaining directors until the next annual members meeting or a special meeting of members called to fill the vacancy; and
    2. For the unexpired term by members at the next annual members meeting or a special meeting of members called to fill the vacancy.
  2. Unless the organic rules otherwise provide, if a vacating director was elected or appointed by a class of members or a district:
    1. The new director shall be of that class or district; and
    2. The selection of the director for the unexpired term shall be conducted in the same manner as would the selection for that position without a vacancy.
  3. If a member appointed a vacating director, the organic rules may provide for that member to appoint a director to fill the vacancy.

History. Enact. Acts 2012, ch. 160, § 62, effective July 12, 2012.

272A.8-100. Remuneration of directors.

Unless the organic rules otherwise provide, the board of directors may set the remuneration of directors and of nondirector committee members appointed under KRS 272A.8-170 .

History. Enact. Acts 2012, ch. 160, § 63, effective July 12, 2012.

272A.8-110. Board meetings.

  1. A board of directors shall meet at least annually and may hold meetings inside or outside of the Commonwealth of Kentucky.
  2. Unless the organic rules provide otherwise, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during this meeting. A director participating in a meeting by this means shall be deemed to be present in person at the meeting.

History. Enact. Acts 2012, ch. 160, § 64, effective July 12, 2012.

272A.8-120. Board action without meeting.

  1. Unless prohibited by the organic rules, any action that may be taken by a board of directors may be taken without a meeting if each director consents in a record to the action.
  2. Consent under subsection (1) of this section may be withdrawn by a director in a record at any time before the limited cooperative association receives consent from all directors.
  3. A record of consent for any action under subsection (1) of this section may specify the effective date or time of the action.

History. Enact. Acts 2012, ch. 160, § 65, effective July 12, 2012.

272A.8-130. Meetings and notice.

  1. Unless the organic rules otherwise provide, a board of directors may establish a time, date, and place for regular board meetings, and notice of the time, date, place, or purpose of those meetings is not required.
  2. Unless the organic rules otherwise provide, notice of the time, date, and place of a special meeting of a board of directors shall be given to all directors at least three (3) days before the meeting, the notice shall contain a statement of the purpose of the meeting, and the meeting is limited to the matters contained in the statement.

History. Enact. Acts 2012, ch. 160, § 66, effective July 12, 2012.

272A.8-140. Waiver of notice of meeting.

  1. Unless the organic rules otherwise provide, a director may waive any required notice of a meeting of the board of directors in a record before, during, or after the meeting.
  2. Unless the organic rules otherwise provide, a director’s participation in a meeting is a waiver of notice of that meeting unless:
    1. The director objects to the meeting at the beginning of the meeting or promptly upon the director’s arrival at the meeting and does not thereafter vote in favor of or otherwise assent to the action taken at the meeting; or
    2. The director promptly objects upon the introduction of any matter for which notice under KRS 272A.8-130 has not been given and does not thereafter vote in favor of or otherwise assent to the action taken on the matter.

History. Enact. Acts 2012, ch. 160, § 67, effective July 12, 2012.

272A.8-150. Quorum.

  1. Unless the articles of association provide for a greater number, a majority of the total number of directors specified by the organic rules constitutes a quorum for a meeting of the directors.
  2. If a quorum of the board of directors is present at the beginning of a meeting, any action taken by the directors present is valid even if withdrawal of directors originally present results in the number of directors being fewer than the number required for a quorum.
  3. A director present at a meeting but objecting to notice under KRS 272A.8-140 (2) does not count toward a quorum.

History. Enact. Acts 2012, ch. 160, § 68, effective July 12, 2012.

272A.8-160. Voting.

  1. Each director shall have one (1) vote for purposes of decisions made by the board of directors.
  2. Unless the organic rules otherwise provide, the affirmative vote of a majority of directors present at a meeting is required for action by the board of directors.
  3. Directors may not vote by proxy.

History. Enact. Acts 2012, ch. 160, § 69, effective July 12, 2012.

272A.8-170. Committees.

  1. Unless the organic rules otherwise provide, a board of directors may create one (1) or more committees and appoint one (1) or more individuals to serve on a committee.
  2. Unless the organic rules otherwise provide, an individual appointed to serve on a committee of a limited cooperative association need not be a director or member.
  3. An individual who is not a director and is serving on a committee has the same rights, duties, and obligations as a director serving on the committee.
  4. Unless the organic rules otherwise provide, each committee of a limited cooperative association may exercise the powers delegated to it by the board of directors, but a committee may not:
    1. Approve allocations or distributions, except according to a formula or method prescribed by the board of directors;
    2. Approve or propose to the members action requiring approval of the members; or
    3. Fill vacancies on the board of directors or any of its committees.

History. Enact. Acts 2012, ch. 160, § 70, effective July 12, 2012.

272A.8-180. Fiduciary standards of directors — Conflict of interest.

Except as otherwise provided in KRS 272A.8-190 :

  1. The fiduciary duties a director owes to the limited cooperative association include the duty of loyalty and the duty of care set forth in subsections (2) and (3) of this section;
  2. A director’s duty of loyalty to the limited cooperative association includes but is not limited to the following:
    1. To account to the association and hold as trustee for it any property, profit, or benefit derived by the director in the conduct and winding up of the association’s business or derived from a use by the director of association property, including the appropriation of a opportunity;
    2. To refrain from dealing with the association in the conduct or winding up of association business as or on behalf of a party having an interest adverse to the association; and
    3. To refrain from competing with the association in the conduct of association business before the dissolution of the association;
  3. A director’s duty of care to the limited cooperative association and the members thereof in the conduct and winding up of association business includes but is not limited to acting with the care that a reasonable person in a like position would exercise under similar circumstances and in a manner that the director reasonably believes to be in the best interests of the association;
  4. A director does not violate a duty or obligation under this subchapter or under the association’s organic rules merely because the director’s conduct furthers the director’s own interest; and
  5. A director may lend money to, act as a surety, guarantor, or endorser for, guarantee or assume one (1) or more specific obligations of, provide collateral for and transact other business with the limited cooperative association, and as to each loan or transaction the rights and obligations of the director are the same as those of a person who is not a director, subject to other applicable law.

History. Enact. Acts 2012, ch. 160, § 71, effective July 12, 2012.

272A.8-190. Other considerations of directors.

Unless the articles of association otherwise provide, in considering the best interests of a limited cooperative association, in discharging the duties of director, in conjunction with considering the long-and short-term interest of the association and its patron members, a director may consider:

  1. The interest of employees, customers, and suppliers of the association;
  2. The interest of the community in which the association operates; and
  3. Other cooperative principles and values that may be applied in the context of the decision.

History. Enact. Acts 2012, ch. 160, § 72, effective July 12, 2012.

272A.8-200. Right of director or committee member to information.

A director or a member of a committee appointed under KRS 272A.8-170 may obtain, inspect, and copy all information regarding the state of activities and financial condition of the limited cooperative association and other information regarding the activities of the association if the information is reasonably related to the performance of the director’s duties as director or the committee member’s duties as a member of the committee. Information obtained in accordance with this section may not be used in any manner that would violate any duty of or to the association.

History. Enact. Acts 2012, ch. 160, § 73, effective July 12, 2012.

272A.8-210. Appointment and authority of officers.

  1. A limited cooperative association has the officers:
    1. Provided in the organic rules; or
    2. Established by the board of directors in a manner not inconsistent with the organic rules.
  2. The organic rules may designate or, if the rules do not designate, the board of directors shall designate, one (1) of the association’s officers for preparing all records required by KRS 272A.1-120 and for the authentication of records.
  3. Unless the organic rules otherwise provide, the board of directors shall appoint the officers of the limited cooperative association.
  4. Officers of a limited cooperative association shall perform the duties the organic rules prescribe or as authorized by the board of directors not in a manner inconsistent with the organic rules.
  5. The election or appointment of an officer of a limited cooperative association does not of itself create a contract between the association and the officer.
  6. Unless the organic rules otherwise provide, an individual may simultaneously hold more than one (1) office in a limited cooperative association.

History. Enact. Acts 2012, ch. 160, § 74, effective July 12, 2012.

272A.8-220. Resignation and removal of officers.

  1. The board of directors may remove an officer at any time with or without cause.
  2. An officer of a limited cooperative association may resign at any time by giving notice in a record to the association. Unless the notice specifies a later time, the resignation is effective when the notice is given.

History. Enact. Acts 2012, ch. 160, § 75, effective July 12, 2012.

SUBCHAPTER 9. Indemnification

272A.9-010. Indemnification and advancement.

  1. The organic rules may provide indemnification to a director for judgments, settlements, penalties, fines, or expenses incurred in a proceeding to which a director is a party because the person is a director.
  2. No indemnification may be provided for conduct violating the standards in effect pursuant to KRS 272A.8-180 .
  3. The organic rules may provide that the limited cooperative association may advance expenses, including reasonable attorney’s fees and costs, incurred by a director in connection with a claim or demand against the director by reason of the director’s relationship to an association before the final disposition of the claim or demand, upon an undertaking by or on behalf of the director to repay the association if the director is ultimately determined not to be entitled to be indemnified under subsection (2) of this section. The terms of the undertaking shall be as set forth in the organic rules or as approved by the disinterested director and shall be in a record.
  4. The organic rules may provide for the indemnification of and advancement to other persons including committee members who are not directors.

History. Enact. Acts 2012, ch. 160, § 76, effective July 12, 2012.

SUBCHAPTER 10. Contributions, Allocations, and Distributions

272A.10-010. Member contributions.

The organic rules shall establish the amount, manner, or method of determining any contribution requirements for members or shall authorize the board of directors to establish the amount, manner, or other method of determining any contribution requirements for members.

History. Enact. Acts 2012, ch. 160, § 77, effective July 12, 2012.

272A.10-020. Contribution and valuation.

  1. Unless the organic rules otherwise provide, the contributions of a member to a limited cooperative association may consist of tangible or intangible property or other benefit to the association, including money, labor, or other services performed or to be performed, promissory notes, other agreements to contribute money or property, and contracts to be performed.
  2. The receipt and acceptance of contributions and the valuation of contributions shall be reflected in a limited cooperative association’s records.
  3. Unless the organic rules otherwise provide, the board of directors shall determine the value of a member’s contributions received or to be received, and the determination by the board of directors of valuation is conclusive for purposes of determining whether the member’s contribution obligation has been met.

History. Enact. Acts 2012, ch. 160, § 78, effective July 12, 2012.

272A.10-030. Contribution agreements.

  1. Except as otherwise provided in the agreement, the following rules apply to an agreement made by a person before formation of a limited cooperative association to make a contribution to the association:
    1. The agreement is irrevocable for six (6) months after the agreement is signed by the person unless all parties to the agreement consent to the revocation; and
    2. If a person does not make a required contribution:
      1. The person is obligated, at the option of the association, once formed, to contribute money equal to the value of that part of the contribution that has not been made, and the obligation may be enforced as a debt to the association; or
      2. The association, once formed, may rescind the agreement if the debt remains unpaid more than twenty (20) days after the association demands payment from the person, and upon rescission the person has no further rights or obligations with respect to the association.
  2. With respect to any agreement to make a contribution to a limited cooperative association made at the time of or subsequent to its formation, unless the organic rules or an agreement to make a contribution to a limited cooperative association otherwise provide, if a person does not make a required contribution to an association, the person or the person’s estate is obligated, at the option of the association, to contribute money equal to the value of the part of the contribution which has not been made.

History. Enact. Acts 2012, ch. 160, § 79, effective July 12, 2012.

272A.10-040. Allocation of profits and losses.

  1. The organic rules may provide for allocating profits of a limited cooperative association among members, among persons that are not members but conduct business with the association, to an unallocated account, or to any combination thereof. Unless the organic rules otherwise provide, losses of the association shall be allocated in the same proportion as profits.
  2. Unless the organic rules otherwise provide, all profits and losses of a limited cooperative association shall be allocated to patron members.
  3. If a limited cooperative association has investor members, the organic rules may not allocate to patron members less than fifty percent (50%) of profits. For purposes of this subsection, the following rules apply:
    1. Amounts paid or due on contracts for the delivery to the association by patron members of products, goods, or services are not considered amounts allocated to patron members; and
    2. Amounts paid, due, or allocated to investor members as a stated fixed return on equity are not considered amounts allocated to investor members.
  4. Unless prohibited by the organic rules, in determining the profits for allocation under subsections (1), (2), and (3) of this section, the board of directors may first deduct and set aside a part of the profits to create or accumulate:
    1. An unallocated capital reserve; and
    2. Reasonable unallocated reserves for specific purposes, including:
      1. Expansion and replacement of capital assets;
      2. Education, training, and cooperative development;
      3. Creation and distribution of information concerning principles of cooperation; and
      4. Community responsibility.
  5. Subject to subsections (2) and (6) of this section and the organic rules, the board of directors shall allocate the amount remaining after any deduction or setting aside of profits for unallocated reserves under subsection (4) of this section:
    1. To patron members in the ratio of each member’s patronage to the total patronage of all patron members during the period for which allocations are to be made; and
    2. To investor members, if any, in the ratio of each investor member’s contributions to the total contributions of all investor members.
  6. For purposes of allocation of profits and losses or specific items of profits or losses of a limited cooperative association to members, the organic rules may establish allocation units or methods based on separate classes of members or, for patron members, on class, function, division, district, department, allocation units, pooling arrangements, members’ contributions, or other equitable methods.

History. Enact. Acts 2012, ch. 160, § 80, effective July 12, 2012.

272A.10-050. Distributions.

  1. Unless the organic rules otherwise provide and subject to KRS 272A.10-070 , the board of directors may authorize, and the limited cooperative association may make, distributions to members.
  2. Unless the organic rules otherwise provide, distributions to members may be made in any form, including money, capital credits, allocated patronage equities, revolving fund certificates, and the limited cooperative association’s own or other securities.

History. Enact. Acts 2012, ch. 160, § 81, effective July 12, 2012.

272A.10-060. Redemption or repurchase of distributed property.

Property distributed to a member by a limited cooperative association, other than money, may be redeemed or repurchased as provided in the organic rules, but a redemption or repurchase may not be made without authorization by the board of directors. The board may withhold authorization for any reason in its sole discretion. A redemption or repurchase is treated as a distribution for purposes of KRS 272A.10-070 .

History. Enact. Acts 2012, ch. 160, § 82, effective July 12, 2012.

272A.10-070. Limitations on distributions.

  1. A limited cooperative association may not make a distribution if, after the distribution:
    1. The association would not be able to pay its debts as they become due in the ordinary course of the association’s activities;
    2. The association’s assets would be less than the sum of its total liabilities; or
    3. The distribution violates the organic rules.
  2. A limited cooperative association may base a determination that a distribution is not prohibited under subsection (1) of this section on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.
  3. Except as otherwise provided in subsection (4) of this section, the effect of a distribution allowed under subsection (2) of this section is measured:
    1. In the case of distribution by purchase, redemption, or other acquisition of financial rights in the limited cooperative association, as of the date money or other property is transferred or debt is incurred by the association; and
    2. In all other cases, as of the date:
      1. The distribution is authorized, if the payment occurs not later than one hundred twenty (120) days after that date; or
      2. The payment is made, if payment occurs more than one hundred twenty (120) days after the distribution is authorized.
  4. If indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is made.
  5. For purposes of this section, “distribution” does not include reasonable amounts paid to a member in the ordinary course of business as payment or compensation for commodities, goods, past or present services, or reasonable payments made in the ordinary course of business under a bona fide retirement or other benefits program.

History. Enact. Acts 2012, ch. 160, § 83, effective July 12, 2012.

272A.10-080. Liability for improper distributions.

  1. A director who consents to a distribution that violates KRS 272A.10-070 is personally liable to the limited cooperative association for the amount of the distribution which exceeds the amount that could have been distributed without the violation if it is established that in consenting to the distribution the director failed to comply with KRS 272A.8-180 .
  2. A member or transferee of financial rights which received a distribution knowing that the distribution was made in violation of KRS 272A.10-070 is personally liable to the limited cooperative association to the extent the distribution exceeded the amount that could have been properly paid.
  3. A director against whom an action is commenced under subsection (1) of this section may:
    1. Implement in the action any other director who is liable under subsection (1) of this section and compel contribution from the person; and
    2. Implement in the action any person that is liable under subsection (2) of this section and compel contribution from the person in the amount the person received as described in subsection (2) of this section.
  4. An action under this section is barred if it is commenced later than two (2) years after the distribution.

History. Enact. Acts 2012, ch. 160, § 84, effective July 12, 2012.

SUBCHAPTER 11. Member Dissociation

272A.11-010. Member’s dissociation.

  1. A person has the power to dissociate as a member at any time, rightfully or wrongfully, by express will.
  2. Unless the organic rules otherwise provide, a member’s dissociation from a limited cooperative association is wrongful only if the dissociation:
    1. Breaches an express provision of the organic rules; or
    2. Occurs before the termination of the limited cooperative association and:
      1. The person is expelled as a member under subsection (4)(c) or (d) of this section; or
      2. In the case of a person that is not an individual, trust other than a business trust, or estate, the person is expelled or otherwise dissociated as a member because it dissolved or terminated in bad faith.
  3. Unless the organic rules otherwise provide, a person that wrongfully dissociates as a member is liable to the limited cooperative association for damages caused by the dissociation. The liability is in addition to any other debt, obligation, or liability of the person to the association.
  4. A member is dissociated from the limited cooperative association as a member when:
    1. The association receives notice in a record of the member’s express will to dissociate as a member, or if the member specifies in the notice an effective date later than the date the association received notice, on that later date;
    2. An event stated in the organic rules as causing the member’s dissociation as a member occurs;
    3. The member is expelled as a member under the organic rules;
    4. The member is expelled as a member by the board of directors because:
      1. It is unlawful to carry on the association’s activities with the member as a member;
      2. There has been a transfer of all the member’s financial rights in the association, other than:
        1. A creation or perfection of a security interest; or
        2. A charging order in effect under KRS 272A.6-050 which has not been foreclosed;
      3. The member is a limited liability company, association, or partnership, which has been dissolved, and its business is being wound up;
      4. The member is a corporation or cooperative and:
        1. The member filed articles of dissolution or the equivalent, or the jurisdiction of formation revoked its charter or right to conduct business;
        2. The association sends a notice to the member that it will be expelled as a member for a reason described in subdivision a. of this subparagraph; and
        3. Not later than ninety (90) days after the notice was sent under subdivision b. of this subparagraph, the member did not revoke its articles of dissolution or the equivalent, or the jurisdiction of formation did not reinstate the corporation’s or cooperative’s charter or right to conduct business; or
      5. The member is an individual and is adjudged incompetent;
    5. In the case of a member who is an individual, the individual dies;
    6. In the case of a member that is a trust or is acting as a member by virtue of being a trustee of a trust, all the trust’s financial rights in the association are distributed;
    7. In the case of a member that is an estate, the estate’s entire financial interest in the association is distributed;
    8. In the case of a member that is not an individual, partnership, limited liability company, cooperative, corporation, trust, or estate, the member is terminated; or
    9. The association’s participation in a merger if, under the plan of merger, the member ceases to be a member.

History. Enact. Acts 2012, ch. 160, § 85, effective July 12, 2012.

272A.11-020. Effect of member’s dissociation.

  1. Upon a member’s dissociation:
    1. Subject to KRS 272A.11-030 , the person has no further rights as a member; and
    2. Subject to KRS 272A.11-030 and Subchapter 16 of this chapter, any financial rights owned by the person in the person’s capacity as a member immediately before dissociation are owned by the person as a transferee.
  2. A person’s dissociation as a member does not of itself discharge the person from any debt, obligation, or liability to the limited cooperative association which the person incurred under the organic rules, by contract, or by other means while a member.

History. Enact. Acts 2012, ch. 160, § 86, effective July 12, 2012.

272A.11-030. Power of estate of member.

Unless the organic rules provide for greater rights, if a member is dissociated because of death or is expelled by reason of being adjudged incompetent, the member’s personal representative or other legal representative may exercise the rights of a transferee of the member’s financial rights and, for purposes of settling the estate of a deceased member, may exercise the informational rights of a current member to obtain information under KRS 272A.5-040 .

History. Enact. Acts 2012, ch. 160, § 87, effective July 12, 2012.

SUBCHAPTER 12. Dissolution of a Limited Cooperative Association

272A.12-010. Dissolution and winding up.

A limited cooperative association is dissolved only as provided in this subchapter and upon dissolution winds up in accordance with.

History. Enact. Acts 2012, ch. 160, § 88, effective July 12, 2012.

272A.12-020. Nonjudicial dissolution.

Except as otherwise provided in KRS 272A.12-030 and 272A.12-040 , a limited cooperative association is dissolved and its activities shall be wound up:

  1. Upon the occurrence of an event or at a time specified in the articles of association;
  2. Upon the action of the association’s organizers, board of directors, or members under KRS 272A.12-040 and 272A.12-050 ; or
  3. Ninety (90) days after the dissociation of a member, which results in the association having one (1) patron member and no other members, unless the association:
    1. Has a sole member that is a cooperative; or
    2. Not later than the end of the ninety (90) day period, admits at least one (1) member in accordance with the organic rules and has at least two (2) members, at least one (1) of which is a patron member.

History. Enact. Acts 2012, ch. 160, § 89, effective July 12, 2012.

272A.12-030. Judicial dissolution.

  1. The appropriate court may dissolve a limited cooperative association or order any action that under the circumstances is appropriate and equitable:
    1. In a proceeding initiated by the Attorney General, if:
      1. The association obtained its articles of association through fraud; or
      2. The association has continued to exceed or abuse the authority conferred upon it by law; or
    2. In a proceeding initiated by a member if:
      1. The directors are deadlocked in the management of the association’s affairs, the members are unable to break the deadlock, and irreparable injury to the association is occurring or is threatened because of the deadlock;
      2. The directors or those in control of the association have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent;
      3. The members are deadlocked in voting power and have failed to elect successors to directors whose terms have expired for two (2) consecutive periods during which annual members meetings were held or were to be held; or
      4. The assets of the association are being misapplied or wasted.
  2. The clerk of the court shall deliver a certified copy of the decree of dissolution to the Secretary of State, who shall file it. The dissolution shall be effective upon the latter of the date specified by the court or the filing of the decree of dissolution by the Secretary of State.
  3. After entering the decree of dissolution, the appropriate court shall direct the winding up and liquidation of the business and affairs of the limited cooperative association and the notification of claimants in accordance with this chapter.

History. Enact. Acts 2012, ch. 160, § 90, effective July 12, 2012.

272A.12-040. Voluntary dissolution before commencement of activity.

A majority of the organizers or initial directors of a limited cooperative association that has not yet begun business activity or the conduct of its affairs may dissolve the association.

History. Enact. Acts 2012, ch. 160, § 91, effective July 12, 2012.

272A.12-050. Voluntary dissolution by board of directors and members.

  1. Except as otherwise provided in KRS 272A.12-040 , for a limited cooperative association to voluntarily dissolve:
    1. A resolution to dissolve shall be approved by a majority vote of the board of directors unless a greater percentage is required by the organic rules;
    2. The board of directors shall call a members meeting to consider the resolution, to be held not later than ninety (90) days after adoption of the resolution; and
    3. The board of directors shall mail or otherwise transmit or deliver to each member in a record that complies with KRS 272A.5-070 :
      1. The resolution required by paragraph (a) of this subsection;
      2. A recommendation that the members vote in favor of the resolution or, if the board determines that because of conflict of interest or other special circumstances it should not make a favorable recommendation, the basis of that determination; and
      3. Notice of the members meeting, which shall be given in the same manner as notice of a special meeting of members.
  2. Subject to subsection (3) of this section, a resolution to dissolve shall be approved by:
    1. At least two-thirds (2/3) of the voting power of members present at a members meeting called under subsection (1)(b) of this section; and
    2. If the limited cooperative association has investor members, at least a majority of the votes cast by patron members, unless the organic rules require a greater percentage.
  3. The organic rules may require that the percentage of votes under subsection (2)(b) of this section is:
    1. A different percentage that is not less than a majority of members voting at the meeting; or
    2. Measured against the voting power of all members; or
    3. A combination of paragraphs (a) and (b) of this subsection.

History. Enact. Acts 2012, ch. 160, § 92, effective July 12, 2012.

272A.12-060. Winding up.

  1. A limited cooperative association continues after dissolution only for purposes of winding up its activities.
  2. In winding up a limited cooperative association’s activities, the board of directors shall cause the association to:
    1. Discharge its liabilities, settle and close its activities, and marshal and distribute its assets;
    2. Preserve the association or its property as a going concern for no more than a reasonable time;
    3. Prosecute and defend actions and proceedings;
    4. Transfer association property; and
    5. Perform other necessary acts.
  3. After dissolution and upon application of a limited cooperative association, a member, or a holder of financial rights, the appropriate court may order judicial supervision of the winding up of the association, including the appointment of a person to wind up the association’s activities, if:
    1. After a reasonable time, the association has not wound up its activities; or
    2. The applicant establishes other good cause.
  4. If a person is appointed pursuant to subsection (3) of this section to wind up the activities of a limited cooperative association, the association shall promptly deliver to the Secretary of State for filing an amendment to the articles of association to reflect the appointment.
  5. Dissolution of a limited cooperative association shall not abate or suspend KRS 272A.5-030 or 272A.8-020 .

History. Enact. Acts 2012, ch. 160, § 93, effective July 12, 2012.

272A.12-070. Distribution of assets in winding up.

  1. In winding up a limited cooperative association’s business, the association shall apply its assets to discharge its obligations to creditors, including members that are creditors. The association shall apply any remaining assets to pay in money the net amount distributable to members in accordance with their right to distributions under subsection (2) of this section.
  2. Unless the organic rules otherwise provide, in this section “financial interests” means the amounts recorded in the names of members in the records of a limited cooperative association at the time a distribution is made, including amounts paid to become a member, amounts allocated but not distributed to members, and amounts of distributions authorized but not yet paid to members. Unless the organic rules otherwise provide, each member is entitled to a distribution from the association of any remaining assets in the proportion of the member’s financial interests to the total financial interests of the members after all other obligations are satisfied.

History. Enact. Acts 2012, ch. 160, § 94, effective July 12, 2012.

272A.12-080. Known claims against dissolved limited cooperative association.

  1. Subject to subsection (4) of this section, a dissolved limited cooperative association may dispose of the known claims against it by following the procedure in subsections (2) and (3) of this section.
  2. A dissolved limited cooperative association may notify its known claimants of the dissolution in a record. The notice shall:
    1. Provide the name of the association;
    2. Specify that a claim be in a record;
    3. Specify the information required to be included in the claim;
    4. Provide an address to which the claim must be sent;
    5. State the deadline for receipt of the claim, which may not be less than one hundred twenty (120) days after the date the notice is received by the claimant; and
    6. State that the claim will be barred if not received by the deadline.
  3. A claim against a dissolved limited cooperative association is barred if the requirements of subsection (2) of this section are met, and:
    1. The association is not notified of the claimant’s claim, in a record, by the deadline specified in the notice under subsection (2)(e) of this section;
    2. In the case of a claim that is timely received but rejected by the association, the claimant does not commence an action to enforce the claim against the association within ninety (90) days after receipt of the notice of the rejection; or
    3. If a claim is timely received but is neither accepted nor rejected by the association within one hundred twenty (120) days after the deadline for receipt of claims, the claimant does not commence an action to enforce the claim against the association within ninety (90) days after the one hundred twenty (120) day period.
  4. This section shall not apply to a claim based on an event occurring after the date of dissolution or a liability that is contingent on that date.

History. Enact. Acts 2012, ch. 160, § 95, effective July 12, 2012.

272A.12-090. Unknown claims against dissolved limited cooperative association.

  1. A dissolved limited cooperative association may publish notice of its dissolution and request persons having claims against the association to present them in accordance with the notice.
  2. A notice under subsection (1) of this section shall:
    1. Be published at least once in a newspaper of general circulation in the county in which the dissolved limited cooperative association’s principal office is located or, if the association does not have a principal office in the Commonwealth, in the county in which the association’s registered office is or was last located;
    2. Provide the name of the association and describe the information required to be contained in a claim and provide an address to which the claim is to be sent; and
    3. State that a claim against the association is barred unless an action to enforce the claim is commenced not later than two (2) years after publication of the notice.
  3. If a dissolved limited cooperative association publishes a notice in accordance with subsection (2) of this section, the claim of each of the following claimants is barred unless the claimant commences an action to enforce the claim not later than three (3) years after the first publication date of the notice:
    1. A claimant that is entitled to but did not receive notice in a record under KRS 272A.12-080 ; or
    2. A claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
  4. A claim not barred under this section may be enforced:
    1. Against a dissolved limited cooperative association, to the extent of its undistributed assets; or
    2. If the association’s assets have been distributed in connection with winding up, against a member or holder of financial rights to the extent of that person’s proportionate share of the claim or the association’s assets distributed to the person in connection with the winding up, whichever is less. The person’s total liability for all claims under this paragraph shall not exceed the total amount of assets distributed to the person as part of the winding up of the association.

History. Enact. Acts 2012, ch. 160, § 96, effective July 12, 2012.

272A.12-100. Court proceedings.

  1. Upon application by a dissolved limited cooperative association that has published a notice under KRS 272A.12-090 , the appropriate court may determine the amount and form of security to be provided for payment of claims against the association that are contingent, have not been made known to the association, or are based on an event occurring after the effective date of dissolution but that, based on the facts known to the association, are reasonably anticipated to arise after the effective date of dissolution.
  2. Not later than ten (10) days after filing an application under subsection (1) of this section, a dissolved limited cooperative association shall give notice of the proceeding to each known claimant holding a contingent claim.
  3. The court may appoint a guardian ad litem in a proceeding brought under this section to represent all claimants whose identities are unknown, including those whose claims are contingent or based upon an event occurring after the effective date of dissolution. The dissolved limited cooperative association shall pay reasonable fees and expenses of the representative, including all reasonable attorney and expert witness fees.
  4. Provision by the dissolved limited cooperative association for security in the amount and the form ordered by the court satisfies the association’s obligations with respect to claims that are contingent, have not been made known to the association, or are based on an event occurring after the effective date of dissolution, and the claims may not be enforced against a member that received a distribution.

History. Enact. Acts 2012, ch. 160, § 97, effective July 12, 2012.

272A.12-110. Articles of dissolution.

  1. A limited cooperative association that has dissolved shall deliver to the Secretary of State for filing articles of dissolution that state:
    1. The name of the association;
    2. The date the association dissolved; and
    3. Any other information the association considers relevant.
  2. A person has notice of a limited cooperative association’s dissolution on the later of:
    1. Ninety (90) days after a statement of dissolution is filed; or
    2. Actual notice of the articles of dissolution.
  3. This section does not apply upon the judicial dissolution of a limited cooperative association pursuant to KRS 272A.12-030 or administrative dissolution pursuant to Subchapter 7 of KRS Chapter 14A.

History. Enact. Acts 2012, ch. 160, § 98, effective July 12, 2012.

SUBCHAPTER 13. Actions by a Member Against a Limited Cooperative Association

272A.13-010. Derivative actions.

A member may maintain a derivative action to enforce a right of a limited cooperative association if:

  1. The member demands that the association bring an action to enforce the right; and
  2. Any of the following occur:
    1. The association does not, within ninety (90) days after the member makes the demand, agree to bring the action;
    2. The association notifies the member that it has rejected the demand;
    3. Irreparable harm to the association would result by waiting ninety (90) days after the member makes the demand; or
    4. The association agrees to bring an action demanded and fails to bring the action within a reasonable time.

History. Enact. Acts 2012, ch. 160, § 99, effective July 12, 2012.

272A.13-020. Proper plaintiff.

  1. A derivative action to enforce a right of a limited cooperative association may be maintained only by a person that:
    1. Is a member or a dissociated member at the time the action is commenced and:
      1. Was a member when the conduct giving rise to the action occurred; or
      2. Whose status as a member devolved upon the person by operation of law or the organic rules from a person that was a member at the time of the conduct; and
    2. Adequately represents the interests of the association.
  2. If the sole plaintiff in a derivative action dies while the action is pending, the court may permit another member who meets the requirements of subsection (1) of this section to be substituted as plaintiff.

History. Enact. Acts 2012, ch. 160, § 100, effective July 12, 2012.

272A.13-030. Pleading derivative action.

In a derivative action to enforce a right of a limited cooperative association, the complaint shall be verified and shall state:

  1. The date and content of the plaintiff’s demand under KRS 272A.13-010 (1) and the association’s response;
  2. If ninety (90) days have not expired since the demand, how irreparable harm to the association would result by waiting for the expiration of ninety (90) days; and
  3. If the association agreed to bring an action demanded, that the action has not been brought within a reasonable time.

History. Enact. Acts 2012, ch. 160, § 101, effective July 12, 2012.

272A.13-040. Approval of discontinuance or settlement.

A derivative action to enforce a right of a limited cooperative association may not be discontinued or settled without the court’s approval.

History. Enact. Acts 2012, ch. 160, § 102, effective July 12, 2012.

272A.13-050. Proceeds and expenses.

  1. Except as otherwise provided in subsection (2) of this section:
    1. Any proceeds or other benefits of a derivative action to enforce a right of a limited cooperative association, whether by judgment, compromise, or settlement, belong to the association and not to the plaintiff; and
    2. If the plaintiff in the derivative action receives any proceeds, the plaintiff shall immediately remit them to the association.
  2. On termination of the proceeding, the court may:
    1. Require the plaintiff to pay any defendant’s reasonable expenses, including counsel fees, incurred in defending the proceeding to the extent it finds that the proceeding or any portion thereof was commenced without reasonable cause or for an improper purpose; and
    2. Require the association to pay the plaintiff’s reasonable expenses, including counsel fees, incurred in the proceeding if it finds that the proceeding has resulted in a substantial benefit to the association.

History. Enact. Acts 2012, ch. 160, § 103, effective July 12, 2012.

SUBCHAPTER 14. Foreign Limited Cooperative Associations

272A.14-010. Foreign limited cooperative associations.

  1. The laws of the state or other jurisdiction under which a foreign limited cooperative association is organized govern relations among the members of the foreign cooperative and between the members and the foreign cooperative.
  2. A foreign limited cooperative association shall be subject to KRS Chapter 14A.
  3. A foreign limited cooperative association shall not be denied a certificate of authority because of any difference between the laws of the jurisdiction under which the foreign cooperative is organized and the law of this Commonwealth.

History. Enact. Acts 2012, ch. 160, § 104, effective July 12, 2012.

272A.14-020. Action by Attorney General.

The Attorney General may maintain an action to restrain a foreign limited cooperative association from transacting business in this Commonwealth in violation of this chapter.

History. Enact. Acts 2012, ch. 160, § 105, effective July 12, 2012.

SUBCHAPTER 15. Disposition of Assets

272A.15-010. Disposition of assets not requiring member approval.

Unless the articles of association otherwise provide, member approval under KRS 272A.15-020 is not required for a limited cooperative association to:

  1. Sell, lease, exchange, license, or otherwise dispose of all or any part of the assets of the association in the usual and regular course of business; or
  2. Mortgage, pledge, dedicate to the repayment of indebtedness, or encumber in any way all or any part of the assets of the association, whether or not in the usual and regular course of business.

History. Enact. Acts 2012, ch. 160, § 106, effective July 12, 2012.

272A.15-020. Member approval of other asset dispositions.

A sale, lease, exchange, license, or other disposition of assets of a limited cooperative association, other than a disposition described in KRS 272A.15-010 , requires approval of the association’s members under KRS 272A.15-030 and 272A.15-040 if the disposition leaves the association without significant continuing business activity.

History. Enact. Acts 2012, ch. 160, § 107, effective July 12, 2012.

272A.15-030. Notice and action in asset disposition.

For a limited cooperative association to dispose of assets under KRS 272A.15-020 :

  1. A majority of the board of directors, or a greater percentage if required by the organic rules, shall approve the proposed disposition; and
  2. The board of directors shall call a members meeting to consider the proposed disposition, hold the meeting not later than ninety (90) days after approval of the proposed disposition by the board, and mail or otherwise transmit or deliver in a record to each member:
    1. The terms of the proposed disposition;
    2. A recommendation that the members approve the disposition, or if the board determines that because of conflict of interest or other special circumstances it should not make a favorable recommendation, the basis for that determination;
    3. A statement of any condition of the board’s submission of the proposed disposition to the members; and
    4. Notice of the meeting at which the proposed disposition will be considered, which shall be given in the same manner as notice of a special meeting of members.

History. Enact. Acts 2012, ch. 160, § 108, effective July 12, 2012.

272A.15-040. Disposition of assets.

  1. Subject to subsection (2) of this section, a disposition of assets under KRS 272A.15-020 shall be approved by:
    1. At least two-thirds (2/3) of the voting power of members present at a members meeting called under KRS 272A.15-030 (2); and
    2. If the limited cooperative association has investor members, at least a majority of the votes cast by patron members, unless the organic rules require a greater percentage vote by patron members.
  2. The organic rules may require that the percentage of votes under subsection (1)(a) of this section is:
    1. A different percentage that is not less than a majority of members voting at the meeting;
    2. Measured against the voting power of all members; or
    3. A combination of paragraphs (a) and (b) of this subsection.
  3. Subject to any contractual obligations, after a disposition of assets is approved and at any time before the consummation of the disposition, a limited cooperative association may approve an amendment to the contract for disposition or the resolution authorizing the disposition or approve abandonment of the disposition:
    1. As provided in the contract or the resolution; and
    2. Except as prohibited by the resolution, with the same affirmative vote of the board of directors and of the members as was required to approve the disposition.
  4. The voting requirements for districts, classes, or voting groups under KRS 272A.4-040 apply to approval of a disposition of assets under this subchapter.

History. Enact. Acts 2012, ch. 160, § 109, effective July 12, 2012.

SUBCHAPTER 16. Mergers and Conversions

272A.16-010. Definitions.

As used in this subchapter, unless the context otherwise requires:

  1. “Constituent entity” means an entity that is a party to a merger;
  2. “Constituent limited cooperative association” means a limited cooperative association that is a party to a merger;
  3. “Converted entity” means the limited cooperative association into which a converting entity converts;
  4. “Converting entity” means a foreign entity that converts into a limited cooperative association pursuant to KRS 272A.16-020 ;
  5. “Converting limited cooperative association” means a converting entity that is a limited cooperative association;
  6. “Foreign entity” has the meaning set forth in KRS 14A.1-070 ;
  7. “Organizational documents” means articles of incorporation, bylaws, articles of association, operating agreements, partnership agreements, or other documents serving a similar function in the creation and governance of an entity;
  8. “Personal liability” means personal liability for a debt, liability, or other obligation of an entity imposed, by operation of law or otherwise, on a person that co-owns or has an interest in the entity:
    1. By the entity’s organic law solely because of the person co-owning or having an interest in the entity; or
    2. By the entity’s organizational documents under a provision of the entity’s organic law authorizing those documents to make one (1) or more specified persons liable for all or specified parts of the entity’s debts, liabilities, and other obligations solely because the person co-owns or has an interest in the entity; and
  9. “Surviving entity” means an entity into which one (1) or more other entities are merged, whether the entity existed before the merger or is created by the merger.

History. Enact. Acts 2012, ch. 160, § 110, effective July 12, 2012.

272A.16-020. Conversion of foreign entity into limited cooperative association.

A foreign entity may convert to a limited cooperative association as provided in KRS 272A.17-040 (6).

History. Enact. Acts 2012, ch. 160, § 111, effective July 12, 2012.

272A.16-030. Effect of conversion.

  1. A foreign entity that has been converted into a limited cooperative association is for all purposes the same entity that existed before the conversion but, after conversion, it is organized under this chapter and is subject to that law and other law as it applies thereto.
  2. When a conversion takes effect:
    1. All property owned by the converting entity remains vested in the converted entity;
    2. All debts, liabilities, and other obligations of the converting entity continue as obligations of the converted entity;
    3. An action or proceeding pending by or against the converting entity may be continued as if the conversion had not occurred;
    4. Except as prohibited by other law, all the rights, privileges, immunities, powers, and purposes of the converting entity remain vested in the converted entity;
    5. Except as otherwise provided in the plan of conversion, the terms and conditions of the plan of conversion take effect; and
    6. Except as otherwise provided in the plan of conversion, the conversion does not dissolve the converting entity.

History. Enact. Acts 2012, ch. 160, § 112, effective July 12, 2012.

272A.16-040. Merger.

  1. One (1) or more limited cooperative associations may merge with one (1) or more other limited cooperative associations, and one (1) or more business corporations or limited liability companies may merge with and into a limited cooperative association pursuant to this subchapter and a plan of merger if:
    1. The governing statute of each of the other entities authorizes the merger;
    2. The merger is not prohibited by the law of a jurisdiction that enacted any of those governing statutes; and
    3. Each of the other entities complies with its governing statute in effecting the merger.
  2. A plan of merger shall be in a record and shall include:
    1. The name and form of each constituent entity;
    2. The name of the surviving entity, which shall be a limited cooperative association, and, if the surviving entity is to be created by the merger, a statement to that effect;
    3. The terms and conditions of the merger, including the manner and basis for converting the interests in each constituent entity into any combination of money, interests in the surviving entity, and other consideration;
    4. If the surviving entity is to be created by the merger, the surviving entity’s organic rules;
    5. If the surviving entity is not to be created by the merger, any amendments to be made by the merger to the surviving entity’s organic rules; and
    6. If a member of a constituent limited cooperative association will have personal liability with respect to a surviving entity, the identity of the member by descriptive class or other reasonable manner.

History. Enact. Acts 2012, ch. 160, § 113, effective July 12, 2012.

272A.16-050. Notice of and action on plan of merger.

  1. For a limited cooperative association to merge with another entity, a plan of merger shall be approved by a majority vote of the board of directors or a greater percentage if required by the association’s organic rules.
  2. The board of directors shall call a members meeting to consider a plan of merger approved by the board, hold the meeting not later than ninety (90) days after approval of the plan by the board, and mail or otherwise transmit or deliver in a record to each member:
    1. The plan of merger, or a summary of the plan, and a statement of the manner in which a copy of the plan in a record may be reasonably obtained by a member;
    2. A recommendation that the members approve the plan of merger, or if the board determines that because of conflict of interest or other special circumstances it should not make a favorable recommendation, the basis for that determination;
    3. A statement of any condition of the board’s submission of the plan of merger to the members; and
    4. Notice of the meeting at which the plan of merger will be considered, which shall be given in the same manner as notice of a special meeting of members.

History. Enact. Acts 2012, ch. 160, § 114, effective July 12, 2012.

272A.16-060. Approval of merger — Abandonment.

  1. Subject to subsections (2) and (3) of this section, a plan of merger shall be approved by:
    1. At least two-thirds (2/3) of the voting power of members present at a members meeting called under KRS 272A.16-050 ; and
    2. If the limited cooperative association has investor members, at least a majority of the votes cast by patron members, unless the organic rules require a greater percentage vote by patron members.
  2. The organic rules may provide that the percentage of votes under subsection (1)(a) of this section is:
    1. A different percentage that is not less than a majority of members voting at the meeting;
    2. Measured against the voting power of all members; or
    3. A combination of paragraphs (a) and (b) of this subsection.
  3. The vote required to approve a plan of merger shall not be less than the vote required for the members of the limited cooperative association to amend the articles of association.
  4. Consent in a record to a plan of merger by a member shall be delivered to the limited cooperative association before delivery of articles of merger for filing pursuant to KRS 272A.16-070 if, as a result of the merger, the member will have:
    1. Personal liability for an obligation of the association; or
    2. An obligation or liability for an additional contribution.
  5. Subject to subsection (4) of this section and any contractual rights, after a merger is approved, and at any time before the effective date of the merger, a limited cooperative association that is a party to the merger may approve an amendment to the plan of merger or approve abandonment of the planned merger:
    1. As provided in the plan; and
    2. Except as prohibited by the plan, with the same affirmative vote of the board of directors and of the members as was required to approve the plan.
  6. The voting requirements for districts, classes, or voting groups under KRS 272A.4-040 apply to approval of a merger.

History. Enact. Acts 2012, ch. 160, § 115, effective July 12, 2012.

272A.16-070. Articles of merger — Effective date.

  1. After each constituent entity has approved a merger, articles of merger shall be signed on behalf of each constituent entity by an authorized representative.
  2. The articles of merger shall include:
    1. The name and form of each constituent entity and the jurisdiction of its governing statute;
    2. The name and form of the surviving entity, the jurisdiction of its governing statute, and, if the surviving entity is created by the merger, a statement to that effect;
    3. The date the merger is effective under the governing statute of the surviving entity;
    4. If the surviving entity is to be created by the merger, the limited cooperative association’s articles of association;
    5. If the surviving entity is not created by the merger, any amendments provided for in the plan of merger to its articles of association;
    6. A statement as to each constituent entity that the merger was approved as required by the entity’s governing statute; and
    7. Any additional information required by the governing statute of any constituent entity.
  3. The limited cooperative association that is the surviving entity to a merger shall deliver the articles of merger to the Secretary of State for filing.
  4. A merger becomes effective upon the articles of merger being effective as provided in KRS 14A.2-070 .

History. Enact. Acts 2012, ch. 160, § 116, effective July 12, 2012.

272A.16-080. Effect of merger.

When a merger becomes effective:

  1. The surviving entity continues or comes into existence;
  2. Each constituent entity that merges into the surviving entity ceases to exist as a separate entity;
  3. All property owned by each constituent entity that ceases to exist vests in the surviving entity;
  4. All debts, liabilities, and other obligations of each constituent entity that ceases to exist continue as obligations of the surviving entity;
  5. An action or proceeding pending by or against any constituent entity that ceases to exist may be continued as if the merger had not occurred;
  6. Except as prohibited by law other than this chapter, all rights, privileges, immunities, powers, and purposes of each constituent entity that ceases to exist vest in the surviving entity;
  7. Except as otherwise provided in the plan of merger, the terms and conditions of the plan take effect;
  8. Except as otherwise provided in the plan of merger, if a merging limited cooperative association ceases to exist, the merger does not dissolve the association for purposes of Subchapter 12 of this chapter;
  9. If the surviving entity is created by the merger, the articles of association become effective; and
  10. If the surviving entity is not created by the merger, any amendments made by the articles of merger for the organic rules of the surviving entity become effective.

History. Enact. Acts 2012, ch. 160, § 117, effective July 12, 2012.

272A.16-090. Treatment of merger as a consolidation.

  1. Constituent entities that are limited cooperative associations or foreign cooperatives may agree to call a merger a consolidation.
  2. All provisions governing mergers or using the term merger in this chapter apply equally to mergers that the constituent entities choose to call consolidations under subsection (1) of this section.

History. Enact. Acts 2012, ch. 160, § 118, effective July 12, 2012.

272A.16-100. Article not exclusive.

This subchapter shall not prohibit a limited cooperative association from being converted or merged pursuant to other law of the Commonwealth of Kentucky.

History. Enact. Acts 2012, ch. 160, § 119, effective July 12, 2012.

SUBCHAPTER 17. Miscellaneous Provisions

272A.17-010. Uniformity of interpretation.

In applying and construing the Kentucky Uniform Limited Cooperative Association Act, consideration shall be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.

History. Enact. Acts 2012, ch. 160, § 120, effective July 12, 2012.

272A.17-020. Electronic signature.

This chapter modifies, limits, or supersedes, the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. secs. 7001 et seq., but does not modify, limit, or supersede Section 101(c) of that act, 15 U.S.C. sec. 7001(c) , or authorize electronic delivery of any of the notices described in Section 103(b) of that act, 15 U.S.C. sec. 7003(b) .

History. Enact. Acts 2012, ch. 160, § 121, effective July 12, 2012.

272A.17-030. Savings clause.

This chapter shall not affect an action or proceeding commenced, or right accrued, before July 12, 2012.

History. Enact. Acts 2012, ch. 160, § 122, effective July 12, 2012.

272A.17-040. Transition.

  1. This chapter does not limit, prohibit, or invalidate the existence, acts, or obligations of any cooperative or association created or doing business in this Commonwealth before, on, or after July 12, 2012.
  2. A cooperative or association formed under KRS Chapter 272, until or unless it becomes a limited cooperative association under this chapter, shall be governed by KRS Chapter 272.
  3. The enactment of this chapter shall not impair, or otherwise affect, the organization or the continued existence of a cooperative association existing on July 12, 2012.
  4. This chapter governs only:
    1. A limited cooperative association formed on or after July 12, 2012; and
    2. A cooperative or association with shares which elects, in the manner provided in its articles of incorporation or by law for amending the articles of incorporation, to be subject to this chapter.
  5. A cooperative or association with shares formed under KRS Chapter 272 may elect to become subject to this chapter by a consent sufficient to amend the articles of incorporation. Thereafter the cooperative or association with shares shall file amended and restated articles of association which comply with KRS 272A.3-010 and that further set forth:
    1. The name of the cooperative or association with shares as set forth in its articles of incorporation;
    2. The date of filing of its articles of incorporation;
    3. An affirmative election by the cooperative or association with shares to be subject to this chapter; and
    4. An affirmative statement that the election was approved as required by this subsection.
  6. A cooperative, association, limited liability company or corporation formed in a jurisdiction other than the Commonwealth of Kentucky may elect to be subject to this chapter by a consent sufficient to amend its articles of incorporation, articles of association, or equivalent filing under the laws of its jurisdiction of formation. Thereafter, the foreign entity shall file amended and restated articles of association which comply with KRS 272A.3-010 and further set forth:
    1. The name of the foreign entity;
    2. The previous jurisdiction of organization;
    3. An affirmative election by the foreign entity to be subject to this chapter; and
    4. A statement that the election to be governed by this chapter is effective under the law and agreements governing the foreign entity prior to becoming subject to this chapter.
  7. An election pursuant to subsection (5) or (6) of this section is effective upon the effective time and date of the amended and restated articles of association as provided in KRS 14A.2-070 .

History. Enact. Acts 2012, ch. 160, § 123, effective July 12, 2012.

CHAPTER 273 Religious, Charitable and Educational Societies — Nonstock, Nonprofit Corporations

Religious, Charitable and Educational Societies

273.010. Not subject to general corporation law, except as to process agent. [Repealed.]

Compiler’s Notes.

This section (883: amend. Acts 1946, ch. 141, § 15) was repealed by Acts 1968, ch. 165, § 70.

273.020. Who may organize; articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (879) was repealed by Acts 1968, ch. 165, § 70.

273.030. When organized; powers. [Repealed.]

Compiler’s Notes.

This section (880) was repealed by Acts 1968, ch. 165, § 70.

273.040. Directors to adopt rules; not to engage in banking or insurance. [Repealed.]

Compiler’s Notes.

This section (881) was repealed by Acts 1968, ch. 165, § 70.

273.050. Changing charter or articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (882: amend. Acts 1950, ch. 141, § 1) was repealed by Acts 1968, ch. 165, § 70.

273.060. Rights against person injuring property. [Repealed.]

Compiler’s Notes.

This section (3952) was repealed by Acts 1984, ch. 111, § 199, effective July 13, 1984.

273.070. Incorporated college may establish adjunct schools and colleges.

Any incorporated college or university in this state may establish adjunct schools and colleges in any part of the state to be operated in connection with it. In order to establish and operate any adjunct school or college the institution establishing it may solicit and receive subscriptions and donations.

History. 4756; repealed and reenact., Acts 1990, ch. 476, Pt. V, § 611, effective July 13, 1990.

273.080. Power over adjunct school or college.

All property procured for any adjunct school or college shall be held and applied by the governing body of the institution establishing it for the purpose of establishing and maintaining the adjunct school. The governing body may procure grounds and erect buildings for its use and occupation, appoint and remove its teachers, prescribe a course of study for its students, confer degrees of graduation from it, and exercise the same general supervision and control over it that they may exercise over their own institution.

History. 4757; amended 1976 (1st Ex. Sess.), ch. 14, § 260, effective January 2, 1978; repealed and reenact., Acts 1990, ch. 476, Pt. V, § 612, effective July 13, 1990.

273.090. Religious society may not hold more than fifty acres of land for more than one year; escheat procedure. [Repealed.]

Compiler’s Notes.

This section (319: amend. Acts 1946, ch. 150, § 1; 1962, ch. 210, § 46) was repealed by Acts 1968, ch. 165, § 70.

273.100. Religious society — Appointment of trustees.

Any religious society may, before or after the creation of the charity, by a majority vote, appoint one (1) to three (3) trustees in whom legal or equitable title to the society’s property shall be vested to the use of the society. These appointments shall be entered upon the record book of the society. It may fill vacancies in the same manner.

History. 320.

NOTES TO DECISIONS

1.Trustees.
2.— Selection.

A minority of the members has no right to elect trustees for the majority. Shannon v. Frost, 42 Ky. 253 , 1842 Ky. LEXIS 151 ( Ky. 1842 ) (decided under prior law).

The trustees must be members of the church appointing them, and the persons electing must be acting as a church body. Scott v. Curle, 48 Ky. 17 , 1848 Ky. LEXIS 5 ( Ky. 1848 ) (decided under prior law).

Cited in:

Damron v. Clifton, 305 Ky. 21 , 202 S.W.2d 721, 1947 Ky. LEXIS 742 ( Ky. 1947 ); Branham v. Estate of Elkins, 425 S.W.3d 103, 2014 Ky. App. LEXIS 17 (Ky. Ct. App. 2014).

273.110. Trustees may sue or be sued.

A majority of the trustees may sue or be sued in their own names on behalf of the religious society in any action concerning the property of the society.

History. 321.

NOTES TO DECISIONS

1.Necessary Parties.

In a suit between church factions, the trustees are sufficiently before court if they are made party defendants, or if one is plaintiff and the others defendants. Gibson v. Armstrong, 46 Ky. 481 , 1847 Ky. LEXIS 63 ( Ky. 1847 ) (decided under prior law).

When title is not involved, a trustee is not a necessary party. Berryman v. Reese, 50 Ky. 287 , 1850 Ky. LEXIS 58 ( Ky. 1850 ) (decided under prior law).

Suit may be brought by one representing a fairly representative body of the membership. Hazelip v. Doyel, 267 Ky. 477 , 102 S.W.2d 321, 1936 Ky. LEXIS 767 ( Ky. 1936 ).

2.Jurisdiction of Courts.

Courts have no ecclesiastical jurisdiction and cannot revise or question ordinary acts of church discipline or excision. Bennett v. Morgan, 112 Ky. 512 , 66 S.W. 287, 23 Ky. L. Rptr. 1824 , 1902 Ky. LEXIS 192 ( Ky. 1902 ). See Thomas v. Lewis, 224 Ky. 307 , 6 S.W.2d 255, 1928 Ky. LEXIS 589 ( Ky. 1928 ); Clapp v. Krug, 232 Ky. 303 , 22 S.W.2d 1025, 1929 Ky. LEXIS 443 ( Ky. 1929 ); Hazelip v. Doyel, 267 Ky. 477 , 102 S.W.2d 321, 1936 Ky. LEXIS 767 ( Ky. 1936 ); Cooper v. Bell, 269 Ky. 63 , 106 S.W.2d 124, 1937 Ky. LEXIS 561 ( Ky. 1937 ).

Courts will not concern themselves with controversies or questions of a purely ecclesiastical nature, but will concern themselves when civil or property rights are in controversy. Clapp v. Krug, 232 Ky. 303 , 22 S.W.2d 1025, 1929 Ky. LEXIS 443 ( Ky. 1929 ). See Hazelip v. Doyel, 267 Ky. 477 , 102 S.W.2d 321, 1936 Ky. LEXIS 767 ( Ky. 1936 ); Cooper v. Bell, 269 Ky. 63 , 106 S.W.2d 124, 1937 Ky. LEXIS 561 ( Ky. 1937 ).

3.Suits.
4.— Individual.

A church member may file suit in his individual name concerning church property. Hadden v. Chorn, 47 Ky. 70 , 1847 Ky. LEXIS 121 ( Ky. 1847 ); Berryman v. Reese, 50 Ky. 287 , 1850 Ky. LEXIS 58 ( Ky. 1850 ); Baptist Church at Lancaster v. Presbyterian Church, 57 Ky. 635 , 1857 Ky. LEXIS 76 ( Ky. 1857 ); Humphrey v. Burnside, 67 Ky. 215 , 1868 Ky. LEXIS 108 ( Ky. 1868 ) (decided under prior law).

5.— Committee.

Suits may be brought on behalf of a church concerning its property by a committee appointed for that purpose. Hadden v. Chorn, 47 Ky. 70 , 1847 Ky. LEXIS 121 ( Ky. 1847 ); Cahill v. Bigger, 47 Ky. 211 , 1847 Ky. LEXIS 154 ( Ky. 1847 ); Berryman v. Reese, 50 Ky. 287 , 1850 Ky. LEXIS 58 ( Ky. 1850 ); Humphrey v. Burnside, 67 Ky. 215 , 1868 Ky. LEXIS 108 ( Ky. 1868 ); Bennett v. Morgan, 112 Ky. 512 , 66 S.W. 287, 23 Ky. L. Rptr. 1824 , 1902 Ky. LEXIS 192 ( Ky. 1902 ) (decided under prior law).

Suits may be brought on behalf of a church concerning its property by a committee appointed for that purpose and such committeemen need not be members of the church appointing them. Humphrey v. Burnside, 67 Ky. 215 , 1868 Ky. LEXIS 108 ( Ky. 1868 ) (decided under prior law).

6.Jurisdiction of Courts.

The province of the courts with respect to religious societies is limited to issues involving property rights or other civil rights. Curd v. Wallace, 37 Ky. 190 , 1838 Ky. LEXIS 118 ( Ky. 1838 ). See Shannon v. Frost, 42 Ky. 253 , 1842 Ky. LEXIS 151 ( Ky. 1842 ); Gartin v. Penick, 68 Ky. 110 , 1868 Ky. LEXIS 236 ( Ky. 1868 ); Kinkead v. McKee, 72 Ky. 535 , 1872 Ky. LEXIS 81 ( Ky. 1872 ); First Presbyterian Church v. Wilson, 77 Ky. 525 (1878); Ransom v. Rogers, 12 Ky. Op. 739, 6 Ky. L. Rptr. 291 , 1884 Ky. LEXIS 325 (Ky. Ct. App. Oct. 2, 1884) (decided under prior law).

The courts, having no ecclesiastical jurisdiction, cannot revise or question ordinary acts of church discipline or excision. Shannon v. Frost, 42 Ky. 253 , 1842 Ky. LEXIS 151 ( Ky. 1842 ); Gibson v. Armstrong, 46 Ky. 481 , 1847 Ky. LEXIS 63 ( Ky. 1847 ); Gartin v. Penick, 68 Ky. 110 , 1868 Ky. LEXIS 236 ( Ky. 1868 ); Lucas v. Case, 72 Ky. 297 , 1872 Ky. LEXIS 49 ( Ky. 1872 ); Kinkead v. McKee, 72 Ky. 535 , 1872 Ky. LEXIS 81 ( Ky. 1872 ) (decided under prior law).

Where the ecclesiastical tribunal has exceeded its jurisdiction, the secular courts will review the question of jurisdiction. Watson v. Avery, 65 Ky. 332 , 1867 Ky. LEXIS 87 ( Ky. 1867 ); Perry v. Wheeler, 75 Ky. 541 , 1877 Ky. LEXIS 116 ( Ky. 1877 ) (decided under prior law).

Cited in:

Damron v. Clifton, 305 Ky. 21 , 202 S.W.2d 721, 1947 Ky. LEXIS 742 ( Ky. 1947 ); Branham v. Estate of Elkins, 425 S.W.3d 103, 2014 Ky. App. LEXIS 17 (Ky. Ct. App. 2014).

273.120. Disposition of property in case of division in religious society.

In case of a division in a religious society, the trustees shall permit each party to use the church and property for divine worship a part of the time, proportioned to the members of each party. The excommunication of one (1) party by the other shall not impair this right unless it is done in good faith, on the grounds of immorality.

History. 322.

NOTES TO DECISIONS

1.Application.

This section does not apply so long as the property in question is held by the trustees to whom title was originally conveyed or devised by the donor. Bennett v. Morgan, 112 Ky. 512 , 66 S.W. 287, 23 Ky. L. Rptr. 1824 , 1902 Ky. LEXIS 192 ( Ky. 1902 ); Union Sunday School v. Trustees of Christian Church, 171 Ky. 534 , 188 S.W. 626, 1916 Ky. LEXIS 384 ( Ky. 1916 ); Thomas v. Lewis, 224 Ky. 307 , 6 S.W.2d 255, 1928 Ky. LEXIS 589 ( Ky. 1928 ).

This section applies only when the property has been conveyed or donated in trust for the church. Thomas v. Lewis, 224 Ky. 307 , 6 S.W.2d 255, 1928 Ky. LEXIS 589 ( Ky. 1928 ).

This section does not apply when the property has been purchased for value, and no trust has been created. Thomas v. Lewis, 224 Ky. 307 , 6 S.W.2d 255, 1928 Ky. LEXIS 589 ( Ky. 1928 ).

This section is intended to apply only until the ecclesiastical authorities make their decision. Thomas v. Lewis, 224 Ky. 307 , 6 S.W.2d 255, 1928 Ky. LEXIS 589 ( Ky. 1928 ).

This section does not apply where the congregation obtains its own property and no trust is created. Jones v. Johnson, 295 Ky. 707 , 175 S.W.2d 370, 1943 Ky. LEXIS 334 ( Ky. 1943 ).

This section applies temporarily until the church authorities or a majority of the congregation makes a decision. Bray v. Moses, 305 Ky. 24 , 202 S.W.2d 749, 1947 Ky. LEXIS 755 ( Ky. 1947 ).

This section does not apply to religious societies having the congregational form of government. Bunnell v. Creacy, 266 S.W.2d 98, 1954 Ky. LEXIS 779 ( Ky. 1954 ).

2.Schism.

When a division without separation exists in the congregational type of church, a schism exists to which the statute applies. Brook v. Yadon, 14 Ky. L. Rptr. 863 (1893); Poynter v. Phelps, 129 Ky. 381 , 111 S.W. 699, 33 Ky. L. Rptr. 887 , 1908 Ky. LEXIS 167 ( Ky. 19 08 ); Cox v. Prewitt, 197 Ky. 716 , 247 S.W. 976, 1923 Ky. LEXIS 711 ( Ky. 19 23 ); Rose v. Briggs, 205 Ky. 619 , 266 S.W. 236, 1924 Ky. LEXIS 180 ( Ky. 1924 ); Ennix v. Owens, 209 Ky. 19, 271 S.W. 1091, 1925 Ky. LEXIS 415 ( Ky. 1925 ); Hazelip v. Doyel, 267 Ky. 477 , 102 S.W.2d 321, 1936 Ky. LEXIS 767 ( Ky. 1936 ).

In an action by the trustees who held legal title against an expelled minority to enjoin them from trespassing the burden of proving the existence of a schism is on the defendants. Iglehart v. Rowe, 47 S.W. 575, 20 Ky. L. Rptr. 821 (1898).

There can be no permanent division or schism in a Baptist church so long as it maintains its organization under the rules and regulations adopted for its government. Thomas v. Lewis, 224 Ky. 307 , 6 S.W.2d 255, 1928 Ky. LEXIS 589 ( Ky. 1928 ); Cooper v. Bell, 269 Ky. 63 , 106 S.W.2d 124, 1937 Ky. LEXIS 561 ( Ky. 1937 ).

3.— Records.

In case of a division as contemplated by this section, the faction not in possession of the old church record is entitled to a copy of same, the cost to be divided between the factions. Brook v. Yadon, 14 Ky. L. Rptr. 863 (1893); Poynter v. Phelps, 129 Ky. 381 , 111 S.W. 699, 33 Ky. L. Rptr. 887 , 1908 Ky. LEXIS 167 ( Ky. 1908 ).

4.Property Rights.

Each member of a church has a beneficial interest in its property so long as he or she remains a member, but no longer. Shannon v. Frost, 42 Ky. 253 , 1842 Ky. LEXIS 151 ( Ky. 1842 ); McKinney v. Griggs, 68 Ky. 401 , 1869 Ky. LEXIS 25 ( Ky. 1869 ) (decided under prior law).

5.— Forfeiture.

Expelled or seceding minorities lose all rights in the property of their churches under either the congregation or presbyterian type of organization. Curd v. Wallace, 37 Ky. 190 , 1838 Ky. LEXIS 118 ( Ky. 1838 ); Shannon v. Frost, 42 Ky. 253 , 1842 Ky. LEXIS 151 ( Ky. 1842 ); Gibson v. Armstrong, 46 Ky. 481 , 1847 Ky. LEXIS 63 ( Ky. 1847 ); Hadden v. Chorn, 47 Ky. 70 , 1847 Ky. LEXIS 121 ( Ky. 1847 ); Cahill v. Bigger, 47 Ky. 211 , 1847 Ky. LEXIS 154 (Ky. 1847); Berryman v. Reese, 50 Ky. 287 , 1850 Ky. LEXIS 58 ( Ky. 1850 ); McKinney v. Griggs, 68 Ky. 401 , 1869 Ky. LEXIS 25 ( Ky. 1869 ); Brown v. Monroe, 80 Ky. 443 , 4 Ky. L. Rptr. 313 , 1882 Ky. LEXIS 84 ( Ky. 1882 ) (decided under prior law).

When a division exists in the denominational type of church property rights will be adjudged in favor of that faction which is recognized by the highest ecclesiastical court, though such faction be a minority. Gibson v. Armstrong, 46 Ky. 481 , 1847 Ky. LEXIS 63 ( Ky. 1847 ); Humphrey v. Burnside, 67 Ky. 215 , 1868 Ky. LEXIS 108 ( Ky. 1868 ); Lewis v. Watson, 67 Ky. 228 , 1868 Ky. LEXIS 109 ( Ky. 1868 ); McKinney v. Griggs, 68 Ky. 401 , 1869 Ky. LEXIS 25 ( Ky. 1869 ); First Presbyterian Church v. Wilson, 77 Ky. 252 , 1878 Ky. LEXIS 71 ( Ky. 1878 ) (decided under prior law).

In a church of the denominational type a seceding majority who purport to organize or join a separate organization forfeit their rights in the property of their former church. Harper v. Straws, 53 Ky. 48 ( Ky. 1853 ); Lewis v. Watson, 67 Ky. 228 , 1868 Ky. LEXIS 109 ( Ky. 1868 ); McKinney v. Griggs, 68 Ky. 401 , 1869 Ky. LEXIS 25 ( Ky. 1869 ); Brown v. Monroe, 80 Ky. 443 , 4 Ky. L. Rptr. 313 , 1882 Ky. LEXIS 84 ( Ky. 1882 ) (decided under prior law).

Where majority of church members expelled minority from membership and by the terms of the church organization the majority had control of the church the minority lost all rights in the property of the church. Bennett v. Morgan, 112 Ky. 512 , 66 S.W. 287, 23 Ky. L. Rptr. 1824 , 1902 Ky. LEXIS 192 ( Ky. 1902 ).

In the presbyterian type of church in the case of division or controversy, control of the property of the church will be given by the courts to those persons or members of the congregation who are recognized by the highest ecclesiastical court or judicatory of the denomination as being the church or congregation, even though they constitute but a minority of the congregation. Poynter v. Phelps, 129 Ky. 381 , 111 S.W. 699, 33 Ky. L. Rptr. 887 , 1908 Ky. LEXIS 167 ( Ky. 1908 ); Bogard v. Boone, 200 Ky. 572 , 255 S.W. 112, 1923 Ky. LEXIS 130 ( Ky. 1923 ).

Where a division and complete separation exists in the congregational type of church property rights will be adjudged in favor of the larger faction, even when that faction has changed its religious views, unless the property is subject to a specific trust in favor of the original religious beliefs. Poynter v. Phelps, 129 Ky. 381 , 111 S.W. 699, 33 Ky. L. Rptr. 887 , 1908 Ky. LEXIS 167 ( Ky. 1908 ); Cox v. Prewitt, 197 Ky. 716 , 247 S.W. 976, 1923 Ky. LEXIS 711 ( Ky. 1923 ); Bogard v. Boone, 200 Ky. 572 , 255 S.W. 112, 1923 Ky. LEXIS 130 ( Ky. 1923 ); Thomas v. Lewis, 224 Ky. 307 , 6 S.W.2d 255, 1928 Ky. LEXIS 589 ( Ky. 1928 ).

Attempted judgment of ecclesiastical presbytery of Baptist association ousting minister and his followers from use of church property and declaring opposing faction entitled to property was void, where association had no authority by its constitution to adjudge matters relating to internal affairs of churches in its membership. Vaughan v. Maynard, 294 Ky. 38 , 170 S.W.2d 897, 1943 Ky. LEXIS 377 ( Ky. 1943 ).

A church having the congregational form of government, in the sense that it does not recognize an ecclesiastical authority above the local church, an adherence to the belief that the members have a right to vote in church affairs cannot be considered a departure from fundamental doctrine within the meaning of the rule that a majority will forfeit its property rights by departing from the fundamental doctrines of the church. Bunnell v. Creacy, 266 S.W.2d 98, 1954 Ky. LEXIS 779 ( Ky. 1954 ).

6.— Lien.

When the statute does not apply a seceding faction which has expended money to improve the church building is entitled to a lien or the use and enjoyment of the building for a proper proportion of the time until reimbursement is made. Hadden v. Chorn, 47 Ky. 70 , 1847 Ky. LEXIS 121 ( Ky. 1847 ); Harper v. Straws, 53 Ky. 48 ( Ky. 1853 ) (decided under prior law).

7.Excommunication.

An allegation that the church expelled certain members is sufficient, provided it was done by the church as a body, at its regular time of meeting, whether the church rules required a concurrence of all or only a majority. Berryman v. Reese, 50 Ky. 287 , 1850 Ky. LEXIS 58 ( Ky. 1850 ) (decided under prior law).

“Immorality” is such conduct as contravenes the moral or divine law; that amounts to dishonesty, wickedness or injustice; not a mere refusal by a minority to obey the majority or subscribe to its beliefs in all details. Ransom v. Rogers, 12 Ky. Op. 739, 6 Ky. L. Rptr. 291 , 1884 Ky. LEXIS 325 (Ky. Ct. App. Oct. 2, 1884) (decided under prior law).

Although the courts have no power to review excommunications, nevertheless they may determine whether the act was that of the church or of persons who were not the church, and in a church of the congregational type, a majority adhering to the organization and doctrines of the church represent the church, and cannot be expelled by a minority of those present. Trustees of Oak Grove Missionary Baptist Church v. Ward, 261 Ky. 42 , 86 S.W.2d 1051, 1935 Ky. LEXIS 589 ( Ky. 1935 ).

8.Jurisdiction of Courts.

The courts will enforce the decision of a majority of a church of the congregational type. Cooper v. Bell, 269 Ky. 63 , 106 S.W.2d 124, 1937 Ky. LEXIS 561 ( Ky. 1937 ).

Cited:

Hazelip v. Doyel, 267 Ky. 477 , 102 S.W.2d 321, 1936 Ky. LEXIS 767 ( Ky. 1936 ).

273.130. Disposition of property in case of dissolution of religious society.

If any religious society holding land dissolves, the title shall vest in the trustees of the county seminary in which the land lies for the use of that seminary, and if there is no such seminary, then in the county judge/executive, for the benefit of common schools in the county.

History. 323; 1978, ch. 384, § 448, effective June 17, 1978; repealed and reenact., Acts 1990, ch. 476, Pt. V, § 613, effective July 13, 1990.

NOTES TO DECISIONS

1.Application.

This section does not apply when the original instrument provided for a reversion. Stanford College v. Board of Education, 145 Ky. 838 , 141 S.W. 386, 1911 Ky. LEXIS 947 ( Ky. 1911 ).

2.Cessation of Presbyterial Church.

The cessation of a local church under the presbyterial form of government is not such a dissolution of a religious body as to cause its real estate to escheat under the conditions set forth in this section. Trustees of Transylvania Presbytery, U. S. A., Inc. v. Garrard County Board of Education, 348 S.W.2d 846, 1961 Ky. LEXIS 38 ( Ky. 1961 ).

Cited:

Webb v. Boggs, 310 S.W.2d 58, 1958 Ky. LEXIS 373 ( Ky. 1958 ).

273.140. Sale of property held for charity for reinvestment.

Upon petition in equity stating the necessity of such action, if it will not violate any reservation or limitation in any dedication or grant, the Circuit Court of the county in which real property is held for a religious society or other charity may direct a sale of the property to reinvest the proceeds in the same county and for the same general purposes.

History. 324.

NOTES TO DECISIONS

1.Application.

This section does not apply to unincorporated religious or charitable organizations not acting under this chapter but under an original grant. Union Sunday School v. Trustees of Christian Church, 171 Ky. 534 , 188 S.W. 626, 1916 Ky. LEXIS 384 ( Ky. 1916 ).

This section does not apply to instances where the property is purchased for value and not conditioned upon a charitable use. People's Sav. Bank & Trust Co. v. South Side Baptist Church, 220 Ky. 113 , 294 S.W. 804, 1927 Ky. LEXIS 474 ( Ky. 1927 ).

This section applies only when the property is conveyed as a gift and subject to enforceable charitable uses. People's Sav. Bank & Trust Co. v. South Side Baptist Church, 220 Ky. 113 , 294 S.W. 804, 1927 Ky. LEXIS 474 ( Ky. 1927 ).

It is doubtful that the statute need be invoked when the dedication or grant does not expressly restrict location to a particular location or property on penalty or reversion. Kelly v. Second Presbyterian Church, 288 Ky. 592 , 157 S.W.2d 123, 1941 Ky. LEXIS 176 ( Ky. 1941 ).

2.Avoidance of Limitations and Restrictions.

Even aside from statute the court, when a change of conditions requires, may direct that property composing all or part of a charitable trust be sold, and the proceeds reinvested in the purchase or repair of other property, to be used to carry out the trust purpose. Board of Trustees v. Board of Education, 282 Ky. 671 , 139 S.W.2d 766, 1940 Ky. LEXIS 241 ( Ky. 1940 ).

This section provides a method by which title to property in which a charitable trust is invested may be conveyed which could otherwise not be done because of limitations or restrictions that the donor or grantor may enforce, and reinvested the same in a manner consistent with the purposes and objects of the trust. Kelly v. Second Presbyterian Church, 288 Ky. 592 , 157 S.W.2d 123, 1941 Ky. LEXIS 176 ( Ky. 1941 ).

3.Change of Location.

A limitation that the property invested in should be “for the use of that church for which it is designed, never to be diverted from them to others” does not prevent change of location where testator did not specify location in his will. Kelly v. Second Presbyterian Church, 288 Ky. 592 , 157 S.W.2d 123, 1941 Ky. LEXIS 176 ( Ky. 1941 ).

4.Manner of Sale.

Land which has been deeded for a charitable use, the deed containing no power of sale, can be sold by the trustee only in the manner provided by this section. Tate v. Woodyard, 145 Ky. 613 , 140 S.W. 1044, 1911 Ky. LEXIS 914 ( Ky. 1911 ).

5.Parsonage.

This section authorizes the sale of property devised as a parsonage and use of the proceeds to improve an existing parsonage. Sawyer v. Lamar, 230 Ky. 168 , 18 S.W.2d 971, 1929 Ky. LEXIS 42 ( Ky. 1929 ).

6.Parties.

Proper parties to such actions must be determined from the facts and circumstances of each case. Harwood v. Dick, 286 Ky. 423 , 150 S.W.2d 704, 1941 Ky. LEXIS 255 ( Ky. 1941 ).

Research References and Practice Aids

Cross-References.

Administration of trusts, KRS ch. 386.

Kentucky Law Journal.

Covington, The Cy Pres Doctrine in Kentucky, 35 Ky. L.J. 95 (1946).

273.150. Board of incorporated cemetery to make annual report.

On the first of January of each year the board of directors or trustees of every incorporated cemetery or burying ground organized for private profit shall make a complete written report to its stockholders and lot owners of its assets and liabilities as of that date.

History. 202, 208a: amend. Acts, 1946, ch. 141, § 4.

Compiler’s Notes.

This section was formerly compiled as KRS 271.430 .

Research References and Practice Aids

Kentucky Law Journal.

Shivel, Organizing the Corporation Under the New Kentucky Business Corporation Act — A Comparison with Prior Law, 61 Ky. L.J. 95 (1972).

Nonstock, Nonprofit Corporations

273.160. Nonstock, nonprofit corporations authorized; who may incorporate; purposes; exclusions; religious, charitable or educational corporation; application of other statutes; no tax exemption. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 1) was repealed by Acts 1968, ch. 165, § 70.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

273.161. Definitions for KRS 273.161 to 273.390.

As used in KRS 273.161 to 273.390 , unless the context otherwise requires:

  1. “Corporation” or “domestic corporation” means a nonprofit corporation subject to the provisions of KRS 273.161 to 273.390 , except a foreign corporation, and for the purposes of KRS 273.277 to 273.293 , the term “corporation” also means domestic nonprofit limited liability companies;
  2. “Disaster” means any natural, technological, or civil emergency that causes damage of sufficient severity and magnitude to result in a declaration of a state of emergency by a county, the Governor, or the President of the United States;
  3. “Foreign corporation” means a nonprofit corporation organized under laws other than the laws of this state;
  4. “Nonprofit corporation” means a corporation no part of the income or profit of which is distributable to its members, directors or officers;
  5. “Articles of incorporation” means the original or restated articles of incorporation or articles of consolidation and all amendments thereto, including articles of merger;
  6. “Bylaws” means the code or codes of rules adopted for the regulation or management of the affairs of the corporation irrespective of the name or names by which such rules are designated;
  7. “Member” means one having membership rights in a corporation in accordance with the provisions of its articles of incorporation or bylaws;
  8. “Board of directors” means the group of persons vested with the management of the affairs of the corporation irrespective of the name by which group is designated;
  9. “Insolvent” means inability of a corporation to pay its debts as they become due in the usual course of its affairs;
  10. “Principal office” means the office, in or out of this state, so designated in the annual report where the principal executive offices of a domestic or foreign corporation are located;
  11. “Secretary” means the corporate officer to whom the board of directors has delegated responsibility for custody of the minutes of the meetings of the board of directors and the members and for authenticating records of the corporation;
  12. “Individual” includes the estate of an incompetent or deceased individual;
  13. “Entity” includes a domestic or foreign corporation; not-for-profit corporation; profit and not-for-profit unincorporated association; business or statutory trust, estate, partnership, limited partnership, limited liability company, trust, and two (2) or more persons having a joint or common economic interest; and state, United States, and foreign government;
  14. “Person” includes individual and entity.
  15. “Name of record with the Secretary of State” means any real, fictitious, reserved, registered, or assumed name of an entity;
  16. “Real name” shall have the meaning set forth in KRS 365.015 ;
  17. “Deliver” or “delivery” means any method of delivery used in conventional commercial practice, including delivery by hand, mail, commercial delivery, and electronic transmission;
  18. “Effective date of notice” means notice when effective under KRS 273.162(3);
  19. “Electronic transmission” or “electronically transmitted” means any process of communication not directly involving the physical transfer of paper that is suitable for the retention, retrieval, and reproduction of information by the recipient;
  20. “Notice” means notice as described in KRS 273.162 ;
  21. “Sign” or “signature” includes any manual, facsimile, or conformed or electronic signature; and
  22. “Limited liability company” or “LLC” means a domestic nonprofit limited liability company.

History. Enact. Acts 1968, ch. 165, § 2; 1986, ch. 202, § 7, effective March 28, 1986; 1988, ch. 23, § 195, effective January 1, 1989; 2007, ch. 137, § 79, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 79, effective July 15, 2010; 2013, ch. 113, § 1, effective June 25, 2013; 2015 ch. 34, § 68, effective June 24, 2015; 2019 ch. 131, § 1, effective June 27, 2019.

Legislative Research Commission Notes.

(6/26/2007). 2007 Ky. Acts ch. 137, sec. 79, subsection (15) cited “Section 164 of this Act.” It is apparent from context that the section referred to should have been Section 163 of the Act, KRS 365.015 . The Reviser of Statutes has made this change under the authority of KRS 7.136 .

NOTES TO DECISIONS

Cited in:

University of Louisville v. Martin, 574 S.W.2d 676, 1978 Ky. App. LEXIS 627 (Ky. Ct. App. 1978).

Hartung v. Audubon Country Club, Inc., 785 S.W.2d 501, 1990 Ky. App. LEXIS 5 (Ky. Ct. App. 1990).

Opinions of Attorney General.

Where its articles of incorporation allowed the corporation to sue and be sued, a voluntary fire department which was a nonprofit corporation, could sue a nonmember for a fee for fighting a fire. OAG 69-523 .

Legislation granting state aid in the construction of an office building for the Kentucky municipal league would be constitutional. OAG 70-93 .

A “big brothers” corporation is an institution of purely public charity and would be entitled to exemption from ad valorem property taxation under this section. OAG 77-411 .

There is no reason why a rescue squad may not incorporate as a nonprofit corporation even though the rescue squad is funded primarily with city and county money. OAG 78-34 .

There is no authority for the county judge/executive or fiscal court to prohibit or limit a volunteer fire department operating in the unincorporated part of a county, except that the fiscal court may enact ordinances pertaining to the reasonable regulation of such volunteer fire departments, pursuant to KRS 67.083(3) (u). OAG 79-569 .

There is no authority of the county judge/executive or fiscal court to prohibit or limit rescue squads operating in the unincorporated portion of a county, except that the fiscal court, under KRS 67.083 (3) (d), has express authority to enact ordinances regarding the reasonable regulation of ambulance service in the unincorporated part of the county. OAG 79-569 .

A county public hospital corporation which is formed as a nonprofit, nonstock corporation pursuant to KRS Chapter 273 is not a public agency which is subject to the Open Meeting Law ( KRS 61.805 61.850 ). OAG 82-1 .

Since a county public hospital corporation being a corporation is not a public agency subject to the provisions of the statutes pertaining to conflict of interest, there is no statutory conflict of interest created by the employment of a law firm to represent the corporation in litigation while one of the members of the corporation’s board of commissioners is also a member of such law firm; such commissioner, however, should abstain from voting and absent himself from any meeting of the commission wherein the employment of his law firm is discussed or acted upon. OAG 82-1 .

The Kentucky Medical Services Foundation, Inc., is a nonprofit corporation organized under this chapter, receives no state or local funding, and therefore is not a public agency under the Kentucky Open Record Law, KRS 61.870 to 61.884 . OAG 82-216 .

Private, nonprofit, nonstock corporations are not public agencies and are therefore not subject to the Open Meetings law; thus, a nonprofit, nonstock corporation formed under KRS Ch. 273 for the purpose of local approval of loans for small businesses is not subject to the Open Meetings law. OAG 84-186 .

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Special Feature: AALS 2011 Annual Meeting, Section on Nonprofit Law and Philanthropy: Foreword: The Federalization of Nonprofit and Charity Law, 99 Ky. L.J. 637 (2010/2011).

Special Feature: AALS 2011 Annual Meeting, Section on Nonprofit Law and Philanthropy: The Federalization of the Duty of Loyalty Governing Charity Fiduciaries Under United States Tax Law, 99 Ky. L.J. 645 (2010/2011).

Special Feature: AALS 2011 Annual Meeting, Section on Nonprofit Law and Philanthropy: Choking Out Local Community Service Organizations: Rising Federal Tax Regulation and Its Impact on Small Nonprofit Entities, 99 Ky. L.J. 695 (2010/2011).

Special Feature: AALS 2011 Annual Meeting, Section on Nonprofit Law and Philanthropy: Federal Regulation of Nonprofit Board Independence: Focus on Independent Stakeholders as a “Middle Way”, 99 Ky. L.J. 731 (2010/2011).

Special Feature: AALS 2011 Annual Meeting, Section on Nonprofit Law and Philanthropy: The “Federalization” Problem and Nonprofit Self-Regulation: Some Initial Thoughts, 99 Ky. L.J. 783 (2010/2011).

Special Feature: AALS 2011 Annual Meeting, Section on Nonprofit Law and Philanthropy: Commentary: The Federalization of Nonprofit Regulation and Its Discontents, 99 Ky. L.J. 799 (2010/2011).

Northern Kentucky Law Review.

Tobergte, Regulating the Nonprofit Corporation, 16 N. Ky. L. Rev. 325 (1989).

273.162. Notice.

  1. Notice under this chapter shall be in writing unless oral notice is reasonable under the circumstances. Notice by electronic transmission is written notice.
  2. Notice may be communicated in person, by mail or other method of delivery, or by telephone, voice mail, or other electronic means. If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published, or by radio, television, or other form of public broadcast communication.
  3. Written notice by a corporation to a member, if in a comprehensible form, shall be effective:
    1. Upon deposit in the United States mail, if mailed postpaid and correctly addressed to the member’s address shown in the corporation’s current record of members; or
    2. When electronically transmitted to the member in a manner authorized and in accordance with the member’s instructions, if any.
  4. Written notice to a domestic or foreign corporation authorized to transact business in this Commonwealth may be addressed to its registered agent at its registered office or to the corporation or its secretary at its principal office address of record with the Secretary of State.
  5. Except as provided in subsections (3) and (4) of this section, written notice, if in a comprehensible form, shall be effective at the earliest of the following:
    1. When received;
    2. Five (5) days after its deposit in the United States mail, if mailed postpaid and correctly addressed; or
    3. On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee.
  6. Oral notice shall be effective when communicated, if communicated in a comprehensible manner.
  7. If KRS 273.161 to 273.390 prescribe notice requirements for particular circumstances, those requirements shall govern. If articles of incorporation or bylaws prescribe notice requirements not inconsistent with this section or other provisions of KRS 273.161 to 273.390 , those requirements shall govern.

HISTORY: 2015 ch. 34, § 66, effective June 24, 2015.

273.163. Applicability.

  1. The provisions of KRS 273.161 to 273.390 relating to domestic corporations shall apply to:
    1. All corporations organized hereunder; and
    2. All nonprofit corporations heretofore organized under any act repealed by 1968 Acts, ch. 165, for a purpose or purposes for which a corporation might be organized under KRS 273.161 to 273.390 .
  2. The provisions of KRS 273.161 to 273.390 relating to foreign corporations shall apply to all foreign nonprofit corporations conducting affairs in this state for a purpose or purposes for which a corporation might be organized under KRS 273.161 to 273.390 .

History. Enact. Acts 1968, ch. 165, § 3.

Opinions of Attorney General.

A nonprofit corporation governed by KRS Ch. 273 did not obtain any rights under KRS 271.068 (now repealed) of the general corporate statutes which were subsequently saved by KRS 271A.680 (now repealed). OAG 74-556 .

273.167. Purposes for which nonprofit corporations may be organized under KRS 273.161 to 273.390.

Except as otherwise prohibited by law, corporations may be organized under KRS 273.161 to 273.390 for any lawful purpose or purposes, including without being limited to any one (1) or more of the following purposes: charitable; benevolent; eleemosynary; educational; civic; patriotic; political; governmental; religious; social; recreational; fraternal; literary; cultural; athletic; scientific; agricultural; horticultural; animal husbandry; and professional, commercial, industrial, or trade association.

HISTORY: Enact. Acts 1968, ch. 165, § 4; 2018 ch. 193, § 1, effective July 14, 2018.

Opinions of Attorney General.

If a voluntary association of registered members of a political party now comprising an unincorporated political club incorporates pursuant to this section, it would be prohibited by KRS 123.010 (now repealed) and 123.020 (now repealed) from making contributions to political candidates or organizations, including expenditures of membership dues for such purposes. OAG 73-559 .

“Public agency” does not include a chamber of commerce under the generally accepted definition of that kind of organization and, whether organized under KRS Chs. 102 or 273, it is not subject to the requirements of KRS 61.810 pertaining to open meetings. OAG 74-566 .

Research References and Practice Aids

Cross-References.

Property exempt from taxation, Const., § 170.

Northern Kentucky Law Review.

Tobergte, Regulating the Nonprofit Corporation, 16 N. Ky. L. Rev. 325 (1989).

273.170. Articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 2) was repealed by Acts 1968, ch. 165, § 70.

273.171. General powers.

Each corporation shall have power:

  1. To have perpetual succession by its corporate name unless a limited period of duration is stated in its articles of incorporation.
  2. To sue and be sued, complain and defend, in its corporate name.
  3. To have a corporate seal and alter it at pleasure, provided, however, that the presence or absence of a corporate seal on or from a writing shall neither add to nor detract from the legality thereof nor affect its validity in any manner or respect.
  4. To purchase, take, receive, lease, take by gift, devise or bequest, or otherwise acquire, own, hold, improve, use and otherwise deal in and with real or personal property, or any interest therein, wherever situated.
  5. To sell, convey, mortgage, pledge, lease, exchange, transfer and otherwise dispose of all or any part of its property and assets.
  6. To lend money to its employees, other than its officers and directors, and otherwise assist its employees, officers and directors.
  7. To purchase, take, receive, subscribe for, or otherwise acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge, or otherwise dispose of, and otherwise use and deal in and with, shares or other interests in, or obligations of, other domestic or foreign corporations, whether for profit or not for profit, associations, partnerships or individuals, or direct or indirect obligations of the United States, or of any other government, state, territory, governmental district or municipality or of any instrumentality thereof.
  8. To make contracts and incur liabilities, borrow money at such rates of interest as the corporation may determine, issue its notes, bonds, and other obligations, and secure any of its obligations by mortgage or pledge of all or any of its property, franchises and income.
  9. To lend money for its corporate purposes, invest and reinvest its funds, and take and hold real and personal property as security for the payment of funds so loaned or invested.
  10. To conduct its affairs, carry on its operations, and have offices and exercise the powers granted by KRS 273.161 to 273.390 in any state, territory, district, or possession of the United States, or in any foreign country.
  11. To elect or appoint officers and agents of the corporation, who may be directors or members, and define their duties and fix their compensation.
  12. To make and alter bylaws, not inconsistent with its articles of incorporation or with the laws of this state, for the administration and regulation of the affairs of the corporation.
  13. Unless otherwise provided in the articles of incorporation, to make donations for the public welfare or for charitable, scientific or educational purposes; and in time of war to make donations in aid of war activities.
  14. To indemnify any director or officer or former director or officer of the corporation, or any person who may have served at its request as a director or officer of another corporation in which it owns shares of capital stock or of which it is a creditor, against expenses actually and reasonably incurred by him in connection with the defense of any action, suit or proceeding, civil or criminal, in which he is made a party by reason of being or having been such director or officer, except in relation to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty to the corporation; and to make any other indemnification that shall be authorized by the articles of incorporation or bylaws, or resolution adopted after notice to the members entitled to vote.
  15. To pay pensions and establish pension plans or pension trusts for any or all of its directors, officers and employees.
  16. To cease its corporate activities and surrender its corporate franchise.
  17. To have and exercise all powers necessary or convenient to effect any or all of the purposes for which the corporation is organized.

History. Enact. Acts 1968, ch. 165, § 5; 1988, ch. 23, § 179, effective January 1, 1989.

NOTES TO DECISIONS

1.Sovereign Immunity.

This section, giving power to sue and be sued, is not a waiver of sovereign immunity as to suits in federal court. Martin v. University of Louisville, 541 F.2d 1171, 1976 U.S. App. LEXIS 7348 (6th Cir. Ky. 1976 ).

Despite the language of subsection (2) of this section, and the incorporation of the University of Louisville under this chapter, there is no intent by the Legislature to waive sovereign immunity of the University in suits by professors wrongfully discharged where a money recovery is sought. University of Louisville v. Martin, 574 S.W.2d 676, 1978 Ky. App. LEXIS 627 (Ky. Ct. App. 1978).

Cited:

Rooks v. University of Louisville, 574 S.W.2d 923, 1978 Ky. App. LEXIS 639 (Ky. Ct. App. 1978).

Opinions of Attorney General.

Where its articles of incorporation allowed the corporation to sue and be sued, a voluntary fire department which was a nonprofit corporation, could sue a nonmember for a fee for fighting a fire. OAG 69-523 .

Where a corporation was established with its sole stated purpose being to lease armories to the Commonwealth until they were disposed of, upon the conveyance of the properties to the Commonwealth, the corporation’s existence would be at an end. OAG 71-30 .

A nonprofit corporation created as a holding company for the purpose of erecting a city-county hospital building could not amend its bylaws relating to the selection and tenure of the members of the corporate board where such amendments conflicted with the original articles of incorporation. OAG 72-18 .

A water association’s implied powers do not include the authority to use a mandatory assessment against benefited property owners to assist in the financing of its rural water extensions, though voluntary assessments under contracts are not precluded. OAG 75-714 .

There is no express provision in KRS Chapter 273 or in KRS 424.260 that required a nonprofit, nonstock corporation to observe the bidding process. OAG 79-577 .

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Connelly, Torts, 68 Ky. L.J. 709 (1979-1980).

Northern Kentucky Law Review.

Snyder, The Tax Reform Act of 1976 — Its Impact on the Role of Charitable Contributions in Estate Planning, 4 N. Ky. L. Rev. 283 (1977).

273.172. Powers of Secretary of State.

The Secretary of State shall have the power reasonably necessary to perform the duties required of him by this chapter.

History. Enact. Acts 1988, ch. 23, § 219, effective January 1, 1989.

273.173. Defense of ultra vires.

No act of a corporation and no conveyance or transfer of real or personal property to or by a corporation shall be invalid by reason of the fact that the corporation was without capacity or power to do such act or to make or receive such conveyance or transfer, but such lack of capacity or power may be asserted:

  1. In a proceeding by a member or a director against the corporation to enjoin the doing or continuation of unauthorized acts, or the transfer of real or personal property by or to the corporation. If the unauthorized acts or transfer sought to be enjoined are being, or are to be, performed pursuant to any contract to which the corporation is a party, the court may, if all of the parties to the contract are parties to the proceeding and if it deems the same to be equitable, set aside and enjoin the performance of such contract, and in so doing may allow to the corporation or the other parties to the contract, as the case may be, compensation for the loss or damage sustained by either of them which may result from the action of the court in setting aside and enjoining the performance of such contract, but anticipated profits to be derived from the performance of the contract shall not be awarded by the court as a loss or damage sustained.
  2. In a proceeding by the corporation, whether acting directly or through a receiver, trustee, or other legal representative, or through members in a representative suit, against the officers or directors of the corporation for exceeding their authority.
  3. In a proceeding by the Attorney General, as provided in KRS 273.161 to 273.390 , to dissolve the corporation, or in a proceeding by the Attorney General to enjoin the corporation from performing unauthorized acts, or in any other proceeding by the Attorney General.

History. Enact. Acts 1968, ch. 165, § 6.

Research References and Practice Aids

Kentucky Law Journal.

Kentucky Law Survey, Ham, Corporations, 64 Ky. L.J. 253 (1975-76).

273.177. Corporate name.

The name of the corporation shall satisfy the requirements of KRS 14A.3-010 .

History. Enact. Acts 1968, ch. 165, § 7; 1976, ch. 27, § 2; 1980, ch. 294, § 5, effective July 15, 1980; 1988, ch. 23, § 196, effective January 1, 1989; 2006, ch. 149, § 228, effective July 12, 2006; 2007, ch. 137, § 80, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 80, effective July 15, 2010; repealed, reenact. and amend., Acts 2010, ch. 151, § 60, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed, reenacted, and amended by 2010 Ky. Acts ch. 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict, therefore, they have been codified together.

Opinions of Attorney General.

The registration of a company’s trademark pursuant to KRS 365.560 (now repealed) to 365.625 (now repealed) would in no way prohibit a group of persons from incorporating under KRS Ch. 273 and using as its corporate name, a name registered as a trademark by another company. OAG 71-157 .

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

273.178. Reserved name. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 81) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-020 .

273.179. Registered name. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 82) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-030 .

273.180. Corporate name. [Repealed.]

Compiler’s Notes.

This section (Acts 1948, ch. 133, § 3) was repealed by Acts 1968, ch. 165, § 70.

273.181. Registered office — Agent for service of process. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1968, ch. 165, § 8; 1976, ch. 27, § 7; 1980, ch. 294, § 6, effective July 15, 1980) was repealed by Acts 1988, ch. 23, § 284, effective January 1, 1989.

273.182. Registered office and registered agent.

Each corporation shall continuously maintain in this state a registered office and a registered agent that comply with KRS 14A.4-010 .

History. Repealed, reenact. and amend., Acts 2010, ch. 151, § 61, effective January 1, 2011.

273.183. Service of process on corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1968, ch. 165, § 9; 1974, ch. 315, § 41; 1980, ch. 114, § 63, was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

273.184. Change of registered office or registered agent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 223) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-020 .

273.1841. Resignation of registered agent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 224) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-030 .

273.1842. Statement of change of principal office.

A corporation that changes the mailing address of its principal office shall comply with KRS 14A.5-010 .

History. Enact. Acts 2007, ch. 137, § 3, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 3, effective July 15, 2010; repealed and reenact., Acts 2010, ch. 151, § 62, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed and reenacted without change to the existing language by 2010 Ky. Acts ch. 51, effective 7/15/10, and repealed and reenacted with the new language by 2010 Ky. Acts ch. 151, effective 1/1/2011. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment by ch. 51 not serve to void amendments made by other bills, and these Acts do not appear to be in conflict, therefore, they have been codified together.

273.185. Service on corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 225) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-040 .

273.187. Members.

  1. A corporation may have one (1) or more classes of members or may have no members. If the corporation has one (1) or more classes of members, the designation of such class or classes, the manner of election or appointment and the qualifications and rights of the members of each class shall be set forth in the articles of incorporation or the bylaws. If the corporation has no members, that fact shall be set forth in the articles of incorporation or the bylaws. A corporation may issue certificates evidencing membership therein.
  2. Unless otherwise provided in the articles of incorporation, a director, officer, employee, or member of a corporation shall not be personally liable for the acts or debts of the corporation, except that the member may become personally liable by reason of his or her own acts or conduct.

History. Enact. Acts 1968, ch. 165, § 10; 2010, ch. 133, § 15, effective July 15, 2010.

Research References and Practice Aids

Northern Kentucky Law Review.

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

273.190. Filing and recording of articles; issuance of certificate of incorporation; fees. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 4) was repealed by Acts 1968, ch. 165, § 70.

273.191. Bylaws.

The initial bylaws of a corporation shall be adopted by its board of directors. The power to alter, amend or repeal the bylaws or adopt new bylaws shall be vested in the board of directors unless otherwise provided in the articles of incorporation or the bylaws. The bylaws may contain any provisions for the regulation and management of the affairs of a corporation not inconsistent with law or the articles of incorporation.

History. Enact. Acts 1968, ch. 165, § 11.

NOTES TO DECISIONS

Cited:

Hollins v. Edmonds, 616 S.W.2d 801, 1981 Ky. App. LEXIS 244 (Ky. Ct. App. 1981).

273.193. Meetings of members.

  1. Meetings of members may be held at such place, either within or without this state, as may be provided in the bylaws. In the absence of any such provision, all meetings shall be held at the registered office of the corporation in this state.
  2. An annual meeting of the members shall be held at such time as may be provided in the bylaws. Failure to hold the annual meeting at the designated time shall not work a forfeiture or dissolution of the corporation.
  3. Special meetings of the members may be called by the president or by the board of directors. Special meetings of the members may also be called by such other officers or persons or number or proportion of members as may be provided in the articles of incorporation or the bylaws. In the absence of a provision fixing the number or proportion of members entitled to call a meeting, a special meeting of members may be called by members having one-twentieth (1/20) of the votes entitled to be cast at such meeting.

History. Enact. Acts 1968, ch. 165, § 12.

NOTES TO DECISIONS

Cited:

Hollins v. Edmonds, 616 S.W.2d 801, 1981 Ky. App. LEXIS 244 (Ky. Ct. App. 1981).

273.195. Remote communication.

  1. If the board of directors is authorized to determine the place of an annual or special meeting of members, the board of directors, in its sole discretion, may determine that the meeting shall not be held at any place but shall instead be held solely by means of remote communication under subsection (2) of this section.
  2. If authorized by the board of directors in its sole discretion, and subject to such guidelines and procedures as the board of directors may adopt, members and proxy holders not physically present at a meeting of members may by means of remote communication:
    1. Participate in a meeting of members; and
    2. Be deemed present in person and vote at a meeting of members, whether such meeting is to be held at a designated place or solely by means of remote communication, if:
      1. The corporation implements reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a member or proxy holder;
      2. The corporation implements reasonable measures to provide members and proxy holders referred to in subparagraph 1. of this paragraph a reasonable opportunity to participate in the meeting and to vote on matters submitted to the members, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with the proceedings; and
      3. The corporation records any vote or other action taken at the meeting by a member or proxy holder by means of remote communication. The corporation shall maintain as a record the recorded vote or other action taken.

HISTORY: 2015 ch. 34, § 74, effective June 24, 2015.

273.197. Notice of members’ meetings.

Unless otherwise provided in the articles of incorporation or the bylaws, notice stating the place, day and hour of meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than thirty-five (35) days before the date of the meeting, by or at the direction of the president, or the secretary, or the officers or persons calling the meeting, to each member entitled to vote at such meeting.

HISTORY: Enact. Acts 1968, ch. 165, § 13; 2015 ch. 34, § 69, effective June 24, 2015.

NOTES TO DECISIONS

Cited:

Hollins v. Edmonds, 616 S.W.2d 801, 1981 Ky. App. LEXIS 244 (Ky. Ct. App. 1981).

273.200. Beginning of corporate existence; who constitute corporation; validity and effect of various papers. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 5) was repealed by Acts 1968, ch. 165, § 70.

273.201. Voting.

  1. The right of the members, or any class or classes of members, to vote may be limited, enlarged or denied to the extent specified in the articles of incorporation or the bylaws. Unless so limited, enlarged or denied, each member, regardless of class, shall be entitled to one (1) vote on each matter submitted to a vote of members.
  2. A member entitled to vote may vote in person or, unless the articles of incorporation or the bylaws otherwise provide, may vote by proxy executed in writing by the member or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Where directors or officers are to be elected by members, the bylaws may provide that such elections may be conducted by mail.
  3. The articles of incorporation or the bylaws may provide that in all elections for directors every member entitled to vote shall have the right to cumulate his vote and to give one (1) candidate a number of votes equal to his vote multiplied by the number of directors to be elected, or by distributing such votes on the same principle among any number of such candidates.
  4. If a corporation has no members or its members have no right to vote, the directors shall have the sole voting power.

History. Enact. Acts 1968, ch. 165, § 14.

Opinions of Attorney General.

Where there is nothing in the bylaws to prevent a proxy vote, a member of the Northeast Area Regional Crime Council, Inc., may vote by proxy. OAG 72-550 .

Subsection (2) of this section permits members of a corporation to vote by proxy, but that does not relate to the board of directors. OAG 84-367 .

273.203. Quorum.

The bylaws may provide the number or percentage of members entitled to vote represented in person or by proxy, or the number or percentage of votes represented in person or by proxy, which shall constitute a quorum at a meeting of members. In the absence of any such provision, members holding one-tenth (1/10) of the votes entitled to be cast on the matter to be voted upon represented in person or by proxy shall constitute a quorum. A majority of the votes entitled to be cast on a matter to be voted upon by the members present or represented by proxy at a meeting at which a quorum is present shall be necessary for the adoption thereof unless a greater proportion is required by KRS 273.161 to 273.390 , the articles of incorporation or the bylaws.

History. Enact. Acts 1968, ch. 165, § 15.

273.207. Board of directors.

The affairs of a corporation shall be managed by a board of directors. Directors need not be residents of this state or members of the corporation unless the articles of incorporation or the bylaws so require. The articles of incorporation or the bylaws may prescribe other qualifications for directors.

History. Enact. Acts 1968, ch. 165, § 16.

Opinions of Attorney General.

Council members of nonprofit corporation, who act as its board of directors cannot appoint a proxy. OAG 74-645 .

273.210. Corporate powers. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 6) was repealed by Acts 1968, ch. 165, § 70.

273.211. Number and election or appointment of directors — Classes — Terms — Removal.

    1. The board of directors shall consist of three (3) or more individuals, with the number specified in or fixed in accordance with the articles of incorporation or bylaws, except as to the number of the first board of directors which shall be fixed by the articles of incorporation. (1) (a) The board of directors shall consist of three (3) or more individuals, with the number specified in or fixed in accordance with the articles of incorporation or bylaws, except as to the number of the first board of directors which shall be fixed by the articles of incorporation.
    2. The articles of incorporation or bylaws may establish a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed by the board of directors, within the minimum and maximum, in the manner provided in the articles of incorporation or the bylaws.
    3. No decrease in number shall have the effect of shortening the term of any incumbent director.
  1. The directors constituting the first board of directors shall be named in the articles of incorporation and shall hold office until the first annual election of directors or for such other period as may be specified in the articles of incorporation or the bylaws. Thereafter, directors shall be elected or appointed in the manner and for the terms provided in the articles of incorporation or the bylaws. In the absence of a provision fixing the term of office, the term of office of a director shall be one (1) year, and until his successor is elected and has accepted his election.
  2. Directors may be divided into classes and the terms of office of the several classes need not be uniform. Each director shall hold office for the term for which he is elected or appointed and until his successor shall have been elected or appointed and qualified.
  3. A director may be removed from office pursuant to any removal procedure provided in the articles of incorporation or bylaws.
  4. Every director of a corporation, by acceptance of election or appointment as a director, including by service, shall be deemed to have consented to the jurisdiction of the courts of the Commonwealth of Kentucky for any action by, in the name of, or on behalf of the corporation.

HISTORY: Enact. Acts 1968, ch. 165, § 17; 2012, ch. 81, § 100, effective July 12, 2012; 2018 ch. 193, § 2, effective July 14, 2018.

NOTES TO DECISIONS

Cited:

Hollins v. Edmonds, 616 S.W.2d 801, 1981 Ky. App. LEXIS 244 (Ky. Ct. App. 1981).

Opinions of Attorney General.

This section clearly permits the bylaws of the corporation to increase or decrease the number of directors provided for in the articles unless the articles declare that a change in the number of directors shall be made only by amendment to said articles and where articles of incorporation do not contain a provision requiring a change in the number of directors to be made by amendment only, then the bylaws may by amendment change the number of directors, thereby eliminating all associate directors and if no bylaws exist, then the articles of incorporation would govern. OAG 74-908 .

273.213. Vacancies.

  1. Any vacancy occurring in the board of directors and any directorship to be filled by reason of an increase in the number of directors may be filled by the affirmative vote of a majority of the remaining directors, though less than a quorum of the board of directors, unless the articles of incorporation or the bylaws provide that a vacancy or directorship so created shall be filled in some other manner, in which case such provision shall control.
  2. A director elected or appointed, as the case may be, to fill a vacancy shall be elected or appointed for the unexpired term of his predecessor in office.

History. Enact. Acts 1968, ch. 165, § 18.

NOTES TO DECISIONS

1.Classes of Directors.

After consolidation, the division of the directors into two (2) classes with each class having a separate identity with provision for self-perpetuation was proper. Eitel v. John N. Norton Memorial Infirmary, 441 S.W.2d 438, 1969 Ky. LEXIS 324 ( Ky. 1969 ).

273.215. General standards for directors.

  1. A director of a nonprofit corporation subject to the provisions of KRS 273.161 to 273.387 shall discharge his duties as a director, including his duties as a member of a committee:
    1. In good faith;
    2. On an informed basis; and
    3. In a manner he honestly believes to be in the best interests of the corporation.
  2. Such director shall be considered to discharge his duties on an informed basis if he makes, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, inquiry into the business and affairs of the corporations, or into a particular action to be taken or decision to be made.
  3. In discharging his duties such director shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    1. One (1) or more officers or employees of the corporation whom the director honestly believes to be reliable and competent in the matters presented;
    2. Legal counsel, public accountants, or other persons as to matters the director honestly believes are within the person’s professional or expert competence; or
    3. A committee of the board of directors of which he is not a member if the director honestly believes the committee merits confidence.
  4. A director of a nonprofit corporation shall not be considered to act in good faith if he has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (3) of this section unwarranted.
  5. In addition to any other limitation on such director’s liability for monetary damages contained in any provision of the corporation’s articles of incorporation adopted in accordance with the provisions of KRS 273.248 , any action taken as a director, or any failure to take any action as a director, shall not be the basis for monetary damages or injunctive relief unless:
    1. The director has breached or failed to perform the duties of the director’s office in compliance with this section; and
    2. In the case of an action for monetary damages, the breach or failure to perform constitutes willful misconduct or wanton or reckless disregard for human rights, safety or property.
  6. A person bringing an action for monetary damages under this section shall have the burden of proving by clear and convincing evidence the provisions of subsection (5)(a) and (b) of this section, and the burden of proving that the breach or failure to perform was the legal cause of the damages suffered.
  7. Nothing in this section shall eliminate or limit the liability of any director for any act or omission occurring prior to July 15, 1988.

History. Enact. Acts 1988, ch. 23, § 245, effective January 1, 1989; 1988, ch. 224, § 12, effective July 15, 1988.

Legislative Research Commission Note.

This section was created by two 1988 Acts which do not appear to be in conflict and have been compiled together.

NOTES TO DECISIONS

1.Fiduciary Duty.

In an action by a condominium owner against a condominium association, the jury was improperly instructed on the breach of fiduciary duty claim as the association members owed a fiduciary duty to the association as a whole rather than to individual members/shareholders like the owner pursuant to KRS 273.215(1).1400 Willow Council of Co-Owners, Inc. v. Ballard, 2010 Ky. App. LEXIS 94 (Ky. Ct. App. May 21, 2010, sub. op., 2010 Ky. App. Unpub. LEXIS 1007 (Ky. Ct. App. May 21, 2010).

Condominium owner’s breach of fiduciary duty claim against a condominium association failed because (1) the association had no fiduciary duty to owners, (2) the association’s officers and directors only had a fiduciary duty to the association, under KRS 273.215 , (3) the association was not vicariously liable for a director’s fiduciary breach, and (4) the fiduciary breach found by a jury was not equivalent to a failure to act in good faith. Ballard v. 1400 Willow Council of Co-Owners, Inc., 430 S.W.3d 229, 2013 Ky. LEXIS 579 ( Ky. 2013 ).

Research References and Practice Aids

Kentucky Bench & Bar.

Lawyers Serving as Directors of Kentucky Nonprofit Corporations: Special Considerations, Vol. 69, No. 5, Sept. 2005, Ky. Bench & Bar 21.

Northern Kentucky Law Review.

Tobergte, Regulating the Nonprofit Corporation, 16 N. Ky. L. Rev. 325 (1989).

273.217. Quorum of directors — Prohibition on director voting by proxy.

  1. A majority of the number of directors fixed by the bylaws, or in the absence of a bylaw fixing the number of directors, then of the number stated in the articles of incorporation, shall constitute a quorum for the transaction of business, unless otherwise provided in the articles of incorporation or the bylaws.
  2. Unless the articles of incorporation or bylaws provide otherwise, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously communicate with each other during this meeting. A director participating in a meeting by this means shall be deemed to be present in person at the meeting.
  3. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by KRS 273.161 to 273.390 , the articles of incorporation or the bylaws.
  4. Irrespective of whether or not the corporation has members, a director may not vote by proxy.

HISTORY: Enact. Acts 1968, ch. 165, § 19; 2015 ch. 34, § 70, effective June 24, 2015; 2018 ch. 193, § 6, effective July 14, 2018.

Opinions of Attorney General.

This section permits the bylaws of a nonprofit corporation to specify less than a majority of the directors as a quorum for conducting business. OAG 79-250 .

273.219. Conflict-of-interest transaction.

  1. A conflict-of-interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest. A conflict-of-interest transaction shall not be the subject of equitable relief on the ground of the director’s interest in the transaction if:
    1. The material facts of the transaction and the director’s interest were disclosed or known to the board of directors, or a committee of the board duly constituted under KRS 273.221 , and the board of directors or the committee authorized, approved, or ratified the transaction; or
    2. The transaction was fair to the corporation.
  2. For purposes of this section, a director of the corporation has an indirect interest in a transaction if:
    1. Another entity in which he or she has a material financial interest is a party to the transaction; or
    2. Another entity of which he or she is a director, officer, general partner, manager, trustee, or person in a similar position is a party to the transaction, and the transaction is or should be considered by the board of directors of the corporation.
  3. For purposes of subsections (1)(a) and (2)(b) of this section, director authorization, approval, or ratification is effective if done by a majority vote of the directors who do not have a direct or indirect interest in the transaction within the meaning of this section, even if the majority is less than a quorum, but a transaction may not be authorized, approved, or ratified by a single director. Director authorization may be delegated to a committee under KRS 273.221 , provided that no director appointed to the committee has a direct or indirect interest within the meaning of this section. Director action under this section shall be done by a higher number than a majority, if the articles of incorporation or bylaws so provide.
  4. For purposes of subsection (1) of this section, a director who has a direct or indirect interest in a transaction with the corporation shall bear the burden of proving that the transaction was fair to the corporation.

HISTORY: Enact. Acts 1988, ch. 224, § 13, effective July 15, 1988; repealed and reenacted by 2018 ch. 193, § 5, effective July 14, 2018.

273.220. Limitations on business and holding of real estate. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 7) was repealed by Acts 1968, ch. 165, § 70.

273.221. Committees of the board — Advisory committees.

  1. Unless this chapter, the articles of incorporation, or the bylaws provide otherwise, a board of directors may create one (1) or more committees of the board and appoint directors to serve on the committee or committees. Each committee shall have two (2) or more directors, and all committee members shall serve at the pleasure of the board of directors. The board may delegate to one (1) or more directors the authority to appoint or remove the members of the committee. An individual who is not a director may serve on a committee of the board, but may not vote on any matter that binds the corporation.
  2. To the extent specified by the board of directors or in the articles of incorporation or bylaws, a committee may exercise the powers of the board of directors under this chapter, except as limited by subsection (3) of this section.
  3. A committee shall not:
    1. Authorize distributions;
    2. In the case of a membership corporation, authorize the repurchase or redemption of a member’s membership in the corporation;
    3. In the case of a membership corporation, authorize or propose to members any action that this chapter requires be approved by members;
    4. Fill vacancies on the board of directors;
    5. Adopt, amend, or repeal bylaws;
    6. Elect, appoint, or remove any officer of the corporation;
    7. Establish a board committee or establish or alter the manner in which committee members are appointed to these committees;
    8. Amend or restate articles of incorporation;
    9. Adopt a plan of merger or consolidation;
    10. Authorize the sale, lease, exchange, or mortgage of all or substantially all of the property and assets of the corporation;
    11. Authorize the voluntary dissolution of the corporation or revoke proceedings therefor; or
    12. Amend, alter, or repeal any resolution of the board of directors.
  4. Unless this chapter, the articles of incorporation, or the bylaws provide otherwise, a board of directors may create one (1) or more advisory committees, whose members need not be directors. The board of directors may appoint and remove, or may designate any director or officer of the corporation to appoint and remove, the members of an advisory committee. An advisory committee may not act on behalf of the corporation or bind the corporation to any action but may make recommendations to the board of directors, to any board committee, or to the officers of the corporation.
  5. The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct described in KRS 273.215 .

HISTORY: Enact. Acts 1968, ch. 165, § 20; repealed and reenact. 2018, ch. 193, § 3, effective July 14, 2018.

273.223. Place and notice of directors’ meetings.

  1. Meetings of the board of directors, regular or special, may be held either within or without this state, and upon such notice as the bylaws may prescribe. If the bylaws are silent as to the required notice of a meeting of the board of directors, meetings of the board of directors shall be preceded by at least two (2) days notice of the time, date, and place of the meeting.
  2. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors needs to be specified in the notice or waiver of notice of such meeting.
  3. Attendance of a director at any meeting shall constitute a waiver of notice of such meeting except when a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.
  4. The Circuit Court for the county where a corporation’s principal office or, if there is none in this state, its registered office is located may order a special meeting of the board of directors on the application of one-third (1/3) or more of the incumbent directors. The court may fix the time and place of the meeting, prescribe the form and content of the meeting notice, and enter such other orders as are necessary to accomplish the purpose of the meeting.

HISTORY: Enact. Acts 1968, ch. 165, § 21; 2010, ch. 133, § 16, effective July 15, 2010; 2015 ch. 34, § 71, effective June 24, 2015.

Research References and Practice Aids

Northern Kentucky Law Review.

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

273.227. Officers.

  1. A corporation shall have the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws.
  2. A duly appointed officer may appoint one (1) or more officers or assistant officers if authorized by the bylaws or the board of directors.
  3. The bylaws or the board of directors shall delegate to one (1) of the officers responsibility for preparing minutes of the directors’ and members’ meetings and for authenticating records of the corporation.
  4. The same individual may simultaneously hold more than one (1) office in a corporation.
  5. Each officer shall be elected or appointed at such time and in such manner and for such terms not exceeding three (3) years as may be prescribed in the articles of incorporation or the bylaws. In the absence of any such provision, all officers shall be elected or appointed annually by the board of directors.
  6. The articles of incorporation or the bylaws may provide that any one (1) or more officers of the corporation shall be ex officio members of the board of directors.
  7. Every officer of a corporation, by acceptance of election or appointment as an officer, including by service, shall be deemed to have consented to the jurisdiction of the courts of the Commonwealth of Kentucky for any action by, in the name of, or on behalf of the corporation.

HISTORY: Enact. Acts 1968, ch. 165, § 22; 1988, ch. 23, § 197, effective January 1, 1989; 2012, ch. 81, § 101, effective July 12, 2012; 2015 ch. 34, § 51, effective June 24, 2015.

273.228. Authority of officers.

Each officer shall have the authority and shall perform the duties set forth in the bylaws or, to the extent consistent with the bylaws, the duties prescribed by the board of directors or by direction of an officer authorized by the board of directors to prescribe the duties of other officers.

History. Enact. Acts 1988, ch. 23, § 226, effective January 1, 1989.

273.229. Standards of conduct for officers.

  1. An officer of a nonprofit corporation subject to the provisions of KRS 273.161 to 273.387 , with discretionary authority, shall discharge his duties under that authority:
    1. In good faith;
    2. On an informed basis; and
    3. In a manner he honestly believes to be in the best interests of the corporation.
  2. Such officer shall be considered to discharge his duties on an informed basis if he makes, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, inquiry into the business and affairs of the corporation, or into a particular action to be taken or decision to be made.
  3. In discharging his duties such officer shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
    1. One (1) or more officers or employees of the corporation whom the officer honestly believes to be reliable and competent in the matters presented; or
    2. Legal counsel, public accountants, or other persons as to matters the officer honestly believes are within the person’s professional or expert competence.
  4. An officer shall not be considered to act in good faith if he has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (3) of this section unwarranted.
  5. Any action taken as an officer, or any failure to take any action as an officer, shall not be the basis for monetary damages or injunctive relief unless:
    1. The officer has breached or failed to perform his duties in compliance with this section; and
    2. In the case of an action for monetary damages, the breach or failure to perform constitutes willful misconduct or wanton or reckless disregard for human rights, safety or property.
  6. A person bringing an action for monetary damages under this section shall have the burden of proving by clear and convincing evidence the provisions of subsections (5)(a) and (b) of this section, and the burden of proving that the breach or failure to perform was the legal cause of the damages suffered.
  7. Nothing in this section shall eliminate or limit the liability of any officer for any act or omission occurring prior to July 15, 1988.

History. Enact. Acts 1988, ch. 224, § 14, effective July 15, 1988.

273.230. Bylaws. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 8) was repealed by Acts 1968, ch. 165, § 70.

273.231. Removal of officers.

Any officer elected or appointed may be removed by the persons authorized to elect or appoint such officer whenever in their judgment the best interests of the corporation will be served thereby. The removal of an officer shall be without prejudice to the contract rights, if any, of the officer so removed. Election or appointment of an officer or agent shall not of itself create contract rights.

History. Enact. Acts 1968, ch. 165, § 23.

273.233. Books and records.

Each corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its members, board of directors and committees having any of the authority of the board of directors; and shall keep at its registered office or principal office in this state a record of the names and addresses of its members entitled to vote. All books and records of a corporation may be inspected and copied by any member, or the member’s agent or attorney, for any proper purpose at any reasonable time. The member’s right of inspection may be abolished or limited by the corporation’s articles of incorporation or bylaws.

HISTORY: Enact. Acts 1968, ch. 165, § 24; 2010, ch. 133, § 17, effective July 15, 2010; 2018 ch. 193, § 7, effective July 14, 2018.

273.237. Shares of stock and dividends prohibited — Permissible expenditures.

  1. A corporation shall not have or issue shares of stock. Except as authorized by subsection (2) of this section, no dividend shall be paid and no part of the income or profit of a corporation shall be distributed to its members, directors, or officers.
  2. A corporation may:
    1. Pay reasonable compensation to its members, directors, or officers for services rendered to the corporation;
    2. Reimburse reasonable expenses to its members, directors, or officers in connection with services rendered to the corporation;
    3. Confer benefits upon its members in conformity with its purposes;
    4. Apply income or profit so as to reduce or eliminate dues, fees, or contributions that otherwise would be payable to the corporation by its members;
    5. Make distributions, subject to subsection (3) of this section, upon dissolution or final liquidation to its members as permitted by KRS 273.161 to 273.390 , and no such payment, benefit, or distribution shall be deemed to be a dividend or a distribution of income or profit;
    6. Make distributions, subject to subsection (3) of this section, to any entity:
      1. That is exempt under Section 501(c)(3) of the Internal Revenue Code of 1986, or any successor section; or
      2. That is a state, a possession of the United States, or any political subdivision of a state or a possession of the United States, or the United States or the District of Columbia, but only if the distribution under this subparagraph is made exclusively for public purposes; and
    7. Make distributions, subject to subsection (3) of this section and only by a corporation other than a charitable or religious corporation to purchase its memberships.
  3. A corporation shall not make any distribution under subsection (2)(e), (f), or (g) of this section if at the time of, or as a result of, the distribution:
    1. The corporation would not be able to pay its debts as they become due in the usual course of business; or
    2. The corporation’s total assets would be less than the sum of its total liabilities.

HISTORY: Enact. Acts 1968, ch. 165, § 25; 2018 ch. 193, § 4, effective July 14, 2018.

273.240. Membership; rights of members. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 9) was repealed by Acts 1968, ch. 165, § 70.

273.241. Loans to directors and officers prohibited.

No loans shall be made by a corporation to its directors or officers. Any director or officer who assents to or participates in the making of any such loan shall be liable to the corporation for the amount of such loan until the repayment thereof.

History. Enact. Acts 1968, ch. 165, § 26.

273.243. Incorporators.

One (1) or more persons may act as the incorporator or incorporators of a corporation by delivering articles of incorporation to the Secretary of State for filing.

History. Enact. Acts 1968, ch. 165, § 27; 1976, ch. 27, § 3; 1988, ch. 23, § 198, effective January 1, 1989.

Opinions of Attorney General.

The validity of the articles of incorporation of a nonstock, nonprofit corporation formed by a group of teen-agers is not affected by the fact that some of the incorporators have not attained the age of 18, where some of the incorporators are in fact 18. OAG 71-168 .

273.247. Articles of incorporation.

  1. The articles of incorporation shall set forth:
    1. The name of the corporation that satisfies the requirements of KRS 14A.3-010 ;
    2. The purpose or purposes for which the corporation is organized;
    3. Any provisions, not inconsistent with law, which the incorporators elect to set forth in the articles of incorporation for the regulation of the internal affairs of the corporation, including any provision for distribution of assets or dissolution or final liquidation;
    4. The corporation’s initial registered office and initial registered agent that satisfy the requirements of KRS 14A.4-010 ;
    5. The mailing address of the corporation’s principal office;
    6. The number of directors constituting the initial board of directors, and the names and mailing addresses of the persons who are to serve as the initial directors; and
    7. The name and mailing address of each incorporator.
  2. It shall not be necessary to set forth in the articles of incorporation any of the corporate powers enumerated in KRS 273.163 to 273.387 .
  3. Unless its articles of incorporation provide otherwise, every corporation shall be presumed to have perpetual duration and succession in its corporate name.
  4. Unless the articles of incorporation provide that a change in the number of directors shall be made only by amendment to the articles of incorporation, a change in the number of directors made by amendment to the bylaws shall be controlling. In all other cases, when a provision of the articles of incorporation is inconsistent with a bylaw, the provision of the articles of incorporation shall be controlling.
  5. Unless the registered agent signs the articles, the corporation shall deliver with the articles of incorporation the registered agent’s written consent to the appointment.

History. Enact. Acts 1968, ch. 165, § 28; 1986, ch. 202, § 8, effective March 28, 1986; 1988, ch. 23, § 199, effective January 1, 1989; 1998, ch. 341, § 13, effective July 15, 1998; 2010, ch. 151, § 63, effective January 1, 2011.

Legislative Research Commission Note.

An amendment to this section was included in 1976 H.B. 26 (ch. 27) as originally introduced. The amended language, however, was deleted by floor amendment, but the section was not deleted from the act.

NOTES TO DECISIONS

1.Effect of Articles.

Where a nonprofit corporation was organized by the fiscal court to assume management of a county hospital, the articles of incorporation were not a grant of authority giving the hospital corporation any ownership interest or a contract right to retain possession or control of the county’s hospital facilities, and thus the fiscal court had the right to assume management of the county hospital and terminate its control by directors of the corporation. Knox County Fiscal Court v. Knox County General Hospital, Inc., 528 S.W.2d 672, 1975 Ky. LEXIS 69 ( Ky. 1975 ).

Opinions of Attorney General.

Since the registered office of a corporation is a known place of business, it may be located in any county of the state, without regard to where the company conducts its commercial business, and, while the registered agent of the corporation need not be a resident of the county in which the corporation is registered, he must be located at, and the address of his business office must be identical with, the address of the registered office to satisfy the requirements of Const., § 194. OAG 75-85 .

Research References and Practice Aids

Cross-References.

Nonprofit hospital corporation, organization, procedure; articles of incorporation, certificate of authority, KRS 304.32-050 .

273.248. Articles of incorporation — Limitation of director liability.

The articles of incorporation of a nonprofit corporation subject to the provisions of KRS 273.161 to 273.387 may set forth:

  1. A provision eliminating or limiting the personal liability of a director to the corporation for monetary damages for breach of his duties as a director, provided that such provision shall not eliminate or limit the liability of a director:
    1. For any transaction in which the director’s personal financial interest is in conflict with the financial interests of the corporation;
    2. For acts or omissions not in good faith or which involve intentional misconduct or are known to the director to be a violation of law; or
    3. For any transaction from which the director derived an improper personal benefit.
  2. No such provision shall eliminate or limit the liability of any director for any act or omissions occurring prior to the date when such provision becomes effective. In no case shall this subsection or any such provision be construed to expand the liability of any director as determined pursuant to KRS 273.215 .

History. Enact. Acts 1988, ch. 224, § 11, effective July 15, 1988.

Research References and Practice Aids

Kentucky Bench & Bar.

Lawyers Serving as Directors of Kentucky Nonprofit Corporations: Special Considerations, Vol. 69, No. 5, Sept. 2005, Ky. Bench & Bar 21.

273.250. Members not liable for debts. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 10) was repealed by Acts 1968, ch. 165, § 70.

273.251. Filing of articles — Certificate of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1968, ch. 165, § 29; 1976, ch. 27, § 8; 1978, ch. 384, § 449, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

273.252. Filing requirements.

Each document delivered by a domestic or foreign corporation to the Secretary of State for filing shall satisfy the requirements of KRS 14A.2-010 to 14A.2-150 .

History. Enact. Acts 1988, ch. 23, § 210, effective January 1, 1989; repealed and reenact., Acts 2010, ch. 151, § 64, effective January 1, 2011.

273.2521. Forms. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 84) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-050 .

273.2522. Effective time and date of document. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 212) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-070 .

273.2523. Correcting filed document. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 213) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-090 .

273.2524. Filing duty of Secretary of State. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 214) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-100 .

273.2525. Appeal from Secretary of State’s refusal to file document. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 215) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-110 .

273.2526. Evidentiary effect of filed document. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 216) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-120 .

273.2527. Certificate of existence. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 217) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-130 .

273.2528. Penalty for signing false document. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 218) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-030 .

273.253. Incorporation.

Upon the filing of articles of incorporation with the Secretary of State, the corporate existence shall begin, and such filing shall be conclusive evidence that all conditions precedent required to be performed by the incorporators have been complied with and that the corporation has been incorporated under KRS 273.161 to 273.390 , except as against the state in a proceeding to cancel or revoke the certificate of incorporation or for involuntary dissolution of the corporation.

History. Enact. Acts 1968, ch. 165, § 30; 1988, ch. 23, § 200, effective January 1, 1989.

273.2531. Incorporation.

  1. Unless a delayed effective date is specified, the corporate existence shall begin when the articles of incorporation are filed with the Secretary of State.
  2. The Secretary of State’s filing of the articles of incorporation shall be conclusive proof that the incorporators satisfied all conditions precedent to incorporation, except in proceedings by the state to cancel or revoke the incorporation or involuntarily dissolve the corporation.

History. Enact. Acts 1988, ch. 23, § 227, effective January 1, 1989.

273.257. Organization of corporation.

  1. After the filing of articles of incorporation, an organization meeting of the board of directors named in the articles of incorporation shall be held, either within or without this state, at the call of a majority of the incorporators, for the purpose of adopting bylaws, electing officers and the transaction of such other business as may come before the meeting. The incorporators calling the meeting shall give at least three (3) days’ notice thereof by mail to each director so named, which notice shall state the time and place of the meeting.
  2. A first meeting of the members may be held at the call of the directors, or a majority of them, upon at least three (3) days’ notice, for such purposes as shall be stated in the notice of the meeting.

History. Enact. Acts 1968, ch. 165, § 31; 1988, ch. 23, § 201, effective January 1, 1989.

273.260. Amendment of articles. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 11) was repealed by Acts 1968, ch. 165, § 70.

273.261. Right to amend articles of incorporation.

A corporation may amend its articles of incorporation, from time to time, in any and as many respects as may be desired, so long as its articles of incorporation as amended contain only such provisions as are lawful under KRS 273.161 to 273.390 .

History. Enact. Acts 1968, ch. 165, § 32.

273.263. Procedure to amend articles of incorporation.

Amendments to the articles of incorporation shall be made in the following manner:

  1. If there are members entitled to vote thereon, the board of directors shall adopt a resolution setting forth the proposed amendment and directing that it be submitted to a vote at a meeting of members entitled to vote thereon, which may be either an annual or a special meeting. Written notice setting forth the proposed amendment or a summary of the changes to be effected thereby shall be given to each member entitled to vote at such meeting within the time and in the manner provided in KRS 273.161 to 273.390 for the giving of notice of meetings of members. The proposed amendment shall be adopted upon receiving at least two thirds (2/3) of the votes which members present at such meeting or represented by proxy are entitled to cast.
  2. If there are no members, or no members entitled to vote thereon, an amendment shall be adopted at a meeting of the board of directors upon receiving the vote of a majority of the directors in office.
  3. Any number of amendments may be submitted and voted upon at any one (1) meeting.
  4. Proposed amendments may be incorporated into restated articles of incorporation which contain a statement that except for the designated amendment the restated articles of incorporation currently set forth, without change, the corresponding provisions of the articles of incorporation as theretofore amended, and that the restated articles of incorporation together with the designated amendment supersede the original articles of incorporation and all amendments thereto.

History. Enact. Acts 1968, ch. 165, § 33; 1980, ch. 294, § 7, effective July 15, 1980.

NOTES TO DECISIONS

Cited:

Hollins v. Edmonds, 616 S.W.2d 801, 1981 Ky. App. LEXIS 244 (Ky. Ct. App. 1981).

273.267. Articles of amendment.

A corporation amending its articles of incorporation shall deliver to the Secretary of State for filing articles of amendment that satisfy KRS 14A.2-010 to 14A.2-150 setting forth:

  1. The name of the corporation.
  2. The amendment so adopted.
  3. If there are members entitled to vote thereon, (a) a statement setting forth the date of the meeting of members at which the amendment was adopted, that a quorum was present at such meeting, and that such amendment received at least two-thirds (2/3) of the votes which members present at such meeting or represented by proxy were entitled to cast, or (b) a statement that such amendment was adopted by a consent in writing signed by all members entitled to vote with respect thereto.
  4. If there are no members, or no members entitled to vote thereon, a statement of such fact, the date of the meeting of the board of directors at which the amendment was adopted, and a statement of the fact that such amendment received the vote of a majority of the directors in office.

History. Enact. Acts 1968, ch. 165, § 34; 1988, ch. 23, § 202, effective January 1, 1989; 2010, ch. 151, § 65, effective January 1, 2011.

273.270. Process agent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 12) was repealed by Acts 1968, ch. 165, § 70.

273.271. Recording of articles of amendment — Certificate of amendment. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1968, ch. 165, § 35; 1976, ch. 27, § 10; 1978, ch. 384, § 451, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

273.273. Restated articles of incorporation.

  1. A domestic corporation may at any time restate its articles of incorporation as theretofore amended, in the following manner:
    1. If there are members entitled to vote thereon, the board of directors shall adopt a resolution setting forth the proposed restated articles of incorporation and directing that they be submitted to a vote at a meeting of members entitled to vote thereon, which may be either an annual or a special meeting.
    2. Written notice setting forth the proposed restated articles or a summary of the provisions thereof shall be given to each member entitled to vote thereon, within the time and in the manner provided in KRS 273.161 to 273.390 for the giving of notice of meetings of members. If the meeting be an annual meeting, the proposed restated articles or a summary of the provisions thereof may be included in the notice of such annual meeting.
    3. At such meeting a vote of the members entitled to vote thereon shall be taken on the proposed restated articles, which shall be adopted upon receiving the affirmative vote of a majority of the members entitled to vote thereon present at such meeting or represented by proxy.
    4. If there are no members, or no members entitled to vote thereon, the proposed restated articles shall be adopted at a meeting of the board of directors upon receiving the affirmative vote of a majority of the directors in office.
  2. Upon such approval, restated articles of incorporation shall be delivered to the Secretary of State for filing and shall set forth:
    1. The name of the corporation.
    2. The purpose or purposes which the corporation is authorized to pursue.
    3. Any other provisions, not inconsistent with law, which are then set forth in the articles of incorporation as theretofore amended, except that it shall not be necessary to set forth in the restated articles of incorporation the registered office of the corporation, its registered agent, its directors or its incorporators.
  3. The restated articles of incorporation shall state that they correctly set forth the provisions of the articles of incorporation as theretofore amended, that they have been duly adopted as required by law and that they supersede the original articles of incorporation and all amendments thereto.

History. Enact. Acts 1968, ch. 165, § 36; 1976, ch. 27, § 10; 1978, ch. 384, § 451, effective June 17, 1978; 1988, ch. 23, § 203, effective January 1, 1989.

273.277. Procedure for merger.

Any two (2) or more domestic corporations or a domestic corporation and a limited liability company may merge into one (1) of such corporations pursuant to a plan of merger approved in the manner provided in KRS 273.161 to 273.390 . Each corporation or limited liability company shall adopt a plan of merger setting forth:

  1. The names of the corporations or limited liability companies proposing to merge, and the name of the corporation into which they propose to merge, which is hereinafter designated as the surviving corporation.
  2. The terms and conditions of the proposed merger.
  3. A statement of any changes in the articles of incorporation of the surviving corporation to be effected by such merger.
  4. Such other provisions with respect to the proposed merger as are deemed necessary or desirable.

History. Enact. Acts 1968, ch. 165, § 37; 2019 ch. 131, § 2, effective June 27, 2019.

273.280. Dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 13) was repealed by Acts 1968, ch. 165, § 70.

273.281. Procedure for consolidation.

Any two (2) or more domestic corporations may consolidate into a new corporation pursuant to a plan of consolidation approved in the manner provided in KRS 273.161 to 273.390 . Each corporation shall adopt a plan of consolidation setting forth:

  1. The names of the corporations proposing to consolidate, and the name of the new corporation into which they propose to consolidate, which is hereinafter designated as the new corporation.
  2. The terms and conditions of the proposed consolidation.
  3. With respect to the new corporation, all of the statements required to be set forth in articles of incorporation for corporations organized under KRS 273.161 to 273.390 .
  4. Such other provisions with respect to the proposed consolidation as are deemed necessary or desirable.

History. Enact. Acts 1968, ch. 165, § 38.

273.283. Approval of merger or consolidation.

  1. A plan of merger or consolidation shall be adopted in the following manner:
    1. If the members of any merging or consolidating corporation are entitled to vote thereon, the board of directors of such corporation shall adopt a resolution approving the proposed plan and directing that it be submitted to a vote at a meeting of members entitled to vote thereon, which may be either an annual or a special meeting. Written notice setting forth the proposed plan or a summary thereof shall be given to each member entitled to vote at such meeting within the time and in the manner provided in KRS 273.161 to 273.390 for the giving of notice of meetings of members. The proposed plan shall be adopted upon receiving at least two-thirds (2/3) of the votes which members present at each such meeting or represented by proxy are entitled to cast.
    2. If any merging or consolidating corporation has no members, or no members entitled to vote thereon, a plan of merger or consolidation shall be adopted at a meeting of the board of directors of such corporation upon receiving the vote of a majority of the directors in office.
  2. After such approval, and at any time prior to the filing of the articles of merger or consolidation, the merger or consolidation may be abandoned pursuant to provisions therefor, if any, set forth in the plan of merger or consolidation.

History. Enact. Acts 1968, ch. 165, § 39.

273.287. Articles of merger or consolidation.

Upon such approval, articles of merger or articles of consolidation shall be delivered to the Secretary of State for filing and shall set forth:

  1. The plan of merger or the plan of consolidation;
  2. If the members of any merging or consolidating corporation are entitled to vote thereon, then as to each such corporation:
    1. A statement setting forth the date of the meeting of members at which the plan was adopted, that a quorum was present at such meeting, and that such plan received at least two-thirds (2/3) of the votes which members present at such meeting or represented by proxy were entitled to cast; or
    2. A statement that such amendment was adopted by a consent in writing signed by all members entitled to vote with respect thereto; and
    3. If any merging or consolidating corporation has no members, or no members entitled to vote thereon, then as to each such corporation a statement of such fact, the date of the meeting of the board of directors at which the plan was adopted and a statement of the fact that such plan received the vote of a majority of the directors in office.

History. Enact. Acts 1968, ch. 165, § 40; 1976, ch. 27, § 11; 1978, ch. 384, § 452, effective June 17, 1978; 1988, ch. 23, § 204, effective January 1, 1989.

Opinions of Attorney General.

The mere fact that some of the incorporators of a nonstock, nonprofit corporation have not attained the age of 18 does not affect the validity of the articles of incorporation. OAG 71-168 .

273.290. Existing corporations subject to this law; exceptions. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1948, ch. 133, § 14) was repealed by Acts 1968, ch. 165, § 70.

273.291. Effect of merger or consolidation.

When a merger or consolidation has been effected:

  1. The several corporations parties to the plan of merger or consolidation shall be a single corporation, which, in the case of a merger, shall be that corporation designated in the plan of merger as the surviving corporation, and, in the case of a consolidation, shall be the new corporation provided for in the plan of consolidation.
  2. The separate existence of all corporations parties to the plan of merger or consolidation, except the surviving or new corporation, shall cease.
  3. Such surviving or new corporation shall have all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under KRS 273.161 to 273.390 .
  4. Such surviving or new corporation shall thereupon and thereafter possess all the rights, privileges, immunities, and franchises, as well of a public as of a private nature, of each of the merging or consolidating corporations; and all property, real, personal and mixed, and all debts due on whatever account, and all other choses in action, and all and every other interest, of or belonging to or due to each of the corporations so merged or consolidated, shall be taken and deemed to be transferred to and vested in such single corporation without further act or deed; and the title to any real estate, or any interest therein, vested in any of such corporations shall not revert or be in any way impaired by reason of such merger or consolidation.
  5. Such surviving or new corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the corporations so merged or consolidated; and any claim existing or action or proceeding pending by or against any of such corporations may be prosecuted as if such merger or consolidation had not taken place, or such surviving or new corporation may be substituted in its place. Neither the rights of creditors nor any liens upon the property of any such corporation shall be impaired by such merger or consolidation.
  6. In the case of a merger, the articles of incorporation of the surviving corporation shall be deemed to be amended to the extent, if any, that changes in its articles of incorporation are stated in the plan of merger; and, in the case of a consolidation, the statements set forth in the articles of consolidation and which are required or permitted to be set forth in the articles of incorporation of corporations organized under KRS 273.161 to 273.390 shall be deemed to be the articles of incorporation of the new corporation.

History. Enact. Acts 1968, ch. 165, § 41; 1988, ch. 23, § 205, effective January 1, 1989.

NOTES TO DECISIONS

1.Constitutionality.

The Kentucky nonprofit corporation act is not unconstitutional under either the constitution of the United States or the Constitution of Kentucky by reason of violation of the prohibitions against impairment of the obligation of contracts. Eitel v. John N. Norton Memorial Infirmary, 441 S.W.2d 438, 1969 Ky. LEXIS 324 ( Ky. 1969 ).

2.Original Charters.

The original incorporators and contributors acquired no vested rights in perpetual retention of all provisions of the original corporate charters. Eitel v. John N. Norton Memorial Infirmary, 441 S.W.2d 438, 1969 Ky. LEXIS 324 ( Ky. 1969 ).

3.Amalgamation.

Neither of two nonprofit corporate entities was annihilated by consolidation; they were amalgamated. Eitel v. John N. Norton Memorial Infirmary, 441 S.W.2d 438, 1969 Ky. LEXIS 324 ( Ky. 1969 ).

4.Gifts.

The unconditional gifts, or unconditional trusts or bequests for the benefit of either of the consolidating institutions were deemed vested in and payable to the new corporation whether they were made, created, or paid before or after the effective date of the consolidation. Eitel v. John N. Norton Memorial Infirmary, 441 S.W.2d 438, 1969 Ky. LEXIS 324 ( Ky. 1969 ).

5.— Donor’s Intent.

After consolidation, segregation into a Norton division and a Children’s division was consistent with preserving the basic purposes of the various donors in making their gifts, and nothing in the act would prohibit such arrangement for the efficient administration of the activities of the new entity. Eitel v. John N. Norton Memorial Infirmary, 441 S.W.2d 438, 1969 Ky. LEXIS 324 ( Ky. 1969 ).

6.Trusts or Bequests.

Where the only condition expressed in trusts or bequests created for the benefit of either of the consolidating institutions was the continued existence of the particular institution, the proceeds were vested in and payable to the new corporation. Eitel v. John N. Norton Memorial Infirmary, 441 S.W.2d 438, 1969 Ky. LEXIS 324 ( Ky. 1969 ).

273.293. Merger or consolidation of domestic and foreign corporations and limited liability companies.

  1. One (1) or more domestic corporations, a domestic corporation and a domestic limited liability company, and one (1) or more foreign corporations of the type that may be organized under KRS 273.161 to 273.390 or KRS Chapter 275 may be merged into one (1) of such domestic corporations, or consolidated into a new corporation to be formed under KRS 273.161 to 273.390 , provided that the foreign corporation or corporations are authorized by the laws of the government under which they were formed to effect such merger or consolidation. Each domestic corporation or limited liability company shall comply with the provisions of KRS 273.161 to 273.390 with respect to the merger or consolidation, as the case may be, of domestic corporations, limited liability companies and each foreign corporation shall comply with the applicable provisions of the laws of the state under which it is organized and of this state.
  2. After approval by the members, or if there be no members entitled to vote thereon, by the board of directors, and at any time prior to the filing of the articles of merger or consolidation, the merger or consolidation may be abandoned pursuant to provisions therefor, if any, set forth in the plan of merger or consolidation.

History. Enact. Acts 1968, ch. 165, § 42; 2019 ch. 131, § 3, effective June 27, 2019.

273.297. Sale, lease, exchange, mortgage, or pledge of assets.

A sale, lease, exchange, mortgage, pledge or other disposition of all, or substantially all, property and assets of a corporation may be made upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property, real or personal, including shares of any corporation for profit, domestic or foreign, as may be authorized in the following manner:

  1. If there are members entitled to vote thereon, the board of directors shall adopt a resolution recommending such sale, lease, exchange, mortgage, pledge or other disposition and directing that it be submitted to a vote at a meeting of members entitled to vote thereon, which may be either an annual or a special meeting, written notice stating that the purpose, or one of the purposes, of such meeting is to consider the sale, lease, exchange, mortgage, pledge or other disposition of all, or substantially all, the property and assets of the corporation shall be given to each member entitled to vote at such meeting, within the time and in the manner provided by KRS 273.161 to 273.390 for the giving of notice of meetings of members. At such meeting the members may authorize such sale, lease, exchange, mortgage, pledge or other disposition and may fix, or may authorize the board of directors to fix, any or all of the terms and conditions thereof and the consideration to be received by the corporation therefor. Such authorization shall require at least two-thirds (2/3) of the votes which members present at such meeting or represented by proxy are entitled to cast. After such authorization by a vote of members, the board of directors, nevertheless, in its discretion, may abandon such sale, lease, exchange, mortgage, pledge or other disposition of assets, subject to the rights of third parties under any contracts relating thereto, without further action or approval by members.
  2. If there are no members, or no members entitled to vote thereon, a sale, lease, exchange, mortgage, pledge or other disposition of all, or substantially all, the property and assets of a corporation shall be authorized upon receiving the vote of a majority of the directors in office.

History. Enact. Acts 1968, ch. 165, § 43.

273.300. Voluntary dissolution.

A corporation may dissolve and wind up its affairs in the following manner:

  1. If there are members entitled to vote thereon, the board of directors shall adopt a resolution recommending that the corporation be dissolved, and directing that the question of such dissolution be submitted to a vote at a meeting of members entitled to vote thereon, which may be either an annual or a special meeting. Written notice stating that the purpose, or one of the purposes, of such meeting is to consider the advisability of dissolving the corporation, shall be given to each member entitled to vote at such meeting, within the time and in the manner provided in KRS 273.161 to 273.390 for the giving of notice of meetings of members. A resolution to dissolve the corporation shall be adopted upon receiving at least two-thirds (2/3) of the votes which members present at such meeting or represented by proxy are entitled to cast.
  2. If there are no members, or no members entitled to vote thereon, the dissolution of the corporation shall be authorized at a meeting of the board of directors upon the adoption of a resolution to dissolve by the vote of a majority of the directors in office.
  3. Upon the adoption of such resolution by the members, or by the board of directors if there are no members or no members entitled to vote thereon, the corporation shall cease to conduct its affairs except insofar as may be necessary for the winding up thereof, shall immediately cause a notice of the proposed dissolution to be mailed to each known creditor of the corporation, and shall proceed to collect its assets and apply and distribute them as provided in KRS 273.161 to 273.390 .

History. Enact. Acts 1968, ch. 165, § 44.

273.302. Effect of dissolution.

  1. A dissolved corporation shall continue its corporate existence but shall not carry on any business except that appropriate to wind up and liquidate its business and affairs, including:
    1. Collecting its assets;
    2. Disposing of its properties in accordance with KRS 273.303 ;
    3. Discharging or making provision for discharging its liabilities including, as appropriate, entering into agreements with creditors for the satisfaction thereof; and
    4. Doing every other act necessary to wind up and liquidate its business and affairs.
  2. Dissolution of a corporation shall not:
    1. Transfer title to the corporation’s property;
    2. Subject its directors or officers to standards of conduct different from those prescribed in KRS 273.161 to 273.390 ;
    3. Change quorum or voting requirements for its board of directors or members; change provisions for selection, resignation, or removal of its directors or officers or both; or change provisions for amending its bylaws;
    4. Prevent commencement of a proceeding by or against the corporation in its corporate name;
    5. Abate or suspend a proceeding pending by or against the corporation on the effective date of dissolution;
    6. Terminate the authority of the registered agent of the corporation;
    7. Alter the obligations and responsibilities of the corporation as prescribed by applicable federal or state law with regard to the filing or examination of all federal and state tax returns or the payment, assessment, or collection of any federal or state tax due with respect to those returns; or
    8. Abate or suspend KRS 273.187(2).

HISTORY: 2015 ch. 34, § 73, effective June 24, 2015.

273.303. Distribution of assets.

The assets of a corporation in the process of dissolution shall be applied and distributed as follows:

  1. All liabilities and obligations of the corporation shall be paid and discharged, or adequate provisions shall be made therefor;
  2. Assets held by the corporation upon condition requiring return, transfer or conveyance, which condition occurs by reason of the dissolution, shall be returned, transferred or conveyed in accordance with such requirements;
  3. Assets received and held by the corporation subject to limitations permitting their use only for charitable, religious, eleemosynary, benevolent, educational or similar purposes, but not held upon a condition requiring return, transfer or conveyance by reason of the dissolution, shall be transferred or conveyed to one or more domestic or foreign nonprofit corporations, societies, or organizations engaged in activities substantially similar to those of the dissolving corporation, pursuant to a plan of distribution adopted as provided in KRS 273.161 to 273.390 ;
  4. Other assets, if any, shall be distributed in accordance with the provisions of the articles of incorporation or the bylaws to the extent that the articles of incorporation or bylaws determine the distributive rights of members, or any class or classes of members, or provide for distribution to others;
  5. Any remaining assets may be distributed to such nonprofit societies, organizations or domestic or foreign corporations, as may be specified in a plan of distribution adopted as provided in KRS 273.161 to 273.390 .

History. Enact. Acts 1968, ch. 165, § 45; 1974, ch. 156, § 1.

NOTES TO DECISIONS

1.Relation to Bankruptcy.

Kentucky Employees Retirement System was not entitled to injunction requiring debtor to continue post-petition employer contributions because funding pension was not state health and safety concern, regulatory fee or tax, and did not involve state police powers; nor had debtor proposed to use assets in contravention of Kentucky laws governing non-profit entities. Ky. Emples. Ret. Sys. v. Seven Counties Servs. (In re Seven Counties Servs.), 511 B.R. 431, 2014 Bankr. LEXIS 2370 (Bankr. W.D. Ky. 2014 ), aff'd in part and rev'd in part, 550 B.R. 741, 2016 U.S. Dist. LEXIS 43390 (W.D. Ky. 2016 ), rev'd in part, 823 Fed. Appx. 300, 2020 FED App. 0419N, 2020 U.S. App. LEXIS 22839 (6th Cir. Ky. 2020 ).

Research References and Practice Aids

Northern Kentucky Law Review.

Tobergte, Regulating the Nonprofit Corporation, 16 N. Ky. L. Rev. 325 (1989).

273.307. Plan of distribution.

A plan providing for the distribution of assets, not inconsistent with the provisions of KRS 273.161 to 273.390 , may be adopted by a corporation in the process of dissolution and shall be adopted by a corporation for the purpose of authorizing any transfer or conveyance of assets for which KRS 273.161 to 273.390 requires a plan of distribution, in the following manner:

  1. If there are members entitled to vote thereon, the board of directors shall adopt a resolution recommending a plan of distribution and directing the submission thereof to a vote at a meeting of members entitled to vote thereon, which may be either an annual or a special meeting. Written notice setting forth the proposed plan of distribution or a summary thereof shall be given to each member entitled to vote at such meeting, within the time and in the manner provided in KRS 273.161 to 273.390 for the giving of notice of meetings of members. Such plan of distribution shall be adopted upon receiving at least two-thirds (2/3) of the votes which members present at such meeting or represented by proxy are entitled to cast.
  2. If there are no members, or no members entitled to vote thereon, a plan of distribution shall be adopted at a meeting of the board of directors upon receiving a vote of a majority of the directors in office.

History. Enact. Acts 1968, ch. 165, § 46.

273.310. Revocation of voluntary dissolution proceedings.

A corporation may, at any time prior to the filing of articles of dissolution with the Secretary of State, revoke the action theretofore taken to dissolve the corporation, in the following manner:

  1. If there are members entitled to vote thereon, the board of directors shall adopt a resolution recommending that the voluntary dissolution proceedings be revoked, and directing that the question of such revocation be submitted to a vote at a meeting of members entitled to vote thereon, which may be either an annual or a special meeting. Written notice stating that the purpose, or one (1) of the purposes, of such meeting is to consider the advisability of revoking the voluntary dissolution proceedings, shall be given to each member entitled to vote at such meeting, within the time and in the manner provided in KRS 273.161 to 273.390 for the giving of notice of meetings of members. A resolution to revoke the voluntary dissolution proceedings shall be adopted upon receiving at least two-thirds (2/3) of the votes which members present at such meeting or represented by proxy are entitled to cast.
  2. If there are no members, or no members entitled to vote thereon, a resolution to revoke the voluntary dissolution proceedings shall be adopted at a meeting of the board of directors upon receiving the vote of a majority of the directors in office.
  3. Upon the adoption of such resolution by the members, or by the board of directors where there are no members or no members entitled to vote thereon, the corporation may thereupon again conduct its affairs.

History. Enact. Acts 1968, ch. 165, § 47; 1988, ch. 23, § 206, effective January 1, 1989.

273.313. Articles of dissolution.

  1. At any time after dissolution is authorized and proceedings have not been revoked, articles of dissolution shall be delivered to the Secretary of State for filing and shall set forth:
    1. The name of the corporation;
    2. The date dissolution was authorized;
    3. If there are members entitled to vote thereon:
      1. The number of votes entitled to be cast on the proposal to dissolve;
      2. Either the total number of votes cast for and against dissolution or the total number of undisputed votes cast for dissolution and a statement that the number cast for dissolution was sufficient for approval; and
      3. If voting by voting groups was required, the information required by this paragraph shall be separately provided for each voting group entitled to vote separately on the plan to dissolve;
    4. If there are no members, or no members entitled to vote thereon, a statement of such fact, the date of the meeting of the board of directors at which the resolution to dissolve was adopted and a statement of the fact that such resolution received the vote of a majority of the directors in office; and
    5. A copy of the plan of distribution as adopted by the corporation.
  2. The Secretary of State shall immediately forward one (1) of the exact or conformed copies of the articles of dissolution to the secretary of revenue.
  3. A corporation shall be dissolved upon the effective date of its articles of dissolution.

HISTORY: Enact. Acts 1968, ch. 165, § 48; 1988, ch. 23, § 207, effective January 1, 1989; 2015 ch. 34, § 72, effective June 24, 2015.

273.317. Filing of articles of dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1968, ch. 165, § 49; 1976, ch. 27, § 12; 1978, ch. 384, § 453, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

273.318. Grounds for administrative dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 228; 2010, ch. 133, § 18) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.7-010 .

273.3181. Procedure for and effect of administrative dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 229; 2010, ch. 133, § 19) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.7-020 .

273.3182. Reinstatement following administrative dissolution or revocation under prior law — Amendment of articles of incorporation to extend or delete period of duration. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 230; 1992, ch. 161, § 4; 1998, ch. 341, § 58; 2005, ch. 85, § 669; 2010, ch. 133, § 20) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.7-030 .

273.3183. Appeal from denial of reinstatement. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 231; 1992, ch. 161, § 5) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.7-040 .

273.3184. Permissibility of merger of subsequent reincorporation with reinstated prior corporation — Effect.

The General Assembly finds and declares it to be the public policy of the Commonwealth of Kentucky that each corporation which was refused reinstatement either orally or in writing and subsequently reincorporated as a second corporation may reinstate the first corporation and merge the second corporation into the first corporation. The first corporation shall then be treated as if it had continuous and uninterrupted existence and that the administrative dissolution or revocation had never occurred.

History. Enact. Acts 1992, ch. 161, § 6, effective April 1, 1992.

Research References and Practice Aids

Northern Kentucky Law Review.

Montague and Muehlenkamp, Kentucky Corporate Law Developments, 21 N. Ky. L. Rev. 413 (1994).

273.320. Involuntary dissolution.

A corporation may be dissolved involuntarily by a decree of the Circuit Court in an action filed by the Attorney General when it is established that:

  1. The corporation is guilty of abuse or misuse of its corporate powers, privileges or franchises, or the corporation has become detrimental to the interest and welfare of the Commonwealth of Kentucky or its citizens; or
  2. The corporation procured its articles of incorporation through fraud; or
  3. The corporation has failed to file its annual report as required by KRS 14A.6-010 ; or
  4. The corporation has failed to appoint and maintain a registered agent in this state; or
  5. The corporation has failed after change of its registered agent to file in the office of the Secretary of State a statement of such change.

History. Enact. Acts 1968, ch. 165, § 50; 1988, ch. 23, § 246, effective January 1, 1989; 2010, ch. 151, § 125, effective January 1, 2011.

273.323. Notification to Attorney General.

The Secretary of State, on or before the last day of December of each year, may certify to the Attorney General the names of all corporations which have given cause for dissolution as provided in KRS 273.161 to 273.390 , together with the facts pertinent thereto. Whenever the Secretary of State shall certify the name of a corporation to the Attorney General as having given any cause for dissolution, the Secretary of State shall concurrently mail to the corporation at its registered office a notice that such certification has been made. Upon the receipt of such certification, the Attorney General may file an action in the name of the state against such corporation for its dissolution. Every such certificate from the Secretary of State to the Attorney General pertaining to the failure of a corporation to file an annual report shall be taken and received in all courts as prima facie evidence of the facts therein stated. If, before action is filed, the corporation shall file its annual report, or shall appoint or maintain a registered agent as provided in KRS 273.161 to 273.390 , or shall file with the Secretary of State the required statement of change of registered agent, such fact shall be forthwith certified by the Secretary of State to the Attorney General and he shall not file an action against such corporation for such cause. If, after action is filed, the corporation shall file its annual report, or shall appoint or maintain a registered agent as provided in KRS 273.161 to 273.390, or shall file with the Secretary of State the required statement of change of registered agent, and shall pay the costs of such action, the action for such cause shall abate.

History. Enact. Acts 1968, ch. 165, § 51; 1988, ch. 23, § 208, effective January 1, 1989.

273.327. Venue and process.

  1. Every action for the involuntary dissolution of a corporation shall be commenced by the attorney general in the circuit court of the county in which the registered office of the corporation is situated.
  2. Summons shall issue and be served as in other civil action. If process is returned not found, the attorney general shall have the defendant constructively served as provided in CR 4.05, and shall cause publication to be made in some newspaper published in the county where the registered office of the corporation is situated, containing a notice of the pendency of such action, the title of the court, the title of the action, and the date on or after which default may be entered. The attorney general shall cause a copy of such notice to be mailed, by certified mail, return receipt requested, to the corporation at its registered office within ten (10) days after the first publication thereof. The certificate of the attorney general of the mailing of such notice shall be prima facie evidence thereof. Such notice shall be published at least once each week for two (2) successive weeks, and the first publication thereof may begin at any time after the summons has been returned.

History. Enact. Acts 1968, ch. 165, § 52; 1974, ch. 315, § 42; 1980, ch. 114, § 64, effective July 15, 1980.

273.330. Jurisdiction of court to liquidate assets and affairs of corporation.

  1. Courts of equity shall have full power to liquidate the assets and affairs of a corporation:
    1. In an action by a member or director when it is made to appear:
      1. That the directors are deadlocked in the management of the corporate affairs and that irreparable injury to the corporation is being suffered or is threatened by reason thereof, and either that the members are unable to break the deadlock or there are no members having voting rights;
      2. That the acts of the directors or those in control of the corporation are illegal, oppressive or fraudulent;
      3. That the members entitled to vote in the election of directors are deadlocked in voting power and have failed for at least two (2) years to elect successors to directors whose terms have expired or would have expired upon the election of their successors;
      4. That the corporate assets are being misapplied or wasted; or
      5. That the corporation is unable to carry out its purposes.
    2. In an action by a creditor:
      1. When the claim of the creditor has been reduced to judgment and an execution thereon has been returned unsatisfied and it is established that the corporation is insolvent; or
      2. When the corporation has admitted in writing that the claim of the creditor is due and owing and it is established that the corporation is insolvent.
    3. Upon application by a corporation to have its dissolution continued under the supervision of the court.
    4. When an action has been filed by the Attorney General to dissolve a corporation and it is established that liquidation of its affairs should precede the entry of a decree of dissolution.
  2. Proceedings under this section shall be brought in the Circuit Court in which the registered office or the principal office of the corporation is situated.
  3. It shall not be necessary to make directors or members parties to any such action or proceedings unless relief is sought against them personally.

History. Enact. Acts 1968, ch. 165, § 53.

273.333. Procedure in liquidation of corporation by court.

  1. In a proceeding to liquidate the assets and affairs of a corporation, the court shall have the power to issue injunctions, to appoint a receiver or receivers pendente lite with such powers and duties as the court from time to time may direct, and to take such other proceedings as may be requisite to preserve the corporate assets wherever situated, and to carry on the affairs of the corporation until a full hearing can be had.
  2. After a hearing had upon such notice as the court may direct to be given to all parties to the proceedings and to any other parties in interest designated by the court, the court may appoint a liquidating receiver or receivers with authority to collect the assets of the corporation and, as appropriate, to enter into agreements with creditors for the satisfaction of the corporation’s liabilities. Such liquidating receiver or receivers shall have authority, subject to the order of the court, to sell, convey and dispose of all or any part of the assets of the corporation wherever situated, either at public or private sale. The order appointing such liquidating receiver or receivers shall state their powers and duties. Such powers and duties may be increased or diminished at any time during the proceedings.
  3. The assets of the corporation or the proceeds resulting from a sale, conveyance, or other disposition thereof shall be applied and distributed as follows:
    1. All costs and expenses of the court proceedings and all liabilities and obligations of the corporation shall be paid, satisfied and discharged, or adequate provisions shall be made therefor;
    2. Assets held by the corporation upon condition requiring return, transfer or conveyance, which condition occurs by reason of the dissolution or liquidation, shall be returned, transferred or conveyed in accordance with such requirements;
    3. Assets received and held by the corporation subject to limitations permitting their use only for charitable, religious, eleemosynary, benevolent, educational or similar purposes, but not held upon a condition requiring return, transfer or conveyance by reason of the dissolution or liquidation, shall be transferred or conveyed to one (1) or more domestic or foreign corporations, societies or organizations engaged in activities substantially similar to those of the dissolving or liquidating corporation as the court may direct;
    4. Other assets, if any, shall be distributed in accordance with the provisions of the articles of incorporation or by the bylaws to the extent that the articles of incorporation or bylaws determine the distributive right of members, or any class or classes of members, or provide for distribution to others;
    5. Any remaining assets may be distributed to such persons, societies, organizations or domestic or foreign corporations, whether for profit or not for profit, specified in the plan of distribution adopted as provided in KRS 273.161 to 273.390 , or where no plan of distribution has been adopted, as the court may direct.
  4. The court shall have power to allow, from time to time, as expenses of the liquidation, compensation to the receiver or receivers and to attorneys in the proceeding, and to direct the payment thereof out of the assets of the corporation or the proceeds of any sale or disposition of such assets.
  5. A receiver of a corporation appointed under the provisions of this section shall have authority to sue and defend in all courts in his own name as receiver of such corporation. The court appointing such receiver shall have exclusive jurisdiction of the corporation and its property, wherever situated.

History. Enact. Acts 1968, ch. 165, § 54; 2012, ch. 81, § 102, effective July 12, 2012.

273.337. Qualifications of receivers.

A receiver shall in all cases be a citizen of the United States or a corporation for profit authorized to act as receiver, which corporation may be a domestic corporation or a foreign corporation authorized to transact business in this state, and shall in all cases give such bond as the court may direct with such sureties as the court may require.

History. Enact. Acts 1968, ch. 165, § 55.

273.340. Filing of claims in liquidation proceedings.

In proceedings to liquidate the assets and affairs of a corporation the court may require all creditors of the corporation to file with the clerk of the court or with the receiver, in such form as the court may prescribe, proofs under oath of their respective claims. If the court requires the filing of claims it shall fix a date, which shall be not less than four (4) months from the date of the order, as the last day for filing of claims, and shall prescribe the notice that shall be given to creditors and claimants of the date so fixed. Prior to the date so fixed, the court may extend the time for the filing of claims. Creditors and claimants failing to file proofs of claim on or before the date so fixed may be barred, by order of court, from participating in the distribution of the assets of the corporation.

History. Enact. Acts 1968, ch. 165, § 56.

273.343. Discontinuance of liquidation proceedings.

The liquidation of the assets and affairs of a corporation may be discontinued at any time during the liquidation proceedings when it is established that cause for liquidation no longer exists. In such event the court shall dismiss the proceedings and direct the receiver to redeliver to the corporation all its remaining property and assets.

History. Enact. Acts 1968, ch. 165, § 57.

273.347. Decree of involuntary dissolution.

  1. In a proceeding to liquidate the assets and affairs of a corporation, when the costs and expenses of such proceeding and all debts, obligations, and liabilities of the corporation shall have been paid and discharged and all of its remaining property and assets distributed in accordance with the provisions of KRS 273.161 to 273.390 , or in case its property and assets are not sufficient to satisfy and discharge such costs, expenses, debts, and obligations, and all the property and assets have been applied so far as they will go to their payment, the court shall enter a decree dissolving the corporation.
  2. The clerk of the court shall cause a certified copy of a decree entered under subsection (1) of this section to be filed with the Secretary of State. No fee shall be charged by the Secretary of State for the filing thereof. The dissolution shall be effective upon the latter of the date of filing of the decree by the Secretary of State or such later date as is specified in the decree.

History. Enact. Acts 1968, ch. 165, § 58; 2012, ch. 81, § 103, effective July 12, 2012.

273.350. Filing of decree of dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1968, ch. 165, § 59) was repealed by Acts 2012, ch. 81, § 27 effective July 12, 2012.

273.353. Deposits with State Treasurer.

Upon the voluntary or involuntary dissolution of a corporation, the portion of the assets distributable to any person who is unknown or cannot be found, or who is under disability and there is no person legally competent to receive such distributive portion, shall be reduced to cash and deposited with the State Treasurer and shall be paid over to such person or to his legal representative upon proof satisfactory to the State Treasurer of his right thereto.

History. Enact. Acts 1968, ch. 165, § 60.

273.357. Survival of remedy after dissolution.

The dissolution of a corporation either (1) by the filing of articles of dissolution with the Secretary of State, or (2) by a decree of court when the court has not liquidated the assets and affairs of the corporation as provided in KRS 273.161 to 273.390 shall not take away or impair any remedy available to or against the corporation, its directors, officers, or members, for any right or claim existing, or any liability incurred, prior to the dissolution if action or other proceeding thereon is commenced within two (2) years after the date of such dissolution. Any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name. The members, directors, and officers may take corporate or other action appropriate to protect the remedy, right, or claim.

History. Enact. Acts 1968, ch. 165, § 61; 1988, ch. 23, § 209, effective January 1, 1989; 1998, ch. 341, § 17, effective July 15, 1998.

273.360. Admission of foreign corporations. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1968, ch. 165, § 62; 1976, ch. 27, § 13) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

273.361. Application for certificate of authority.

Each foreign nonprofit corporation transacting business in the Commonwealth of Kentucky shall comply with KRS 14A.9-010 .

History. Enact. Acts 1988, ch. 23, § 232, effective January 1, 1989; 1998, ch. 341, § 15, effective July 15, 1998; repealed and reenact., Acts 2010, ch. 151, § 66, effective January 1, 2011.

273.3611. Amended certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 233) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-040 .

273.3612. Effect of certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 234) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-050 .

273.363. Applicability of service and withdrawal provisions of KRS Chapter 271B. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1968, ch. 165, § 63; 1978, ch. 384, § 100; 1988, ch. 23, § 180) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-040 , 14A.9-060 .

273.364. Corporate name of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 83) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-040 .

273.3641. Registered office and registered agent of foreign corporation.

Each foreign corporation authorized to transact business in this state shall continuously maintain in this state a registered office and a registered agent that satisfy the requirements of KRS 14A.4-010 .

History. Enact. Acts 1988, ch. 23, § 236, effective January 1, 1989; 1998, ch. 341, § 16, effective July 15, 1998; 2010, ch. 151, § 67, effective January 1, 2011.

273.3642. Change of registered office or registered agent of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 237) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-020 .

273.3643. Resignation of registered agent of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (EEnact. Acts 1988, ch. 23, § 238) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-030 .

273.3644. Service on foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 239) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-040 .

273.3645. Withdrawal of a foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 240) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-060 .

273.3646. Grounds for revocation of certificate of authority of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 241; 2010, ch. 133, § 21) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-070 .

273.3647. Procedure for an effective revocation of certificate of authority of foreign corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 242; 2010, ch. 133, § 22) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-080 .

273.3648. Appeal from revocation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1988, ch. 23, § 243) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-090 .

273.367. Annual report of domestic and foreign corporations — Reinstatement of certificate of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1968, ch. 165, § 64; 1976, ch. 27, §§ 1 and 4; 1980, ch. 294, § 8, effective July 15, 1980; 1986, ch. 202, § 9, effective March 28, 1986) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989. For present law see KRS 14A.7-030 .

273.3671. Annual report.

Each corporation and each foreign corporation qualified to transact business in this Commonwealth is subject to KRS 14A.6-010 .

History. Enact. Acts 1988, ch. 23, § 244, effective January 1, 1989; 2007, ch. 137, § 85, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 85, effective July 15, 2010; 2010, ch. 133, § 23, effective July 15, 2010; repealed and reenact., Acts 2010, ch. 151, § 68, effective January 1, 2011.

Legislative Research Commission Note.

(7/15/2010). This section was amended by 2010 Ky. Acts ch. 133, and repealed and reenacted by 2010 Ky. Acts ch. 51, both effective 7/15/2010. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict; therefore, they have been codified together. Effective 1/1/2011, this section was also repealed and reenacted by the omnibus Kentucky Business Entity Filing Act, 2010 Ky. Acts ch. 151.

273.368. Filing and recording fees.

In respect of the following documents, the fees to be collected by the Secretary of State for filing, when required by this chapter, shall be:

  1. Articles of incorporation, eight dollars ($8);
  2. Articles of amendment, eight dollars ($8);
  3. Restated articles of incorporation, eight dollars ($8);
  4. Articles of merger or consolidation, eight dollars ($8);
  5. Articles of dissolution, five dollars ($5); and
  6. Any other statement or report of a foreign or domestic corporation, eight dollars ($8).

History. Enact. Acts 1976, ch. 27, § 15; 1978, ch. 384, § 454, effective June 17, 1978; 1980, ch. 21, § 2, effective July 15, 1980; 1986, ch. 204, § 6, effective July 15, 1986; 1998, ch. 341, § 18, effective July 15, 1998; 2010, ch. 151, § 69, effective January 1, 2011.

Opinions of Attorney General.

The payment of the filing fee is a condition precedent for filing documents with the Secretary of State, and the Secretary of State may void the filing and return a document after it has been received, stamped, and filed, if the check for payment of that fee has been dishonored. OAG 89-94 .

273.369. Charges collected by Secretary of State. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1976, ch. 27, § 16; 1986, ch. 204, § 7) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-060 .

273.370. Greater voting requirements.

Whenever, with respect to any action to be taken by the members or directors of a corporation, the articles of incorporation or bylaws require the vote or concurrence of a greater proportion of the directors or members or any class of members than required by KRS 273.161 to 273.390 , the provisions of the articles of incorporation or bylaws shall control.

History. Enact. Acts 1968, ch. 165, § 65.

273.373. Waiver of notice.

Whenever any notice is required to be given to any member or director of a corporation under the provisions of KRS 273.161 to 273.390 or under the provisions of the articles of incorporation or bylaws of the corporation, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice.

History. Enact. Acts 1968, ch. 165, § 66.

273.375. Director action without meeting.

  1. Unless the articles of incorporation or bylaws provide otherwise, action required or permitted by KRS 273.161 to 273.390 to be taken at a board of directors meeting may be taken without a meeting if the action is taken by all members of the board. The action shall be evidenced by one (1) or more written consents describing the action taken, signed by each director, and included in the minutes or filed with the corporate records reflecting the action taken.
  2. Action taken under this section shall be effective when the last director signs the consent, unless the consent specifies a different effective date.
  3. A consent signed under this section shall have the effect of a meeting vote and may be described as such in any document.

HISTORY: 2015 ch. 34, § 67, effective June 24, 2015.

Legislative Research Commission Notes.

(6/24/2015). This section was created in 2015 Ky. Acts ch. 34. At the time 2015 House Bill 440, which became 2015 Acts ch. 34, was drafted and initially reviewed, the Reviser of Statutes deleted several occurrences of the phrase, “as amended by Sections 66 through 85 of this Act.” One occurrence of this phrase was inadvertently left in the bill as enacted. The Reviser of Statutes has removed this phrase under the authority of KRS 7.136 .

273.377. Member action without meeting.

  1. Any action required by KRS 273.161 to 273.390 to be taken at a meeting of the members of a corporation, or any action which may be taken at a meeting of the members, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members entitled to vote with respect to the subject matter thereof.
  2. The action taken under this section shall be evidenced by one (1) or more written consents describing the action taken, signed by the members taking the action, and delivered to the corporation for inclusion in the minutes or filing with the corporate records.
  3. Action taken under this section shall be effective when consents representing the votes necessary to take the action under this section are delivered to the corporation, or upon delivery of the consents representing the necessary votes, as of a different date if specified in the consent.
  4. Any member giving a consent may revoke the consent by a writing received by the corporation prior to the time that consents representing the votes required to take the action under this section have been delivered to the corporation but may not do so thereafter.
  5. A consent signed under this section shall have the effect of a meeting vote and may be described as such in any document.

HISTORY: Enact. Acts 1968, ch. 165, § 67; 2015 ch. 34, § 75, effective June 24, 2015.

Opinions of Attorney General.

This section does not allow normal corporate business to be conducted without meeting if consent in writing is obtained by less than unanimous board membership approval. OAG 79-250 .

273.380. Unauthorized assumption of corporate powers.

All persons who assume to act as a corporation without authority so to do shall be jointly and severally liable for all debts and liabilities incurred or arising as a result thereof.

History. Enact. Acts 1968, ch. 165, § 68.

273.382. Conversion of Chapter 271B corporation to corporation governed by KRS 273.16 to 273.387.

  1. A corporation organized under KRS Chapter 271B or its predecessors may convert to a corporation organized under and governed by KRS 273.161 to 273.387 as authorized by KRS 271B.10-010 .
  2. A corporation that has been converted under KRS 271B.10-010 shall be for all purposes the same entity that existed before the conversion.
  3. Upon the filing of amended and restated articles of incorporation satisfying the requirements of KRS 271B.10-010 :
    1. All property and contract rights owned by, and all rights, privileges, and immunities of, the converting corporation shall remain vested in the converted corporation without assignment, reversion, or impairment;
    2. All obligations of the converting corporation shall continue as obligations of the converted corporation;
    3. An action or proceeding pending against the converting corporation may be continued as if the conversion had not taken place, and the name of the converted corporation may be substituted in any pending action or proceeding in the name of the converting corporation; and
    4. The corporation shall be a nonstock, nonprofit corporation governed by and subject to all of the limitations and requirements imposed by KRS 273.161 to 273.387 .
  4. Nothing in this section shall authorize the conversion of a corporation organized under this chapter to a corporation organized under KRS Chapter 271B.

History. Enact. Acts 2005, ch. 182, § 10, effective June 20, 2005.

273.383. Limitations on business and holding of real estate — Escheat procedure. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1968, ch. 165, § 69; 1978, ch. 384, § 576, effective June 17, 1978) was repealed by Acts 1988, ch. 23, § 248, effective January 1, 1989.

273.387. Application of act to corporations in existence on June 30, 1968.

  1. KRS 273.161 to 273.390 , so far as it can be made applicable, shall apply to any nonstock, nonprofit corporation in existence on June 30, 1968, which was formed under the general laws of this state relating to religious, educational, charitable, civic, athletic, recreational, and social nonstock, nonprofit corporations, or by special act, for a purpose or purposes for which a corporation might be formed under KRS 273.161 to 273.390 .
  2. It shall not be necessary for any such existing corporation to amend its articles to set forth the provisions required by KRS 273.161 to 273.390 to be set forth in articles of incorporation.
  3. Such existing corporations shall have all the powers enumerated in KRS 273.171 .

History. Enact. Acts 1968, ch. 165, § 71.

NOTES TO DECISIONS

Cited:

Martin v. University of Louisville, 541 F.2d 1171, 1976 U.S. App. LEXIS 7348 (6th Cir. 1976); University of Louisville v. Martin, 574 S.W.2d 676, 1978 Ky. App. LEXIS 627 (Ky. Ct. App. 1978); Rooks v. University of Louisville, 574 S.W.2d 923, 1978 Ky. App. LEXIS 639 (Ky. Ct. App. 1978).

273.390. Title of law.

KRS 273.161 to 273.390 shall be known and may be cited as the “Kentucky Nonprofit Corporation Acts.”

History. Enact. Acts 1968, ch. 165, § 1.

NOTES TO DECISIONS

1.Constitutionality.

The Kentucky nonprofit corporation act is not unconstitutional under either the constitution of the United States or the constitution of Kentucky by reason of violation of the prohibitions against impairment of the obligation of contracts. Eitel v. John N. Norton Memorial Infirmary, 441 S.W.2d 438, 1969 Ky. LEXIS 324 ( Ky. 1969 ).

273.392. Interest rate to be paid by water association. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1990, ch. 357, § 2, effective July 13, 1990) was repealed by Acts 1994, ch. 221, § 2, effective July 15, 1994. For present law see KRS 278.460 .

273.400. Definition — Internal Revenue Code — Acts prohibited — Policy of state regarding charitable trust — Liability of trustee — Powers of Attorney General.

Notwithstanding any other provisions of this chapter:

  1. “Internal Revenue Code” as used in this section means the Internal Revenue Code of 1954, in effect on January 1, 1970, including all appropriate provisions of the Tax Reform Act of 1969 at the date specified in that law, exclusive of any amendments made subsequent to December 31, 1969.
  2. No corporation which is a “private foundation” as defined in Section 509 of the Internal Revenue Code shall:
    1. Engage in any act of “self-dealing” (as defined in Section 4941(d) of the Internal Revenue Code) which would give rise to any liability for any tax imposed by Section 4941 of the Internal Revenue Code;
    2. Retain any “excess business holdings” (as defined in Section 4943(c) of the Internal Revenue Code) which would give rise to any liability for any tax imposed by Section 4943 of the Internal Revenue Code;
    3. Make any investment which would jeopardize the carrying out of any of its exempt purposes, within the meaning of Section 4944 of the Internal Revenue Code, so as to give rise to any liability for any tax imposed by Section 4944 of the Internal Revenue Code;
    4. Make any “taxable expenditures” (as defined in Section 4945(d) of the Internal Revenue Code) which would give rise to any liability for any tax imposed by Section 4945 of the Internal Revenue Code.
  3. Each corporation which is a “private foundation” as defined in Section 509 of the Internal Revenue Code shall, for the purposes specified in its articles, distribute at such time and in such manner, for each taxable year, amounts at least sufficient to avoid liability for any tax imposed by Section 4942 of the Internal Revenue Code.
  4. Subsections (2) and (3) of this section express the continuing policy of this state with respect to charitable trust interests and are enacted to assist corporations which are “private foundations” as defined in Section 509 of the Internal Revenue Code in maintaining various tax benefits extended to them, and shall apply to any corporations described therein; provided, however, subsections (2) and (3) of this section shall not apply to a corporation in existence on July 1, 1972 to the extent that such corporation shall provide to the contrary by amendment to its articles of incorporation adopted after July 1, 1972.
  5. Violation of a provision of subsection (2) or (3) of this section by a corporation to which said provisions are applicable shall not work a forfeiture or dissolution of the corporation. No trustee, director or officer of a corporation to which the provisions of subsection (2) or (3) of this section are applicable shall be personally liable for a violation of a prohibition or requirement of said provisions unless he participated in such violation knowing that it was a violation, nor shall such trustee, director or officer be personally liable if such violation was not willful and was due to reasonable cause; provided, however, that this subsection does not exonerate a trustee, director or officer from any responsibility or liability to which he is subject under any other rule of law, whether or not duplicated in subsection (2) or (3) of this section.
  6. Except as provided in subsection (5) of this section, nothing in this section shall impair the rights and powers of the courts or the Attorney General of this state with respect to any such corporation.
  7. In furtherance of the continuing policy of this state to assist charitable trust interests in maintaining various tax benefits extended to them, the provisions of subsections (2) and (3) of this section shall be deemed to have been in force and effect on January 1, 1970; provided, however, the provisions of subsections (2) and (3) of this section shall apply to a corporation organized before January 1, 1970 which is a “private foundation” as defined in Section 509 of the Internal Revenue Code only on and after the first day of its first taxable year (for federal tax purposes) beginning on or after January 1, 1972.

History. Enact. Acts 1972, ch. 344, § 4.

Compiler’s Notes.

The Internal Revenue Code of 1954, referred to herein, is compiled in title 26 of the United States Code. Sections 509, 4941, 4943-4945 are compiled as 26 USCS §§ 509, 4941 and 4943-4945, respectively.

273.401. Fire department membership charges and subscriber fees may be added to property tax bills — Collection and distribution — Collection fee for sheriff.

  1. If a fire department created under the provisions of this chapter is authorized by law to collect membership charges or subscriber fees for combating fires or serving in other emergencies, the legislative body of the city or county where the fire department is located may require those annual membership charges or subscriber fees to be added to property tax bills. The county clerk shall add the annual membership charges or subscriber fees to the tax bills of the affected property owners.
  2. The membership charges or subscriber fees shall be collected and distributed by the sheriff to the appropriate fire departments in the same manner as the other taxes on the bill and unpaid fees or charges shall bear the same penalty as general state and county taxes. This shall be a lien on the property against which it is levied from the time of the levy. The legislative body of the city or county where the fire department is located shall, in consultation with the sheriff and the fire department, set a collection fee for the sheriff to retain an amount not to exceed four and one-fourth percent (4.25%) of the membership charges or subscriber fees collected.
  3. Notwithstanding subsections (1) and (2) of this section, annual membership charges and subscriber fees shall not be added to the property tax bills of property owners within a territory that lies within the corporate limits of a city or that lies within a fire protection district or volunteer fire protection district established pursuant to KRS 75.010 to 75.080 without the written approval of the governing body of the city or the district.

History. Enact. Acts 2002, ch. 163, § 4, effective July 15, 2002; 2012, ch. 51, § 2, effective July 12, 2012; 2016 ch. 117, § 4, effective July 15, 2016.

Community Action Agencies

273.405. Community action agencies to be established.

There shall be established community action agencies throughout political subdivisions of the Commonwealth.

History. Enact. Acts 1982, ch. 453, § 1, effective July 15, 1982.

Opinions of Attorney General.

The community action agencies organized and functioning pursuant to KRS 273.405 to 273.453 are districts as that term is used in KRS 65.060 to 65.070 , and as a district, these community action agencies may be considered local governmental units. OAG 86-7 .

No across-the-board statement may be made as to whether all community action agencies in Kentucky are “units of local, municipal, county, or State government.” Rather, the circumstances, such as the relationship between the community action agency and the local government and the activity under review, must be considered as to each community action agency in question. OAG 86-7 .

This section and subsection (2) of KRS 273.410 clarify that state law mandates the establishment of community action agencies throughout political subdivisions and that community action agencies have as their purpose the alleviation of poverty. OAG 86-7 .

273.410. Definitions.

As used in KRS 273.405 to 273.453 , unless the context otherwise requires:

  1. “Commission” means the Legislative Research Commission.
  2. “Community action agency” means a corporation organized for the purpose of alleviating poverty within a community or area by developing employment opportunities; by bettering the conditions under which people live, learn, and work; and by conducting, administering, and coordinating similar programs.
  3. “Designated review body” means either:
    1. Any interim joint committee, as designated by the Commission at any time when the General Assembly is not in session, whose subject jurisdiction relates to the block grant under review; or
    2. Any interim joint committee, as designated by the Commission at any time when the General Assembly is not in session, whose subject jurisdiction relates to the block grant under review plus the Interim Joint Committee on Appropriations and Revenue; or
    3. Any standing committee, as designated by the Committee on Committees during any legislative session, whose subject jurisdiction relates to the block grant under review; or
    4. Any standing committee, as designated by the Committee on Committees during any legislative session, whose subject jurisdiction relates to the block grant under review plus the Senate and House Standing Committees on Appropriations and Revenue.
  4. “Federal administering agency” means any agency of the United States government administering any block grant.
  5. “Federal act” means the Omnibus Budget Reconciliation Act of 1981, P.L. 97-35, and any amendments thereto, as the federal act relates to community services block grants.
  6. “State administering agency” means any agency of the Commonwealth designated by the Governor to apply for and administer funds made available under the federal act.

History. Enact. Acts 1974, ch. 393, § 1; 1982, ch. 453, § 2, effective July 15, 1982; 1984, ch. 308, § 9, effective July 13, 1984.

Compiler’s Notes.

The Omnibus Budget Reconciliation Act of 1981, referred to in subdivision (5) of this section, is compiled throughout the United States Code.

However, the sections relating to community services block grants may be found at 42 USCS §§ 9901, et seq.

NOTES TO DECISIONS

1.Community Action Agency.

Community action agency was not entitled to immunity from a complaint filed a decedent's estate where although it may have been functioning as a private nonprofit agency by administering a substance abuse/addiction facility, it was not functioning as a community act agency or performing a necessary state function by doing so. Ky. River Foothills Dev. Council, Inc. v. Phirman, 504 S.W.3d 11, 2016 Ky. LEXIS 558 ( Ky. 2016 ).

Cited:

Bailey v. Floyd County Bd. of Educ., 106 F.3d 135, 1997 FED App. 39P, 1997 U.S. App. LEXIS 1516 (6th Cir. 1997).

Opinions of Attorney General.

A Community Action Corporation is not a district for purposes of KRS 65.164 to 65.176 as it is not among the boards, commissions or special districts created pursuant to the statutory provisions set forth in KRS 65.164 . OAG 82-196 .

A Community Action Corporation is not a special district for purposes of KRS 65.160 and 65.162 which permits two or more counties to join together to form a special district to fulfill any purpose which any individual county is authorized to fulfill. OAG 82-196 .

A Community Action Corporation organized and functioning pursuant to the terms and provisions of KRS 273.410 to 273.453 is a “district” for purposes of KRS 65.060 to 65.070 and can be a “special district” as defined in KRS 65.005 since the definition includes an “agency,” if that Community Action Corporation has been designated as an agency of a city or county government under KRS 273.435 or an agent of the Commonwealth under KRS 273.440 (now repealed). OAG 82-196 .

Assuming that the Kentucky River Foothills Development Council is a Community Action Corporation organized and functioning pursuant to KRS 273.410 to 273.453 , and that it has been designated, pursuant to an ordinance or resolution of the fiscal court, as an agent of the county under KRS 273.435 for the implementation of various statutorily authorized public welfare projects, the fiscal court may appropriate public funds to such a Community Action Corporation in connection with the carrying out of such projects. OAG 82-238 .

If the fiscal court has designated a community action agency, pursuant to KRS 273.435 , subject to available county funds and proper budgeting procedure under KRS Chapter 68, the fiscal court can contribute to any of the authorized programs covered in subsection (2) of this section and KRS 273.441 . The Senior Citizens meal program would be authorized under the statutory concept of reducing poverty and bettering living conditions. OAG 85-99 .

Pursuant to KRS 273.441 and subsection (2) of this section, any of the counties which have in legal effect designated a corporation as a community action agency may, subject to available funds and proper budgeting procedure under KRS Chapter 68, contribute, through the corporation, county funds for any of the purposes described specifically in KRS 273.441 and subsection (2) of this section, with the assumption that such county grants are made by way of an agreement between the county and the corporation that such county money will be spent for a designated purpose or purposes, the corporation subsequently reporting to the county government the precise nature and amount of the final expenditure. While Ky. Const., § 179 prohibits any county from appropriating money for any corporation, except for roads or bridges, this is no violation of § 179 as relates to county money expended under the community action agency legislation. For a county may select a nonprofit corporation as an instrumentality in carrying out a public purpose. OAG 85-117 .

No across-the-board statement may be made as to whether all community action agencies in Kentucky are “units of local, municipal, county, or State government.” Rather, the circumstances, such as the relationship between the community action agency and the local government and the activity under review, must be considered as to each community action agency in question. OAG 86-7 .

KRS 273.405 and subsection (2) of this section clarify that state law mandates the establishment of community action agencies throughout political subdivisions and that community action agencies have as their purpose the alleviation of poverty. OAG 86-7 .

273.415. Organization — Separate organizations to provide specific services otherwise unavailable.

  1. A community action agency shall be organized and shall operate subject to the provisions of KRS 273.405 to 273.453 . To the extent KRS 273.405 to 273.453 are inconsistent with the provisions of this chapter, the provisions of KRS 273.405 to 273.453 shall be controlling.
  2. A community action agency shall be organized and operate subject to the provisions of KRS 65.210 through 65.300 and KRS 273.405 to 273.453 .
  3. One (1) or more community action agencies may form a separate organization to provide a specific service that would be otherwise unavailable to low income persons within the community action agencies’ service area. The board of any organization so formed shall include local elected officials from the service area, representatives of the private sector in the service area and representatives of the community action agencies in the service area to ensure the representation of the low income and target residents. Any organization so formed, serving as an instrumentality of one (1) or more community action agencies, shall be eligible for associate membership in any association of community action agencies consistent with group bylaws, and shall be eligible for benefits such as group insurance and retirement programs for which community action agencies are eligible, subject to approval by the association.

History. Enact. Acts 1974, ch. 393, § 2; 1982, ch. 453, § 3, effective July 15, 1982; 1984, ch. 308, § 10, effective July 13, 1984; 1988, ch. 226, § 1, effective July 15, 1988.

273.420. Articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1974, ch. 393, § 3) was repealed by Acts 1982, ch. 453, § 23, effective July 15, 1982.

273.425. Filing of articles of incorporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1974, ch. 393, § 4) was repealed by Acts 1982, ch. 453, § 23, effective July 15, 1982.

273.430. General powers.

In order to accomplish its purposes, a community action agency may:

  1. Borrow money for any of the purposes of the agency;
  2. Issue debentures, notes, or other evidences of indebtedness, whether secured or unsecured, and secure the same by mortgage, pledge, deed of trust, or other lien on its property, franchise, rights and privileges of every kind or nature or any part thereof or interest therein;
  3. Apply for and accept loans, grants, and other assistance from any entity, public or private, including but not limited to the Commonwealth and the United States; and
  4. Perform all acts and things necessary or convenient to carry out its purposes.

History. Enact. Acts 1974, ch. 393, § 5; 1982, ch. 453, § 9, effective July 15, 1982.

273.435. Designation of community action agency.

  1. A community action agency may be designated by the following political subdivisions:
    1. One (1) or more counties;
    2. One (1) or more municipal corporations; or
    3. One (1) or more counties and one (1) or more municipal corporations.
  2. The chief elected official of the designating political subdivision may designate:
    1. The political subdivision as the community action agency, with the concurrence of the legislative authority of the political subdivision; or
    2. An eligible private nonprofit corporation as a community action agency if such corporation’s board of directors is established pursuant to KRS 273.437 .
  3. In the event a political subdivision elects not to designate a community action agency as provided under this section, the Governor may designate an eligible private nonprofit corporation as the community action agency for the political subdivision; provided, however, that the board of directors for the community action agency shall be established pursuant to KRS 273.437 .
  4. The designating political subdivision shall:
    1. Publish, pursuant to KRS Chapter 424, a notice containing the designation of a community action agency, a summary of the plan for such agency, a location at which the plan can be reviewed, and the time, date, and location of a hearing on the plan; and
    2. Not less than thirty (30) nor more than sixty (60) days from the publication of the notice in subsection (1), convene a public hearing specifically for the purpose of receiving public comment on the designation plan.
  5. All community action agencies which were organized and operating subject to the provisions of KRS 273.410 to 273.455 as of September 30, 1981, shall be recognized as the community action agencies for each applicable political subdivision unless and until each political subdivision exercises the authority granted under this section.
  6. No community action agency shall be created after July 15, 1982, unless the:
    1. Population of the political subdivision equals or exceeds fifty thousand (50,000); or
    2. Political subdivisions designating a new community action agency are geographically contiguous and include a combined population equal to or exceeding fifty thousand (50,000).

History. Enact. Acts 1974, ch. 393, § 6; 1982, ch. 453, § 4, effective July 15, 1982.

Compiler’s Notes.

KRS 273.455 referred to in subsection (5) of this section has been repealed.

Opinions of Attorney General.

A community action corporation organized and functioning pursuant to the terms and provisions of KRS 273.410 to 273.453 is a “district” for purposes of KRS 65.060 to 65.070 and can be a “special district” as defined in KRS 65.005 since the definition includes an “agency,” if that community action corporation has been designated as an agency of a city or county government under this section or an agent of the commonwealth under KRS 273.440 (now repealed). OAG 82-196 .

Assuming that the Kentucky River Foothills Development Council is a community action corporation organized and functioning pursuant to KRS 273.410 to 273.453 , and that it has been designated, pursuant to an ordinance or resolution of the fiscal court, as an agent of the county under this section for the implementation of various statutorily authorized public welfare projects, the fiscal court may appropriate public funds to such a community action corporation in connection with the carrying out of such projects. OAG 82-238 .

Under subsection (1)(b) of this section a city may designate a community action corporation as an agent of the city for the implementation of various statutorily authorized public welfare projects. OAG 82-238 .

If the fiscal court has designated a community action agency, pursuant to this section, subject to available county funds and proper budgeting procedure under KRS Chapter 68, the fiscal court can contribute to any of the authorized programs covered in KRS 273.410(2) and 273.441 . The senior citizens meal program would be authorized under the statutory concept of reducing poverty and bettering living conditions. OAG 85-99 .

No across-the-board statement may be made as to whether all community action agencies in Kentucky are “units of local, municipal, county, or State government.” Rather, the circumstances, such as the relationship between the community action agency and the local government and the activity under review, must be considered as to each community action agency in question. OAG 86-7 .

This section provides for designation of a community action agency by a political subdivision for the alleviation of poverty; a county, a municipal corporation, or combinations of counties and/or municipal corporations may designate the community action agency. Subsection (2) of this section allows for certain procedures whereby the chief elected official of the designating political subdivision may designate the community action agency for that political subdivision. OAG 86-7 .

273.437. Administering boards.

  1. When a private nonprofit corporation is designated as a community action agency, the board of directors of the private nonprofit corporation, if constituted in compliance with subsection (3) of this section, shall be the governing board.
  2. When a political subdivision is designated as the community action agency the board of directors of the community action agency shall be a community action board constituted as required by subsection (3) of this section.
  3. Governing boards and community action boards shall be so established and organized that the poor and residents of the area concerned will be able to influence the character of programs affecting their interests and regularly participate in the planning and implementation of those programs. The articles of incorporation shall be deemed to meet these requirements if they provide that:
    1. One-third (1/3) of the members of the administering board shall be public officers, including elected public officials or their representatives, unless the number of public officers reasonably available or willing to serve is less than one-third (1/3) of the membership of the board;
    2. At least one-third (1/3) of the members of the administering board shall be persons chosen in accordance with democratic selection procedures adequate to assure that they are representative of the poor in the area to be served by the agency;
    3. The remaining members of the administering board shall be officials or members of business, industry, labor, religious, welfare, education, or other major groups and shall be interested in the community;
    4. Each member of the board who is to represent a specific geographic area within a community shall reside in the area he represents; and
    5. Total membership of the board is not less than fifteen (15) and not more than fifty-one (51).
  4. Neighborhood based organizations composed of residents of the area or individual members of the groups served by the community action agency shall be consulted by each community action agency to assist the agency in the planning, conduct, and evaluation of components of the community action program.

History. Enact. Acts 1982, ch. 453, § 5, effective July 15, 1982.

273.439. Powers of administering boards.

  1. The governing board of a private, nonprofit community action agency shall have the same legal powers and responsibilities granted under its state charter as the board of directors of any private, nonprofit corporation incorporated in the Commonwealth of Kentucky including the power to enter into legally binding agreements with any federal, state, or local agency, or with any private funding organization for the purpose of administering programs or providing services.
  2. In addition to these general corporate powers which all private, nonprofit corporations possess, the following are specific powers which a governing board of a private nonprofit community action agency shall possess:
    1. To appoint the executive director of the community action agency;
    2. To determine major personnel, organization, fiscal, and program policies;
    3. To determine overall program plans and priorities for the community action agency, including provisions for evaluating progress against performance;
    4. To make final approval of all program proposals and budgets;
    5. To enforce compliance with all conditions of all grants contracts;
    6. To oversee the extent and the quality of the participation of the poor in the programs of the community action agency;
    7. To determine rules and procedures for the governing board; and
    8. To select the officers and the executive committee, if any, of the governing board.
  3. When a political subdivision is designated as the community action agency the designating officials possess those powers contained in subsection (2)(b) through (e) of this section and share with the community action board the power contained in subsection (2)(a) of this section. The designating officials may delegate the powers contained in subsection (2)(b) through (d) only to the community action board.
  4. When a political subdivision is designated as the community action agency, it shall administer its program through the community action board. The community action board shall have the following powers:
    1. To participate jointly and to concur formally in the selection of the executive director of the community action agency;
    2. To exercise all powers which the designating officials choose to delegate to the community action board;
    3. To oversee the extent and the quality of the participation of the poor in the programs of the community action agency;
    4. To determine rules and procedures for the community action board; and
    5. To select the officers and the executive committee, if any, of the community action board.
  5. When a political subdivision is designated as the community action agency, the community action board shall deliberate upon the following matters and submit its written recommendations to the designating officials before the designating officials render a final decision unless the designating officials have specifically delegated these powers:
    1. Determination of major personnel, organization, fiscal, and program policies;
    2. Determination of overall program plans and priorities;
    3. Approval of all program proposals and budgets;
    4. Approval of all evaluation and assessment studies and reports; and
    5. Approval of all arrangements for delegating the planning, conducting, or evaluating a component of the work program.

History. Enact. Acts 1982, ch. 453, § 6, effective July 15, 1982.

273.440. Designation by Commonwealth. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1974, ch. 393, § 7) was repealed by Acts 1982, ch. 453, § 23, effective July 15, 1982.

273.441. Duties of community action agency.

  1. Each community action agency shall:
    1. Plan systematically for an effective community action program, develop information as to the problems and causes of poverty in the community; determine how much and how effectively assistance is being provided to deal with those problems and causes; and establish priorities among projects, activities, and areas as needed for the best and most efficient use of resources;
    2. Provide planning or technical assistance to agencies; and generally, in cooperation with community agencies and officials, undertake actions to improve existing efforts to reduce poverty, such as improving day-to-day communications, closing service gaps, focusing resources on the most needy, and providing additional opportunities to low-income individuals for regular employment or participation in the programs or activities for which those community agencies and officials are responsible;
    3. Initiate and sponsor projects responsive to needs of the poor which are not otherwise being met, with particular emphasis on providing central or common services that can be drawn upon by a variety of related programs, developing new approaches or new types of services that can be incorporated into other programs, and filling gaps pending the expansion or modification of those programs;
    4. Establish effective procedures by which the poor and area residents concerned will be enabled to influence the character of programs affecting their interests, provide for their regular participation in the implementation of those programs, and provide technical and other support needed to enable the poor and neighborhood groups to secure on their own behalf available assistance from public and private sources;
    5. Join with and encourage business, labor and other private groups and organizations to undertake, together with public officials and agencies, activities in support of the community action program which will result in the additional use of private resources and capabilities, with a view to developing new employment opportunities, stimulating investment that will have a measurable impact on reducing poverty among residents of areas of concentrated poverty, and providing methods by which residents of those areas can work with private groups, firms, and institutions in seeking solutions to problems of common concern.
  2. If a community action agency places responsibility for the character, funding, extent, administration of, or budgeting for programs of the agency with another agency or organization, public or private, it shall do so by contract. No contract shall be made with an agency or organization which does not have a board which is broadly representative of the citizens of the geographic area served by the agency or organization.
  3. Each community action agency shall comply with the provisions of KRS 65A.010 to 65A.090 .

History. Enact. Acts 1982, ch. 453, § 7, effective July 15, 1982; 2013, ch. 40, § 80, effective March 21, 2013.

Opinions of Attorney General.

A local county board of education would be sufficiently representative of the geographic area that it serves to qualify as an agency with which a community action agency could contract, and therefore, as long as the subject matter of the contract related to the purpose of promoting public education, a county board of education, on its part, could enter into a contract with a community action agency pursuant to KRS 160.160 and KRS 160.290 . OAG 82-387 .

If the fiscal court has designated a community action agency, pursuant to KRS 273.435 , subject to available county funds and proper budgeting procedure under KRS Chapter 68, the fiscal court can contribute to any of the authorized programs covered in KRS 273.410(2) and this section. The senior citizens meal program would be authorized under the statutory concept of reducing poverty and bettering living conditions. OAG 85-99 .

Pursuant to this section and KRS 273.410(2), any of the counties which have in legal effect designated a corporation as a community action agency may, subject to available funds and proper budgeting procedure under KRS Chapter 68, contribute, through the corporation, county funds for any of the purposes described specifically in this section and KRS 273.410(2), with the assumption that such county grants are made by way of an agreement between the county and the corporation that such county money will be spent for a designated purpose or purposes, as expressly provided in this section and KRS 273.410(2), the corporation subsequently reporting to the county government the precise nature and amount of the final expenditure. While Ky. Const., § 179 prohibits any county from appropriating money for any corporation, except for roads or bridges, this is no violation of § 179 as relates to county money expended under the community action agency legislation. For a county may select a nonprofit corporation as an instrumentality in carrying out a public purpose. OAG 85-117 .

273.442. Community action agency may participate in pilot project established in KRS 205.632.

A community action agency may participate in the pilot project established in KRS 205.632 . The state administering agency shall work with the Department for Medicaid Services to effectuate the pilot project if community action agencies are deemed participating providers.

HISTORY: 2016 ch. 126, § 3, effective July 15, 2016.

273.443. Use of federal funds.

  1. Any funds made available under the federal act shall be used by each grantee of the funds:
    1. To provide a range of services and activities having a measurable and potentially major impact on causes of poverty in the community or those areas of the community where poverty is a particularly acute problem;
    2. To provide activities designed to assist low-income participants including the elderly poor:
      1. To secure and retain meaningful employment;
      2. To attain an adequate education;
      3. To access adequate health care;
      4. To make better use of available income;
      5. To obtain and maintain adequate housing and a suitable living environment;
      6. To obtain emergency assistance through loans or grants to meet immediate and urgent individual and family needs, including the need for health services, nutritious food, housing and employment related assistance;
      7. To remove obstacles and solve problems which block the achievement of self-sufficiency;
      8. To achieve greater participation in the affairs of the community; and
      9. To make more effective use of other programs related to the purposes of KRS 273.405 to 273.453 ;
    3. To coordinate and establish linkages between governmental and other social programs to assure the effective delivery of such services to low-income individuals;
    4. To encourage the use of entities in the private sector of the community in efforts to ameliorate poverty in the community;
    5. To develop, promote or otherwise encourage economic development activities which result in assisting low-income persons to become economically productive members of their community;
    6. To provide education, counseling and technical assistance on compliance with equal opportunity legislation for individuals and community organizations, both public and private.
  2. In addition to required services and activities to be provided with funds made available under the federal act, these funds may be used to provide on an emergency basis for the provision of such supplies and services to meet immediate essential needs of low-income persons including the elderly poor.

History. Enact. Acts 1982, ch. 453, § 8, effective July 15, 1982; 1984, ch. 308, § 11, effective July 13, 1984; 2016 ch. 126, § 2, effective July 15, 2016.

273.445. Requirement for filing of financial report. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1974, ch. 393, § 8) was repealed by Acts 1982, ch. 453, § 23, effective July 15, 1982.

273.446. Annual grants of block grant funds — Allocation formula — Use of funds — Services to be provided — Matching fund requirements — Other funds.

  1. The state administering agency shall annually grant community services block grant funds under the federal act to community action agencies designated by political subdivisions as provided under KRS 273.435 and 273.437 .
  2. An allocation formula for community services block grant funds shall be devised by the state administering agency. The allocation formula shall be based on the 1981 federal fiscal year federal community services administration grantee based allocation and the incidence and severity of poverty throughout the Commonwealth. The formula shall be set forth in administrative regulation by the state administering agency.
  3. Any level of local match to be required by the state administering agency shall not exceed twenty percent (20%) of each community action agency’s total annual allocation under the federal act. Community action agencies shall not be prohibited from using noncash resources to meet any match requirement of the state administering agency.
  4. The services to be provided with funds made available under the federal act shall be determined and prioritized by each community action agency in accordance with the allowable services and intended beneficiaries as set forth under KRS 273.443 .
  5. Community services block grant funds made available under the federal act shall be used in accordance with the provisions set forth in KRS 273.441 and 273.443 , provided that a portion of such funds shall be applied for legislative oversight in accordance with KRS 45.358 .
  6. The state administering agency, Governor or his designee may grant to community action agencies such other state and federal funds the purposes of which are in accordance with the provisions set forth in KRS 273.443 .
  7. For such other state or federal program funds applicable to the services and activities set forth in KRS 273.443 , the Governor shall, upon a determination of community action agencies’ capability for utilizing such funds in a manner so as to fulfill the purpose of those funds and to fulfill the policy set forth in KRS 273.405 , give special consideration to utilizing community action agencies in implementing such programs.

History. Enact. Acts 1982, ch. 453, § 10, effective July 15, 1982; 1984, ch. 308, § 12, effective July 13, 1984.

Opinions of Attorney General.

As long as local agencies used the funds made available to them in accordance with the provisions of Acts 1982, ch. 453, those agencies should be allowed to determine what services are to be provided with those funds. OAG 82-443 .

There is nothing in either P.L. 97-35 or Acts 1982, ch. 453 that would prohibit the state administering agency from entering into contracts with local agencies. OAG 82-443 .

273.448. Powers and duties of state administering agency.

  1. The responsibilities and powers of the state administering agency shall be:
    1. To establish standards in accordance with applicable state and federal laws and regulations by which administrative, fiscal and programmatic effectiveness of the federal act in the Commonwealth shall be measured.
    2. To monitor and evaluate community action agencies’ compliance with:
      1. The standards provided under subsection (1)(a) of this section and as set forth in administrative regulations by the state administering agency;
      2. The provisions of KRS 273.405 to 273.451 ; and
      3. The provisions of the federal act.
    3. To receive and review annual independent audits of all funds received by community action agencies.
    4. To direct community action agencies to submit such reports, records or other information necessary to determine community action agencies’ administrative, fiscal, and programmatic effectiveness in their use of funds made available under the federal act.
    5. To provide for training and technical assistance to the community action agencies.
    6. To serve as liaison between community action agencies and other state and federal agencies for the purposes of:
      1. Increasing the awareness of state and federal agencies toward the needs of low-income persons;
      2. Providing information regarding capabilities of community action agencies;
      3. Mobilizing resources for utilization by community action agencies;
      4. Promoting the services and activities of community action agencies; and
      5. Developing, promoting, or otherwise encouraging means for private sector involvement in the services and activities of community action agencies.
    7. To develop annually a plan describing the intended use and distribution of the community services block grant under the federal act based on the provisions of KRS 273.446(1), (2), (3) and (4). The plan shall include a provision for the administrative costs of the community action agencies.
    8. To provide the Commission and the designated review body all materials, information, reports and documents as provided by KRS 45.351 and 45.357 .
  2. The state administering agency’s administrative costs for administering the federal act shall not exceed the limit contained in the federal act and except as otherwise provided under KRS 45.353 .

History. Enact. Acts 1982, ch. 453, § 11, effective July 15, 1982; 1984, ch. 308, § 13, effective July 13, 1984.

Opinions of Attorney General.

The state is responsible for administering the Federal Omnibus Budget Reconciliation Act of 1981, Subtitle B — Community Services Block Grant (P.L. 97-35) and the state may not expend more than five percent (5%) of its allotment for administrative expense. Performing auditing functions is part of the state’s overall administrative responsibility and is thus an administrative expense; as an administrative expense, the cost of auditing should not be listed as a separate budget item beyond the state’s five percent (5%) allotment for administrative expenses. OAG 82-443 .

There is nothing in either P.L. 97-35 or Acts 1982, ch. 453 that would prohibit the state administering agency from entering into contracts with local agencies. OAG 82-443 .

273.450. Action when financial report not filed. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1974, ch. 393, § 9) was repealed by Acts 1982, ch. 453, § 23, effective July 15, 1982.

273.451. Reduction of agency’s funds — Notice — Exception — Mediation — Access to evidence — Appeal.

  1. The state administering agency may take adverse action in the form of reduction, suspension, withdrawal or otherwise retraction of a community action agency’s funds under the federal act and other funds over which the state administering agency has such authority, if:
    1. The state administering agency alleges a community action agency violated any law, regulation or duly issued directive related to funds for which the state administering agency has authority; and
    2. The state administering agency notifies the community action agency of its intended adverse action and informs the community action agency of its right to submit written material and of its right to request an informal hearing to respond to the intended action. The submission of written material and holding of an informal hearing shall not be required in less than five (5) working days of the initial notice to the community action agency; and
    3. After review of written material submitted by the community action agency and after convening an informal meeting with the community action agency, the state administering agency informs the community action agency of its intent to take adverse action. After sufficient prior notice to the public and the community action agency, the state administering agency shall hold a hearing, open to the public, during which the charges against the community action agency and the intended adverse action against the community action agency shall be presented and during which the community action agency has the opportunity to show cause why the intended adverse action should not be taken; and
    4. After conducting said hearing, the community action agency shall be notified by the state administering agency by letter or telegram not less than thirty (30) days prior to the effective date of the adverse action.
  2. The state administering agency may take adverse action without prior notice and opportunity to show cause provided in subsection (1) of this section if it determines that immediate suspension is necessary because of:
    1. Substantial injury or loss of funds or property over which the state administering agency has authority; or
    2. Violation of a federal, state or local criminal statute.
  3. In its notice to the community action agency of suspension the state administering agency shall specifically advise the community action agency of the reason for the suspension, effective date of the suspension and the extent, terms and conditions of any suspension and shall inform the community action agency of the date and location of a hearing wherein the community action agency shall have the opportunity to show cause as to why the suspension should be rescinded.
  4. The duration of a suspension without notice shall not exceed thirty (30) days except that a suspension without notice may be renewed for an additional period not to exceed thirty (30) days if during the initial suspension period, the state administering agency has initiated the process described in subsection (1) of this section.
  5. At any time during the processes described in this section the state administering agency may convene an informal meeting with the community action agency to attempt to resolve any contemplated or implemented adverse action.
  6. At all times during the processes described in this section, a community action agency shall have access to evidence upon which the state administering agency has based an intent or a final decision to take adverse action against the community action agency.
  7. No provision of this section shall prevent a community action agency from appealing a decision of adverse action by the state administering agency to the appropriate courts of the Commonwealth or the United States.

History. Enact. Acts 1982, ch. 453, § 12, effective July 15, 1982.

273.453. Submission of block grant application to Legislative Research Commission — Contents of application.

  1. The state administering agency shall submit any block grant application under the federal act for the following fiscal year to the Legislative Research Commission no less than ninety (90) days prior to the date of submission, as required by federal law, of the block grant application to the federal administering agency. The application and other material submitted to the Commission shall conform to the requirements, standards and criteria prescribed in KRS 273.430 to 273.448 and KRS 45.351 , 45.3511 and 45.353 . The review and processing of the application shall be in conformance with the provisions of KRS 45.352 , 45.353 and 45.354 .
  2. The state administering agency shall submit annually an actual use and distribution report to the Commission as provided by KRS 45.357 . Furthermore, the state administering agency shall comply with the block grant status report requirements of KRS 45.357 .

History. Enact. Acts 1982, ch. 453, § 13, effective July 15, 1982; 1984, ch. 308, § 14, effective July 13, 1984.

273.455. Distribution of assets when dissolved or liquidated. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1974, ch. 393, § 10) was repealed by Acts 1982, ch. 453, § 23, effective July 15, 1982.

273.456. Continuing application requests prohibited — Approval of legislative research commission or general assembly mandatory. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1982, ch. 453, § 14, effective July 15, 1982) was repealed by Acts 1984, ch. 308, § 17, effective July 13, 1984.

273.458. Public hearings. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1982, ch. 453, § 15, effective July 15, 1982) was repealed by Acts 1984, ch. 308, § 17, effective July 13, 1984.

273.460. Review by designated legislative body. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1982, ch. 453, § 16, effective July 15, 1982) was repealed by Acts 1984, ch. 308, § 17, effective July 13, 1984.

273.462. Report of designated legislative body — Review and recommendation of commission — Effect of no action by commission. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1982, ch. 453, § 17, effective July 15, 1982) was repealed by Acts 1984, ch. 308, § 17, effective July 13, 1984.

273.464. Recommendations for change — Resubmission — Approval or disapproval. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1982, ch. 453, § 18, effective July 15, 1982) was repealed by Acts 1984, ch. 308, § 17, effective July 13, 1984.

273.466. Review of use of funds — Biannual status reports. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1982, ch. 453, § 19, effective July 15, 1982) was repealed by Acts 1984, ch. 308, § 17, effective July 13, 1984.

273.468. Block grant legislative oversight fund. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1982, ch. 453, § 20, effective July 15, 1982) was repealed by Acts 1984, ch. 308, § 17, effective July 13, 1984.

Contributions for a Charitable Purpose Related to Disasters

273.470. Entities organized for charitable purposes related to disasters — Requirement for filing financial reports when contributions exceed $25,000 — Filing requirements for other tax exempt organizations which solicited and received contributions exceeding $25,000 before June 15, 2013.

    1. Any entity organized for charitable purposes under Section 501(c)(3) of the Internal Revenue Code, other than a religious organization that is recognized as tax exempt under Section 501(c)(3) of the Internal Revenue Code, that solicits and receives contributions exceeding twenty-five thousand dollars ($25,000) for a charitable purpose related to a disaster in Kentucky shall file quarterly financial reports with the Secretary of State until the funds are expended. The quarterly reports shall be in a form and format determined by the Secretary of State and shall contain at a minimum the following: (1) (a) Any entity organized for charitable purposes under Section 501(c)(3) of the Internal Revenue Code, other than a religious organization that is recognized as tax exempt under Section 501(c)(3) of the Internal Revenue Code, that solicits and receives contributions exceeding twenty-five thousand dollars ($25,000) for a charitable purpose related to a disaster in Kentucky shall file quarterly financial reports with the Secretary of State until the funds are expended. The quarterly reports shall be in a form and format determined by the Secretary of State and shall contain at a minimum the following:
      1. The amount of money received as a result of the solicitation at the time that the report is filed;
      2. Where the funds collected as a result of the solicitation are spent; and
      3. The amount of funds collected that are used for administrative costs.
    2. The first quarterly report shall be filed no later than the last day of the third month following the commencement of solicitations.
  1. Any entity organized for charitable purposes under Section 501(c)(3) of the Internal Revenue Code, other than a religious organization that is recognized as tax exempt under Section 501(c)(3) of the Internal Revenue Code, which solicited and received contributions exceeding twenty-five thousand dollars ($25,000) for a charitable purpose related to a disaster in Kentucky between January 1, 2012, and June 25, 2013, shall file a financial report with the Secretary of State. The financial report shall be in a form and format determined by the Secretary of State and shall contain at a minimum the following:
    1. The amount of money received as a result of the solicitation;
    2. Where the funds collected as a result of the solicitation were spent; and
    3. The amount of the funds collected that was used for administrative costs.

History. Enact. Acts 2013, ch. 113, § 2, effective June 25, 2013.

Management of Institutional Funds

273.510. Definitions. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1976, ch. 115, § 1) was repealed by Acts 2010, ch. 34, § 11, effective July 15, 2010. See now Kentucky Uniform Prudent Management of Institutional Funds Act, KRS 273.600 et seq.

273.520. Appropriation of net appreciation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1976, ch. 115, § 2) was repealed by Acts 2010, ch. 34, § 11, effective July 15, 2010.

273.530. Rule of construction. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1976, ch. 115, § 3) was repealed by Acts 2010, ch. 34, § 11, effective July 15, 2010.

273.540. Investment authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1976, ch. 115, § 4) was repealed by Acts 2010, ch. 34, § 11, effective July 15, 2010.

273.550. Delegation of investment authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1976, ch. 115, § 5) was repealed by Acts 2010, ch. 34, § 11, effective July 15, 2010.

273.560. Standard of conduct. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1976, ch. 115, § 6) was repealed by Acts 2010, ch. 34, § 11, effective July 15, 2010.

273.570. Release of restrictions on use or investment. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1976, ch. 115, § 7) was repealed by Acts 2010, ch. 34, § 11, effective July 15, 2010.

273.580. Uniformity of application and construction. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1976, ch. 115, § 8) was repealed by Acts 2010, ch. 34, § 11, effective July 15, 2010.

273.590. Short title. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1976, ch. 115, § 9) was repealed by Acts 2010, ch. 34, § 11, effective July 15, 2010.

Kentucky Uniform Prudent Management of Institutional Funds Act

273.600. Definitions for KRS 273.600 to 273.645.

In KRS 273.600 to 273.645 :

  1. “Charitable purpose” means the relief of poverty, the advancement of education or religion, the promotion of health, the promotion of a governmental purpose, or any other purpose the achievement of which is beneficial to the community;
  2. “Endowment fund” means an institutional fund or part thereof that, under the terms of a gift instrument, is not wholly expendable by the institution on a current basis. The term does not include assets that an institution designates as an endowment fund for its own use;
  3. “Gift instrument” means a record or records, including an institutional solicitation, under which property is granted to, transferred to, or held by an institution as an institutional fund;
  4. “Institution” means:
    1. A person, other than an individual, organized and operated exclusively for charitable purposes;
    2. A government or governmental subdivision, agency, or instrumentality, to the extent that it holds funds exclusively for a charitable purpose; or
    3. A trust that had both charitable and noncharitable interests, after all noncharitable interests have terminated;
  5. “Institutional fund” means a fund held by an institution exclusively for charitable purposes. The term does not include:
    1. Program-related assets;
    2. A fund held for an institution by a trustee that is not an institution; or
    3. A fund in which a beneficiary that is not an institution has an interest, other than an interest that could arise upon violation or failure of the purposes of the fund;
  6. “Person” means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, public corporation, government or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity;
  7. “Program-related asset” means an asset held by an institution primarily to accomplish a charitable purpose of the institution and not primarily for investment; and
  8. “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

History. Enact. Acts 2010, ch. 34, § 1, effective July 15, 2010.

Research References and Practice Aids

Kentucky Bench & Bar.

McGarvey, Kentucky Adopts the Uniform Prudent Management of Institutional Funds Act, Vol. 74, No. 5, September 2010, Ky. Bench & Bar 24.

273.605. Standard of conduct in managing and investing institutional fund.

  1. Subject to the intent of a donor expressed in a gift instrument, an institution, in managing and investing an institutional fund, shall consider the charitable purposes of the institution and the purposes of the institutional fund.
  2. In addition to complying with duty of loyalty imposed by law other than in KRS 273.600 to 273.645 , each person responsible for managing and investing an institutional fund shall manage and invest the fund in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.
  3. In managing and investing an institutional fund, an institution:
    1. May incur only costs that are appropriate and reasonable in relation to the assets, the purposes of the institution, and the skills available to the institution; and
    2. Shall make a reasonable effort to verify facts relevant to the management and investment of the fund.
  4. An institution may pool two (2) or more institutional funds for purposes of management and investment.
  5. Except as otherwise provided by a gift instrument, the following rules apply:
    1. In managing and investing an institutional fund, the following factors, if relevant, shall be considered:
      1. General economic conditions;
      2. The possible effect of inflation or deflation;
      3. The expected tax consequences, if any, of investment decisions or strategies;
      4. The role that each investment or course of action plays within the overall investment portfolio of the fund;
      5. The expected total return from income and the appreciation of investments;
      6. Other resources of the institution;
      7. The needs of the institution and the fund to make distributions and to preserve capital; and
      8. An asset’s special relationship or special value, if any, to the charitable purposes of the institution;
    2. Management and investment decisions about an individual asset shall be made not in isolation but rather in the context of the institutional fund’s portfolio of investments as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the fund and to the institution;
    3. Except as otherwise provided by law other than KRS 273.600 to 273.645 , an institution may invest in any kind of property or type of investment consistent with this section;
    4. An institution shall diversify the investments of an institutional fund unless the institution reasonably determines that, because of special circumstances, the purposes of the fund are better served without diversification;
    5. Within a reasonable time after receiving property, an institution shall make and carry out decisions concerning the retention or disposition of the property or to rebalance a portfolio in order to bring the institutional fund into compliance with the purposes, terms, and distribution requirements of the institution as necessary to meet other circumstances of the institution and the requirements of KRS 273.600 to 273.645 ; and
    6. A person that has special skills or expertise, or is selected in reliance upon the person’s representation that the person has special skills or expertise, has a duty to use those skills or that expertise in managing and investing institutional funds.

History. Enact. Acts 2010, ch. 34, § 2, effective July 15, 2010.

273.610. Appropriation for expenditure or accumulation of endowment fund — Rules of construction.

  1. Subject to the intent of a donor expressed in the gift instrument, an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established. Unless stated otherwise in the gift instrument, the assets in an endowment fund are donor-restricted assets until appropriated for expenditure by the institution. In making a determination to appropriate or accumulate, the institution shall act in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, and shall consider, if relevant, the following factors:
    1. The duration and preservation of the endowment fund;
    2. The purposes of the institution and the endowment fund;
    3. General economic conditions;
    4. The possible effect of inflation or deflation;
    5. The expected total return from income and the appreciation of investments;
    6. Other resources of the institution; and
    7. The investment policy of the institution.
  2. To limit the authority to appropriate for expenditure or accumulate under subsection (1) of this section, a gift instrument must specifically state the limitation.
  3. Terms in a gift instrument designating a gift as an endowment, or a direction or authorization in the gift instrument to use only “income,” “interest,” “dividends,” or “rents, issues, or profits,” or “to preserve the principal intact,” or words of similar import:
    1. Create an endowment fund of permanent duration unless other language in the gift instrument limits the duration or purpose of the fund; and
    2. Do not otherwise limit the authority to appropriate for expenditure or accumulate under subsection (1) of this section.

History. Enact. Acts 2010, ch. 34, § 3, effective July 15, 2010.

273.615. Delegation of management and investment functions.

  1. Subject to any specific limitation set forth in a gift instrument or in law other than KRS 273.600 to 273.645 , an institution may delegate to an external agent the management and investment of an institutional fund to the extent that an institution could prudently delegate under the circumstances. An institution shall act in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, in:
    1. Selecting an agent;
    2. Establishing the scope and terms of the delegation, consistent with the purposes of the institution and the institutional fund; and
    3. Periodically reviewing the agent’s actions in order to monitor the agent’s performance and compliance with the scope and terms of the delegation.
  2. In performing a delegated function, an agent owes a duty to the institution to exercise reasonable care to comply with the scope and terms of the delegation.
  3. An institution that complies with subsection (1) of this section is not liable for the decisions or actions of an agent to which the function was delegated.
  4. By accepting delegation of a management or investment function from an institution that is subject to the laws of the Commonwealth, an agent submits to the jurisdiction of the courts of the Commonwealth in all proceedings arising from or related to the delegation or the performance of the delegated function.
  5. An institution may delegate management and investment functions to its committees, officers, or employees as authorized by law of the Commonwealth other than KRS 273.600 to 273.645 .

History. Enact. Acts 2010, ch. 34, § 4, effective July 15, 2010.

273.620. Release or modification of restrictions on management, investment, or purpose.

  1. If the donor consents in a record, an institution may release or modify, in whole or in part, a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund. A release or modification may not allow a fund to be used for a purpose other than a charitable purpose of the institution.
  2. The court, upon application of an institution, may modify a restriction contained in a gift instrument regarding the management or investment of an institutional fund if the restriction has become impracticable or wasteful, if it impairs the management or investment of the fund, or if, because of circumstances not anticipated by the donor, a modification of a restriction will further the purposes of the fund. The institution shall notify the Attorney General of the application, and the Attorney General shall be given an opportunity to be heard. To the extent practicable, any modification shall be made in accordance with the donor’s probable intention.
  3. If a particular charitable purpose or a restriction contained in a gift instrument on the use of an institutional fund becomes unlawful, impracticable, impossible to achieve, or wasteful, the court, upon application of an institution, may modify the purpose of the fund or the restriction on the use of the fund in a manner consistent with the charitable purpose expressed in the gift instrument. The institution shall notify the Attorney General of the application, and the Attorney General shall be given an opportunity to be heard.
  4. If an institution determines that a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund is unlawful, impracticable, impossible to achieve, or wasteful, the institution, sixty (60) days after notification to the Attorney General, may release or modify the restriction, in whole or part, if:
    1. The institutional fund subject to the restriction has a total value of less than fifty thousand dollars ($50,000);
    2. More than twenty (20) years have elapsed since the fund was established; and
    3. The institution uses the property in a manner consistent with the charitable purposes expressed in the gift instrument.

History. Enact. Acts 2010, ch. 34, § 5, effective July 15, 2010.

273.625. Reviewing compliance with KRS 273.600 to 273.645.

Compliance with KRS 273.600 to 273.645 is determined in light of the facts and circumstances existing at the time a decision is made or action is taken, and not by hindsight.

History. Enact. Acts 2010, ch. 34, § 6, effective July 15, 2010.

273.630. Application of KRS 273.600 to 273.645 to existing institutional funds.

KRS 273.600 to 273.645 apply to an institutional fund existing on or established after July 15, 2010. As applied to institutional funds existing on July 15, 2010, KRS 273.600 to 273.645 govern only decisions made or actions taken on or after that date.

History. Enact. Acts 2010, ch. 34, § 7, effective June 15, 2010.

273.635. Relation of KRS 273.600 to 273.645 to the Electronic Signatures in Global and National Commerce Act.

KRS 273.600 to 273.645 modify, limit, and supersede the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. secs. 7001 et seq., but does not modify, limit, or supersede Section 101 of that act, 15 U.S.C. sec. 7001(a) , or authorize electronic delivery of any of the notices described in Section 103 of that act, 15 U.S.C. sec. 7003(b) .

History. Enact. Acts 2010, ch. 34, § 8, effective July 15, 2010.

273.640. Uniformity of application and construction of the Kentucky Uniform Prudent Management of Institutional Funds Act.

In applying and construing this uniform act, consideration shall be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.

History. Enact. Acts 2010, ch. 34, § 9, effective July 15, 2010.

273.645. Short title for KRS 273.600 to 273.645.

KRS 273.600 to 273.645 may be cited as the Kentucky Uniform Prudent Management of Institutional Funds Act.

History. Enact. Acts 2010, ch. 34, § 10, effective July 15, 2010.

Penalties

273.990. Penalties.

  1. If any board of directors or trustees fails to make the report required by KRS 273.150 , each director or trustee shall be fined ten dollars ($10) for each day until the report is made.
  2. Any director or trustee of any incorporated cemetery or burying ground organized for private profit who is convicted of violating any provisions of its charter or any statute relating to cemeteries or burying grounds shall be removed from that position.
  3. Any superintendent of any incorporated cemetery or burying ground who violates its charter shall be fined not less than ten ($10) nor more than one hundred dollars ($100) and removed from that position.

History. Enact. Acts 1946, ch. 141, § 5.

Research References and Practice Aids

Northern Kentucky Law Review.

Tobergte, Regulating the Nonprofit Corporation, 16 N. Ky. L. Rev. 325 (1989).

273.991. Additional penalties for violation of KRS 506.010, 506.030, 506.040, 521.020, or 521.050.

  1. If a domestic nonprofit corporation is convicted of a violation of KRS 506.010 , 506.030 , 506.040 , 521.020 , or 521.050 , or if an officer, employee, or agent of the corporation violates any of those sections under circumstances which bring corporate liability under KRS 502.050(1)(b), the court shall order that the charter of the nonprofit corporation be suspended for a period of not more than five (5) years for a first offense, ten (10) years for a second offense, and permanently for a third or subsequent offense.
  2. If a foreign nonprofit corporation is convicted of violating any section specified in subsection (1) of this section, or if an officer, employee, or agent of the corporation violates any of those sections under circumstances which bring corporate liability under KRS 502.050(1)(b), the court shall order that the nonprofit corporation not be permitted to do business in Kentucky for the appropriate period specified in subsection (1) of this section.
  3. The penalties specified in this section shall be in addition to any other penalty specified by law for the commission of the offenses listed in subsection (1) of this section.

History. Enact. Acts 1994, ch. 477, § 8, effective July 15, 1994.

CHAPTER 273A Kentucky Uniform Unincorporated Nonprofit Association Act

HISTORY: 2015 ch. 34, § 12, effective June 24, 2015.

273A.005. Definitions for chapter.

As used in this chapter:

  1. “Appropriate court” means the Circuit Court of the county of the Commonwealth in which the unincorporated nonprofit association’s principal office is located or, if none, the county in which the registered office is or was last maintained;
  2. “Established practices” means the practices used by an unincorporated nonprofit association without material change during the most recent five (5) years of its existence or, if it has existed for less than five (5) years, during its entire existence;
  3. “Governing principles” means the agreements, whether oral, in a record, or implied from its established practices, that govern the purpose or operation of an unincorporated nonprofit association and the rights and obligations of its members and manager. The term includes any amendment or restatement of the agreements constituting the governing principles;
  4. “Manager” means a person that is responsible, whether alone or in concert with others, for the management of an unincorporated nonprofit association;
  5. “Member” means a person that, under the governing principles, may participate in the selection of persons authorized to manage the affairs of the unincorporated nonprofit association or in the development of the policies and activities of the association;
  6. “Nonprofit purpose” means any one (1) or more of the following purposes: charitable, benevolent, eleemosynary, educational, civic, patriotic, political, governmental, religious, social, recreational, fraternal, literary, cultural, athletic, scientific, agricultural, horticultural, animal husbandry, and professional, commercial, industrial, or trade association, but shall not include labor unions, cooperative organizations, and organizations subject to any of the provisions of the insurance laws or banking laws of this state which may not be organized under this chapter;
  7. “Person” means an individual, corporation, business or statutory trust, estate, donative trust, partnership, limited partnership, limited liability company, cooperative, association, limited cooperative association, joint venture, public corporation, government or governmental subdivision, agency, instrumentality, or any other legal or commercial entity;
  8. “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form;
  9. “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States;
  10. “Statement of authority” means a statement authorizing a person to transfer an interest in real property held in the name of an unincorporated nonprofit association; and
  11. “Unincorporated nonprofit association” means an unincorporated organization consisting of two (2) or more members joined under an agreement that is oral, in a record, or implied from conduct, for one (1) or more common, nonprofit purposes. The term does not include:
    1. A trust;
    2. A marriage, domestic partnership, common law domestic relationship, civil union, or other domestic living arrangement;
    3. An organization formed under any other statute that governs the organization and operation of any person;
    4. A joint tenancy, tenancy in common, or tenancy by the entireties even if the co-owners share use of the property for a nonprofit purpose; or
    5. A relationship under an agreement in a record that expressly provides that the relationship between the parties does not create an unincorporated nonprofit association.

HISTORY: 2015 ch. 34, § 12, effective June 24, 2015.

273A.010. Entity — Perpetual existence — Powers.

  1. An unincorporated nonprofit association is a legal entity distinct from its members and managers.
  2. An unincorporated nonprofit association shall have perpetual duration unless the governing principles specify otherwise.
  3. An unincorporated nonprofit association shall have the same powers as an individual to do all things necessary or convenient to carry on its purposes.
  4. An unincorporated nonprofit association may engage in profit-making activities, but profits from any activities shall be used or set aside for the association’s nonprofit purposes.

HISTORY: 2015 ch. 34, § 13, effective June 24, 2015.

273A.015 Ownership and transfer of property.

  1. An unincorporated nonprofit association may acquire, hold, encumber, or transfer in its name an interest in real, personal, or intangible property.
  2. An unincorporated nonprofit association may be a beneficiary of a trust or contract, a legatee, or a devisee.

HISTORY: 2015 ch. 34, § 14, effective June 24, 2015.

273A.020. Statement of authority as to real property.

  1. An interest in real property held in the name of an unincorporated nonprofit association may be transferred by a person authorized to do so in a statement of authority recorded by the association in the office in the county in which a transfer of the property would be recorded.
  2. A statement of authority shall set forth:
    1. The name of the unincorporated nonprofit association;
    2. The address in this Commonwealth, including the street address, if any, of the association or, if the association does not have an address in this Commonwealth, its out-of-state address;
    3. That the association is an unincorporated nonprofit association;
    4. The name and title or position of a person authorized to transfer an interest in real property held in the name of the association; and
    5. An affirmation by the person executing the statement that they are duly authorized to do so.
  3. A statement of authority shall be executed by a person other than the person authorized in the statement to transfer the interest.
  4. A filing officer may collect a fee for recording a statement of authority in the amount of ten dollars ($10).
  5. A document amending, revoking, or canceling a statement of authority or stating that the statement is unauthorized or erroneous shall meet the requirements for executing and recording an original statement.
  6. Unless canceled earlier, a recorded statement of authority and its most recent amendment expire five (5) years after the date of the most recent recording.
  7. If the record title to real property is in the name of an unincorporated nonprofit association and the statement of authority is recorded in the office of the county in which a transfer of the property would be recorded, the authority of the person named in the statement to transfer is conclusive in favor of a person that gives value without notice that the person lacks authority.

HISTORY: 2015 ch. 34, § 15, effective June 24, 2015.

273A.025. Certificate of association.

  1. An unincorporated nonprofit association may file a certificate of association with the Secretary of State containing:
    1. The name of the association meeting the requirements of KRS 14A.3-010 ;
    2. The mailing address of the association’s initial principal office;
    3. The name and address of the association’s registered agent and registered office, both meeting the requirements of KRS 14A.4-010 ; and
    4. A statement of the association’s purpose.
  2. An unincorporated nonprofit association that has filed a certificate of association is thereby subject to KRS 14A.6-010 .

HISTORY: 2015 ch. 34, § 16, effective June 24, 2015.

Legislative Research Commission Notes.

(4/13/2016). Subsection (1)(a) of 2015 Ky. Acts ch. 34, sec. 16 (this statute) read “The name of the association meeting the requirements of Section 4 of this Act;”. Section 4 of that Act was KRS 14A.6-010 , which relates to annual reports filed by business entities. The correct reference should have been to Section 3 of that Act, KRS 14A.3-010 , which relates to names of business entities. The Reviser of Statutes has changed the citation as codified in subsection (1)(a) of this statute from “KRS 14A.6-010 ” to read “KRS 14A.3-010 ” to correct this manifest clerical or typographical error under the authority of KRS 7.136(1)(h).

273A.030. Liability for association debts and obligations.

  1. If the association has filed a certificate of association with the Secretary of State, a debt, obligation, or other liability of an unincorporated nonprofit association, whether arising in contract, tort, or otherwise accruing or arising after the filing of the certificate is:
    1. Solely the debt, obligation, or other liability of the association; and
    2. Not a debt, obligation, or other liability of a member or manager solely because the member acts as a member or the manager acts as a manager.
  2. Subsection (1) of this section shall not affect the liability of a member or manager of an association for his or her own negligence, wrongful acts, or misconduct.

HISTORY: 2015 ch. 34, § 17, effective June 24, 2015.

273A.035. Power to sue or be sued.

  1. An unincorporated nonprofit association may sue or be sued in its own name.
  2. A member or manager may assert a claim the member or manager has against the unincorporated nonprofit association. An association may assert a claim it has against a member or manager.
  3. If the unincorporated nonprofit association has filed a statement of association and the claim accrued on or after the effective date thereof, a member or manager in an association is not a proper party to a proceeding to enforce that claim solely by reason of being a member or manager.

HISTORY: 2015 ch. 34, § 18, effective June 24, 2015.

273A.040. Judgement against association.

  1. A judgment or order against an unincorporated nonprofit association is not by itself a judgment or order against a member or manager.
  2. Pursuant to this chapter, a judgment creditor of an unincorporated nonprofit association shall not levy execution against the assets of a member to satisfy a judgment based on a claim against the association unless:
    1. A judgment based on the same claim has been obtained against the association and a writ of execution on the judgment has been returned unsatisfied in whole or in part;
    2. The association is a debtor in bankruptcy;
    3. The member has agreed that the creditor need not exhaust association assets; or
    4. Liability is imposed on the member by law or contract independent of the existence of the association.
  3. Subsection (2) of this section shall not apply to any judgment or order for which the members are not liable in accordance with KRS 273A.030(1).

HISTORY: 2015 ch. 34, § 19, effective June 24, 2015; 2017 ch. 193, § 10, effective June 29, 2017.

273A.045. Service of process.

In an action or proceeding against an unincorporated nonprofit association, process may be served on the registered agent or in any other manner authorized by the law of this Commonwealth.

HISTORY: 2015 ch. 34, § 20, effective June 24, 2015.

273A.050. Action or proceeding not abated by change.

An action or proceeding against an unincorporated nonprofit association shall not abate merely because of a change in its members or managers.

HISTORY: 2015 ch. 34, § 21, effective June 24, 2015.

273A.055. Venue.

  1. Venue of an action against an unincorporated nonprofit association that has filed a certificate of association shall be in the appropriate court.
  2. Venue of an action brought in this Commonwealth against an unincorporated nonprofit association that has not filed a certificate of association shall be brought in accordance with the law applicable to an action brought in this Commonwealth against a general partnership.

HISTORY: 2015 ch. 34, § 22, effective June 24, 2015.

273A.060. Member not an agent.

A member is not an agent of the association solely by reason of being a member.

HISTORY: 2015 ch. 34, § 23, effective June 24, 2015.

273A.065. Approval by members.

  1. Except as otherwise provided in the governing principles, an unincorporated nonprofit association shall have the approval of its members to:
    1. Admit, suspend, dismiss, or expel a member;
    2. Select or dismiss a manager;
    3. Adopt, amend, or repeal the governing principles;
    4. Sell, lease, exchange, or otherwise dispose of all, or substantially all, of the association’s property, with or without the association’s goodwill, outside the ordinary course of its activities;
    5. Dissolve under KRS 273A.125(1)(b);
    6. Undertake any other act outside the ordinary course of the association’s activities; or
    7. Determine the policy and purposes of the association.
  2. An unincorporated nonprofit association shall have the approval of the members to do any other act or exercise a right that the governing principles require to be approved by members.

HISTORY: 2015 ch. 34, § 24, effective June 24, 2015.

273A.070. Member meetings — Procedural requirements.

  1. Unless the governing principles of a corporation provide otherwise:
    1. Approval of a matter by members requires an affirmative majority of the votes cast at a meeting of members; and
    2. Each member is entitled to one (1) vote on each matter that is submitted for approval by members.
  2. Notice and quorum requirements for member meetings and the conduct of meetings of members shall be determined by the governing principles.

HISTORY: 2015 ch. 34, § 25, effective June 24, 2015.

273A.075. Duties of members.

  1. A member shall not have a fiduciary duty to an unincorporated nonprofit association or to another member solely by being a member.
  2. A member shall discharge any duties to the unincorporated nonprofit association and the other members and exercise any rights under this chapter consistent with the governing principles and the obligation of good faith and fair dealing.

HISTORY: 2015 ch. 34, § 26, effective June 24, 2015.

273A.080. Admission, suspension, dismissal, or expulsion.

  1. A person becomes a member and may be suspended, dismissed, or expelled in accordance with the association’s governing principles. If there are no applicable governing principles, a person may become a member or be suspended, dismissed, or expelled from an association only by a vote of its members. A person shall not be admitted as a member without the person’s consent.
  2. Unless the governing principles provide otherwise, the suspension, dismissal, or expulsion of a member shall not relieve the member from any unpaid capital contribution, dues, assessments, fees, or other obligation incurred or commitment made by the member before the suspension, dismissal, or expulsion.

HISTORY: 2015 ch. 34, § 27, effective June 24, 2015.

273A.085. Member resignation.

  1. A member may resign as a member in accordance with the governing principles. In the absence of applicable governing principles, a member may resign at any time.
  2. Unless the governing principles provide otherwise, resignation of a member shall not relieve the member from any unpaid capital contribution, dues, assessments, fees, or other obligation incurred or commitment made by the member before resignation.
  3. The governing principles may impose reasonable limitations upon the access to or use of any record of or information with respect to the unincorporated nonprofit association. Except as to limitations set forth in governing principles to which the member or manager requesting information has assented, the association bears the burden of proof in demonstrating the reasonableness of any restrictions imposed.

HISTORY: 2015 ch. 34, § 28, effective June 24, 2015.

273A.090. Membership interest not transferable.

Except as otherwise provided in the governing principles of the association, a member’s interest or any right under the governing principles is not transferable.

HISTORY: 2015 ch. 34, § 29, effective June 24, 2015.

Legislative Research Commission Notes.

(6/24/2015). During codification of 2015 Ky. Acts ch. 34, Sec. 29 (this statute), the Reviser of Statutes has changed the word “corporation” to “association.” KRS Chapter 273A, dealing with unincorporated nonprofit associations, was created in that Act, and Section 29 of that Act was created as a new section of the new chapter. It is clear from the context that the reference to “corporation” in Section 29 of that Act was intended to be “association.” The Reviser of Statutes has corrected this manifest clerical or typographical error under the authority of KRS 7.136(1)(h).

273A.095. Selection of managers — Management rights of managers.

Except as otherwise provided in this chapter or the governing principles:

  1. Only the members may select a manager or managers;
  2. A manager may be a member or a nonmember;
  3. If a manager is not selected, all members are managers;
  4. Each manager has equal rights in the management and conduct of the association’s activities;
  5. All matters relating to the association’s activities shall be decided by its managers except for matters reserved for approval by members in KRS 273A.065 ; and
  6. A difference among managers shall be decided by a majority of the managers.

HISTORY: 2015 ch. 34, § 30, effective June 24, 2015.

273A.100. Duties of managers.

  1. A manager owes to the unincorporated nonprofit association the fiduciary duties of loyalty and care.
  2. A manager shall manage the unincorporated nonprofit association in good faith, in a manner the manager honestly believes to be in the best interests of the association, and with such care, including reasonable inquiry, as a prudent person would reasonably exercise in a similar position and under similar circumstances. A manager may rely in good faith upon any opinion, report, statement, or other information provided by another person that the manager reasonably believes is a competent and reliable source for the information.
  3. After full disclosure of all material facts, a specific act or transaction that would otherwise violate the duty of loyalty by a manager may be authorized or ratified by a majority of the members that are not interested directly or indirectly in the act or transaction.
  4. A manager that makes a business judgment in good faith satisfies the duties specified in subsection (1) of this section if the manager:
    1. Is not interested, directly or indirectly, in the subject of the business judgment and is otherwise able to exercise independent judgment;
    2. Is informed with respect to the subject of the business judgment to the extent the manager reasonably believes to be appropriate under the circumstances; and
    3. Believes that the business judgment is in the best interests of the unincorporated nonprofit association and in accordance with its purposes.
  5. The governing principles in a record may limit or eliminate the liability of a manager to the unincorporated nonprofit association or its members for damages for any action taken, or for failure to take any action, as a manager, except liability for:
    1. The amount of financial benefit improperly received by a manager;
    2. An intentional infliction of harm on the association or one (1) or more of its members;
    3. An intentional violation of criminal law;
    4. Breach of the duty of loyalty; or
    5. Improper distributions.

HISTORY: 2015 ch. 34, § 31, effective June 24, 2015.

273A.105. Procedural requirements for managers.

Notice and quorum requirements for meetings of managers and the conduct of meetings of managers shall be determined by the governing principles.

HISTORY: 2015 ch. 34, § 32, effective June 24, 2015.

273A.110. Right of member or manager to information.

  1. On reasonable notice and for a proper purpose, a member or manager of an unincorporated nonprofit association may inspect and copy during the unincorporated nonprofit association’s regular operating hours, at a reasonable location specified by the association, any record maintained by the association regarding its activities, financial condition, and other circumstances, to the extent the information is material to the member’s or manager’s rights and duties under the governing principles.
  2. An unincorporated nonprofit association may charge a person that makes a demand under this section reasonable copying costs, limited to the costs of labor and materials.
  3. The governing principles may impose reasonable limitations upon the inspection and use of any record of or information with respect to an unincorporated nonprofit association. Except as to limitations set forth in written governing principles to which a member or manager requesting information has assented, the association bears the burden of proof in demonstrating the reasonableness of any restrictions imposed.
  4. A former member or manager shall be entitled to information to which the member or manager was entitled while a member or manager if the information pertains to the period during which the person was a member or manager, the former member or manager seeks the information in good faith, and the former member or manager satisfies subsections (1) to (3) of this section.

HISTORY: 2015 ch. 34, § 33, effective June 24, 2015.

273A.115. Distribution prohibited — Compensation and other permitted payments.

  1. Except as otherwise provided in subsection (2) of this section, an unincorporated nonprofit association shall not pay dividends or make distributions to a member or manager.
  2. An unincorporated nonprofit association may:
    1. Pay reasonable compensation or reimburse reasonable expenses to a member or manager for services rendered;
    2. Confer benefits on a member or manager in conformity with its nonprofit purposes;
    3. Repurchase a membership and repay a capital contribution made by a member to the extent authorized by its governing principles; or
    4. Make distributions of property to members upon winding up and termination to the extent permitted by KRS 273A.130 .

HISTORY: 2015 ch. 34, § 34, effective June 24, 2015.

273A.120. Reimbursement — Indemnification — Advancement — Insurance.

  1. Except as otherwise provided in the governing principles, an unincorporated nonprofit association shall reimburse a member or manager for authorized expenses reasonably incurred in the course of the member’s or manager’s activities on behalf of the association.
  2. An unincorporated nonprofit association may indemnify a member or manager for any debt, obligation, or other liability incurred in the course of the member’s or manager’s activities on behalf of the association if the person seeking indemnification has complied with KRS 273A.075 and KRS 273A.100 , as applicable. Governing principles in a record may broaden or limit indemnification.
  3. If a person is made or threatened to be made a party in an action based on that person’s activities on behalf of an unincorporated nonprofit association and the person makes a request in a record to the association, a majority of the disinterested managers may approve in a record advance payment, or reimbursement, by the association, of all or a part of the reasonable expenses, including attorney’s fees and costs, incurred by the person before the final disposition of the proceeding. To be entitled to an advance payment or reimbursement, the person shall state in a record that the person has a good faith belief that the criteria for indemnification in subsection (2) of this section have been satisfied and that the person will repay the amounts advanced or reimbursed if the criteria for payment have not been satisfied. The governing principles in a record may broaden or limit the advance payments or reimbursements.
  4. An unincorporated nonprofit association may purchase insurance on behalf of a member or manager for liability asserted against or incurred by the member or manager in the capacity of a member or manager, whether or not the association has authority under this chapter to reimburse, indemnify, or advance expenses to the member or manager against the liability.
  5. The rights of reimbursement, indemnification, and advancement of expenses under this section apply to a former member or manager for an activity undertaken on behalf of the unincorporated nonprofit association while a member or manager.

HISTORY: 2015 ch. 34, § 35, effective June 24, 2015.

273A.125. Dissolution.

  1. An unincorporated nonprofit association may be dissolved as follows:
    1. If the governing principles provide a time or method for dissolution, at that time or by that method;
    2. If the governing principles do not provide a time or method for dissolution, upon approval by the members;
    3. If no member can be located and the association’s operations have been discontinued for at least three (3) years, by the managers or, if the association has no current manager, by its last manager;
    4. By court order; or
    5. Under law other than this chapter.
  2. After dissolution, an unincorporated nonprofit association continues in existence until its activities have been wound up and it is terminated pursuant to KRS 273A.130 .

HISTORY: 2015 ch. 34, § 36, effective June 24, 2015.

273A.130. Winding up and termination.

Winding up and termination of an unincorporated nonprofit association shall proceed in accordance with the following rules:

  1. All known debts and liabilities shall be paid or adequately provided for;
  2. Any property subject to a condition requiring return to the person designated by the donor shall be transferred to that person;
  3. Any property subject to a trust shall be distributed in accordance with the trust agreement; and
  4. Any remaining property shall be distributed as follows:
    1. As required by law other than this chapter that requires assets of an association to be distributed to another person with similar nonprofit purposes;
    2. In accordance with the association’s governing principles or, in the absence of applicable governing principles, to the members of the association per capita or as the members direct; or
    3. If neither paragraph (a) nor (b) of this subsection applies, as directed by the appropriate court.

HISTORY: 2015 ch. 34, § 37, effective June 24, 2015.

273A.135. Transition concerning real and personal property.

  1. If, before June 24, 2015, an interest in property was by terms of a transfer purportedly transferred to an unincorporated nonprofit association but under the law of this Commonwealth the interest did not vest in the association, or in one (1) or more persons on behalf of the association under subsection (2) of this section, on June 24, 2015, the interest vests in the association, unless the parties to the transfer have treated the transfer as ineffective.
  2. If, before June 24, 2015, an interest in property was by terms of a transfer purportedly transferred to an unincorporated nonprofit association but the interest was vested in one (1) or more persons to hold the interest for or on behalf of the association or the members of the association, on or after June 24, 2015, the persons, or their successors in interest, may transfer the interest to the association in its name, or the association may require that the interest be transferred to it in its name.

HISTORY: 2015 ch. 34, § 38, effective June 24, 2015.

273A.140. Uniformity of application and construction.

In applying and construing this chapter, consideration shall be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.

HISTORY: 2015 ch. 34, § 39, effective June 24, 2015.

273A.145. Relation to Electronic Signatures in Global and National Commerce Act.

The provisions of this chapter governing the legal effect, validity, or enforceability of electronic records or electronic signatures, and of contracts formed or performed with the use of such records or signatures, modify, limit, and supersede the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. secs. 7001 et. seq., but this chapter does not modify, limit, or supersede Section 101(c) of the Electronic Signatures in Global and National Commerce Act or authorize electronic delivery of any of the notices described in Section 103(b) of that Act.

HISTORY: 2015 ch. 34, § 40, effective June 24, 2015.

273A.150. Relation to other law.

  1. Principles of law and equity supplement this chapter unless displaced by a particular provision of it.
  2. A statute governing a specific type of unincorporated nonprofit association prevails over an inconsistent provision in this chapter, to the extent of the inconsistency.

HISTORY: 2015 ch. 34, § 41, effective June 24, 2015.

273A.155. Governing law.

  1. Except as otherwise provided in subsection (2) of this section, the laws of this Commonwealth govern the operation in this state of all unincorporated nonprofit associations formed or operating in this Commonwealth.
  2. Unless the governing principles specify a different jurisdiction, the law of the jurisdiction in which a foreign unincorporated nonprofit association has its principal place of activities governs the internal affairs of the association.

HISTORY: 2015 ch. 34, § 42, effective June 24, 2015.

273A.160. Savings clause.

The provisions of this chapter do not affect an action or proceeding commenced or right accrued before it takes effect.

HISTORY: 2015 ch. 34, § 43, effective June 24, 2015.

273A.165. Title.

KRS Chapter 273A shall be known and may be cited as the Kentucky Uniform Unincorporated Nonprofit Association Act.

HISTORY: 2015 ch. 34, § 44, effective June 24, 2015.

CHAPTER 274 Professional Service Corporations

274.005. Definitions.

As used in this chapter, unless the context indicates otherwise:

  1. “Foreign professional service corporation” means a corporation for profit organized for the purpose of rendering professional services under a law other than the law of this state;
  2. “Professional service” means any type of personal service to the public which requires as a condition precedent to the rendering of such service the obtaining of a license or other legal authorization and which, prior to the passage of this chapter and by reason of law or a professional code of ethics, could not be performed by a corporation. The personal services which come within the provisions of this chapter are the personal services rendered by but not limited to certified public accountants, public accountants, chiropractors, osteopaths, physicians and surgeons, doctors of medicine, doctors of dentistry, podiatrists, chiropodists, architects, veterinarians, optometrists, and attorneys-at-law;
  3. “Professional service corporation” means a corporation organized under this chapter;
  4. “Qualified person” means a natural person, partnership, limited liability company, or professional service corporation which is eligible under this chapter to own shares issued by a professional service corporation; and
  5. “Regulating board” means the governmental agency which is charged by law with the licensing and regulation of the practice of the profession which the professional service corporation is organized to render.

History. Enact. Acts 1962, ch. 236, § 1; 1980, ch. 288, § 9, effective July 15, 1980; 1998, ch. 341, § 19, effective July 15, 1998; 2006, ch. 149, § 230, effective July 12, 2006; 2007, ch. 137, § 86, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 86, effective July 15, 2010.

Opinions of Attorney General.

Professional services may be rendered through a corporation and any provision to the contrary found in any professional code of ethics is unenforceable and void as to any corporation formed under and complying with the requirements of KRS Ch. 274. OAG 63-13 .

A professional service corporation set up by practicing attorneys pursuant to KRS ch. 274 would not be in conflict with the rules of the Court of Appeals. OAG 63-1110 .

Although this chapter does not expressly prohibit the qualification of foreign professional service corporations, a proper construction renders it inapplicable to foreign professional service corporations. OAG 74-522 .

The practice of physical therapy is a profession included within the scope of subsection (2) of this section. OAG 74-522 .

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Whiteside, Self-Employed Individuals Retirement Act of 1962, Prospects for Self-Employed Plans, 51 Ky. L.J. 325 (1962).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

274.010. Transfer of stock. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 1) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.015. Professional service corporation authorized — Articles of incorporation requirements — Authority — Amendment of articles to become business corporation.

  1. One (1) or more individuals, each of whom is licensed to render the same professional service or who are licensed to render related professional services such that applicable licensing laws and regulations would not prohibit the practice of such multiple professional services through a single business partnership, may incorporate and form a professional service corporation by filing articles of incorporation in the office of the Secretary of State. Such articles of incorporation shall meet the requirements of KRS Chapter 271B, and in addition to the information required by KRS 271B.2-020 , such articles shall contain the following:
    1. The designation of the profession or professions to be practiced through the professional service corporation;
    2. The names and residence addresses of all the original shareholders of the professional service corporation; and
    3. A statement by the incorporator or incorporators that each of the incorporators, shareholders, not less than one-half (1/2) of the directors, and each of the officers other than secretary and treasurer is a qualified person within the meaning of this chapter.
  2. A professional service corporation formed under the provisions of this chapter, except as this chapter may otherwise provide, shall have the same powers, authority, duties, and liabilities as a corporation formed under, and shall be otherwise governed by, KRS Chapter 271B.
  3. A professional service corporation that has ceased to be utilized for rendering a professional service may by amendment of its articles of incorporation delete those provisions otherwise required by subsection (1) of this section and adopt a name conforming to KRS 271B.4-010 , whereupon the corporation shall be governed exclusively by KRS Chapter 271B and not this chapter.

History. Enact. Acts 1962, ch. 236, § 2; 1972, ch. 274, § 153; 1980, ch. 288, § 10, effective July 15, 1980; 1988, ch. 23, § 181, effective January 1, 1989; 1988, ch. 224, § 24, effective July 15, 1988; 2007, ch. 137, § 87, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 87, effective July 15, 2010; 2010, ch. 133, § 24, effective July 15, 2010.

Legislative Research Commission Notes.

(7/15/2010). This section was amended by 2010 Ky. Acts ch. 133, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict; therefore, they have been codified together.

NOTES TO DECISIONS

Cited in:

Isaacs v. Sentinal Ins. Co., 607 S.W.3d 678, 2020 Ky. LEXIS 298 ( Ky. 2020 ).

Opinions of Attorney General.

Professional service corporations require as a condition precedent that the corporate applicants or applicant be duly licensed and legally authorized to render the professional services for which the corporation is established. OAG 73-872 .

In this section and KRS 274.025 (repealed), the term “shareholder” is used interchangeably with the term “incorporator” and not in its technical sense of a person holding stock. OAG 79-120 .

The payment of the filing fee is a condition precedent for filing documents with the Secretary of State, and the Secretary of State may void the filing and return a document after it has been received, stamped, and filed, if the check for payment of that fee has been dishonored. OAG 89-94 .

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Shivel, Organizing the Corporation Under the New Kentucky Business Corporation Act — A Comparison with Prior Law, 61 Ky. L.J. 95 (1972).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

274.017. Restricted issuance and transfer of shares.

  1. A professional service corporation may issue and a shareholder thereof may transfer or pledge shares, fractional shares, and rights or options to purchase shares only to:
    1. A natural person who is authorized by law in this state or in any other state or territory of the United States or the District of Columbia to render a professional service permitted by the articles of incorporation of the corporation;
    2. A partnership, domestic or foreign, in which all the partners are qualified persons with respect to such professional corporation and in which at least one (1) partner is authorized by the laws of this state to render a professional service permitted by the articles of incorporation of the corporation;
    3. A professional limited liability company, domestic or foreign, authorized by law in this state to render a professional service permitted by the articles of organization of the limited liability company and the articles of incorporation of the corporation; or
    4. A professional service corporation, domestic or foreign, authorized by law in this state to render a professional service permitted by the articles of incorporation of each corporation.
  2. Any issuance, transfer, or pledge of shares, fractional shares, or rights or options to purchase shares in violation of this section shall be void; however, nothing herein contained shall prohibit the transfer of shares of a professional corporation by operation of law or court decree.

History. Enact. Acts 1980, ch. 288, § 6, effective July 15, 1980; 1998, ch. 341, § 20, effective July 15, 1998; 2006, ch. 149, § 231, effective July 12, 2006; 2007, ch. 137, § 88, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 88, effective July 15, 2010; 2010, ch. 133, § 25, effective July 15, 2010.

Legislative Research Commission Note.

(7/15/2010). This section was amended by 2010 Ky. Acts ch. 133, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict; therefore, they have been codified together.

NOTES TO DECISIONS

1.Insurance Coverage.

Insurer was entitled to summary judgment that an attorney and the attorney's wife were not entitled to underinsured motorist coverage for the attorney's injuries while riding a bicycle under the attorney's firm's policy because (1) the firm was unambiguously the named insured, and (2) the attorney's ownership of all the firm's shares did not make the attorney a named insured. Isaacs v. Sentinel Ins. Co., 2018 Ky. App. LEXIS 70 (Ky. Ct. App. Feb. 2, 2018), aff'd, 607 S.W.3d 678, 2020 Ky. LEXIS 298 ( Ky. 2020 ).

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge & Honabach, Kentucky Business Entity Laws: The 2010 Amendments, Vol. 74, No. 5, September 2010, Ky. Bench & Bar 6.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

274.019. Proxy — Voting trust.

No proxy for shares of a professional service corporation shall be valid unless it shall be given to a qualified person. A voting trust with respect to shares of a professional service corporation shall not be valid unless all the trustees and beneficiaries thereof are qualified persons, except that a voting trust may be validly continued for a period of ten (10) months after the death of a deceased beneficiary or for a period of five (5) months after a beneficiary has become a disqualified person.

History. Enact. Acts 1980, ch. 288, § 1, effective July 15, 1980; 2007, ch. 137, § 89, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 89, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

274.020. Legal capacity not enlarged. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 2) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.025. Number of directors. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1962, ch. 236, § 3; 1972, ch. 274, § 154) was repealed by Acts 1980, ch. 288, § 15, effective July 15, 1980.

274.027. Qualifications of officers and members of board — Voting.

  1. Not less than one-half (1/2) of the directors of a professional service corporation and all the officers other than the secretary and the treasurer shall be qualified persons with respect to the corporation.
  2. Those members of the board of directors of a professional service corporation not qualified within the meaning of KRS 274.015 shall abstain from voting on measures before the board which deal exclusively with the art of the professional service or services rendered as opposed to measures relating to the general business operation of the corporation.

History. Enact. Acts 1980, ch. 288, § 5, effective July 15, 1980.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

274.030. Corporation rights reserved. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 3) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.035. Requirement for participation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1962, ch. 236, § 4) was repealed by Acts 1980, ch. 288, § 15, effective July 15, 1980.

274.040. Holder in good faith takes title. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 4) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.045. Persons authorized to render service.

No professional service corporation provided for in this chapter may render professional services except through officers, employees and agents who are duly licensed or otherwise legally authorized to render such professional services within this state. This provision shall not be interpreted to include in the term “employee” as used in this chapter, clerks, secretaries, bookkeepers, technicians and other assistants who are not usually and ordinarily considered by custom and practice to be rendering professional services to the public for which a license or other legal authorization is required.

History. Enact. Acts 1962, ch. 236, § 5.

Opinions of Attorney General.

An independent contractor seeking to attain the status of an agent for a professional service contractor, in order to perform services which the professional service corporation has been hired to perform, must meet the requirements of the first sentence of this section. OAG 81-274 .

274.050. Delivery of certificate. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 5) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.055. Effect of chapter — Liability.

  1. Except as otherwise provided in this section, KRS 271B.6-220 applies to a corporation governed by this chapter.
  2. The provisions of this chapter shall not alter any law applicable to, or otherwise affect the fiducial, confidential or ethical relationship between a person rendering professional services and a person receiving such services. The corporation shall be jointly and severally liable, with the tortfeasor, to the full value of its assets for any negligent or wrongful acts or actionable misconduct committed by any of its officers, shareholders, agents or employees while they are engaged on behalf of the corporation in the rendering of professional service; provided, however, that no shareholder, director, officer or employee of a professional service corporation shall be personally liable for the negligence, wrongful acts, or actionable misconduct of any other shareholder, director, officer, agent or employee nor shall such shareholder, director, officer or employee be personally liable for the contractual obligations of the corporation.
  3. Notwithstanding any contrary provisions of law, a corporation organized under this chapter may charge and collect fees for the professional services of its officers, directors, agents or employees, and may compensate those who render such professional services.
  4. Notwithstanding KRS 14A.9-050 (3), any foreign professional service corporation granted a certificate of authority to conduct business within this state and those persons rendering professional services through it shall be subject to this section.

History. Enact. Acts 1962, ch. 236, § 6; 1980, ch. 288, § 11, effective July 15, 1980; 2010, ch. 133, § 26, effective July 15, 2010; 2011, ch. 29, § 12, effective June 8, 2011.

Legislative Research Commission Note.

(6/8/2011). 2011 Ky. Acts ch. 29, sec. 24, provides that the amendments to this section in 2011 Ky. Acts ch. 29, sec. 12, are retroactive to January 1, 2011.

NOTES TO DECISIONS

1.In General.

This section provides in substance that the corporate existence shall not affect the relationship between the professional member and his client or patient and, accordingly, a physician is responsible for the derelictions of corporation employees who carry out necessary clerical duties for him just as a surgeon would be responsible for the negligence of a nurse or surgical attendant assisting him in an operation. Boyd v. Badenhausen, 556 S.W.2d 896, 1977 Ky. LEXIS 531 ( Ky. 1977 ).

2.Liability for Acts of Employee.

A professional service corporation could be liable for the actions of its employee who was its president and sole shareholder. Fayette County Farm Bureau Federation v. Martin, 758 S.W.2d 713, 1988 Ky. App. LEXIS 150 (Ky. Ct. App. 1988).

Research References and Practice Aids

Kentucky Bench & Bar.

Schell and Peden, To Be or Not to Be: That is the Question for PSC’s under TEFRA, Vol. 47, No. 2, April, 1983, Ky. Bench & Bar 10.

O’Roark, Professional Responsibility & Liability Trends to Watch in ‘95, Vol. 59, No. 1, Winter 1995, Ky. Bench & Bar 45.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

274.060. Indorsement of certificate. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 6) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.065. Regulation of practice unaffected.

Nothing in this chapter shall restrict or limit in any manner the authority and duty of any regulating board of competent jurisdiction to license individual persons rendering professional services or to regulate the practice of the profession which is within the jurisdiction of such regulating board, even though such person is an officer, director, shareholder, or employee of a professional service corporation or engages in the practice of such profession through a professional service corporation.

History. Enact. Acts 1962, ch. 236, § 7; 2007, ch. 137, § 90, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 90, effective July 15, 2010.

Opinions of Attorney General.

Professional services may be rendered through a corporation and any provision to the contrary found in any professional code of ethics is unenforceable and void as to any corporation formed under and complying with the requirements of KRS Chapter 274. OAG 63-13 .

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

274.070. Recission. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 7) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.075. Corporate name — Advertising ethics maintained. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1962, ch. 236, § 8; 1976, ch. 27, § 19) was repealed by Acts 1980, ch. 288, § 15, effective July 15, 1980.

274.077. Name of professional service corporation. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 91) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-010 through 14A.3-050 .

274.080. Holder in good faith takes title. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 8) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.085. Merger — Consolidation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1962, ch. 236, § 9) was repealed by Acts 1980, ch. 288, § 15, effective July 15, 1980.

274.087. Merger or consolidation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1980, ch. 288, § 8, effective July 15, 1980) was repealed by Acts 2010, ch. 51, § 179, effective July 15, 2010.

Legislative Research Commission Note.

(7/15/2010). This section was repealed in 2010 Ky. Acts ch. 51, sec. 179, effective July 15, 2010. However, 2010 Ky. Acts ch. 51, sec. 180, provides that “The repeals set out in Section 179 of this Act are hereby expressly made retroactive to the first moment of June 26, 2007.” That language, therefore, applies to this section, and the repeal will be applied retroactively to affirm the repeal of this section contained in 2007 Ky. Acts ch. 274, sec. 87, effective June 26, 2007.

274.090. Delivery without indorsement. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 9) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.095. Withdrawing shareholders — Procedure for redemption of stock — Procedure upon death of sole shareholder — Insolvency.

  1. The articles of incorporation may provide for the purchase or redemption of all of the shares of any shareholder within a period not to exceed one (1) year after the death or disqualification to practice the profession of such shareholder, or for the purchase or redemption within said time of all of the shares of any shareholder desiring to sell them, all of whom are herein sometimes called “withdrawing shareholders” or, in default of such provisions in the articles of incorporation, the foregoing provisions and time limitation may be included in the bylaws of a professional service corporation, or, if no such provision and time limitation is made in the articles of incorporation or bylaws, they may be provided for by such private agreement or agreements as the shareholders and corporation may enter into. If such an article, bylaw or agreement is adopted or provided for and such stock is not redeemed by the corporation within said one (1) year period, then within ten (10) days following the end of said period the president and/or secretary of the corporation shall give notice thereof to the Secretary of State of Kentucky and, upon receipt of such notice by the Secretary of State, the charter of the corporation shall be immediately void.
  2. In the absence of such provisions in the articles of incorporation, bylaws or by private agreement, a professional service corporation shall redeem the shares of a withdrawing shareholder within ninety (90) days after the death or disqualification of a shareholder or of the receipt by the corporation of written notice from a shareholder that he desires to sell or transfer all his shares of stock in the corporation upon terms mutually agreeable to the parties. Should a redemption not occur within the time limit provided herein, the shares shall immediately be cancelled on the books of the corporation and the holder of such shares shall be reimbursed as provided in subsection (4) of this section as a general creditor of the corporation.
  3. If the sole shareholder of a professional service corporation organized pursuant to this chapter dies:
    1. It shall be the duty of his personal representative to so notify the Secretary of State, whereupon the charter of such corporation shall lapse; or
    2. The administrator, executor, guardian, conservator, or receiver of the estate of the deceased sole shareholder may amend the articles of incorporation by signing a written consent to such amendment. Articles of amendment to be adopted shall set forth:
      1. The name of the corporation;
      2. The amendments so adopted;
      3. The date of adoption of the amendment by the administrator, executor, guardian, conservator, or receiver;
      4. The number of shares outstanding; and
      5. The number of shares held by the administrator, executor, guardian, conservator, or receiver.

        The amendment to the articles of incorporation may allow the corporation to continue as a professional service corporation or may convert the corporation to a private business corporation provided, however, that the corporation shall not render professional services until such time as all outstanding shares are held by qualified persons and the corporation conforms to the provisions of this chapter; or

    3. The administrator, executor, guardian, conservator, or receiver of the estate of the deceased shareholder shall transfer all outstanding shares of the corporation to other qualified persons or person within the meaning of this chapter. The professional service corporation shall cease to render professional services until such time as the transfer or transfers provided in this subsection are completed.
  4. In the absence of an article, bylaw or agreement as provided for in subsection (1) of this section, or a sale as provided for within the time stated in subsection (2) of this section, a professional service corporation, within one hundred eighty (180) days after the death or disqualification of a shareholder or within the same period after receiving written notice from a shareholder that he desires the corporation to redeem all of his stock in the corporation, shall institute an equitable action for a determination of the fair market value of all of the shares of the corporation’s outstanding stock cancelled pursuant to subsection (2) of this section and owned by such shareholder.
    1. The court shall designate a time for a hearing and at said hearing shall appoint a disinterested appraiser to determine the fair market, pre-cancellation value of such shares. The court shall administer an oath to the appraiser to honestly and faithfully discharge his duties and shall fix a time and place for the appraiser to begin hearing evidence on such fair market value. The appraiser shall have the powers conferred upon master commissioners by KRS 31A.010 and shall afford a reasonable opportunity to the corporation and the shareholder or personal representative of a deceased shareholder to introduce pertinent evidence on such fair market value. The appraiser shall conduct his hearings as expeditiously as practicable, and upon completion of the hearing shall report in writing to the court his determination of the fair market pre-cancellation value of such shares and shall file with the court a written transcript of the testimony heard by him, together with all exhibits introduced in evidence.
    2. The corporation or any withdrawing shareholder may, within ten (10) days after the filing of the appraiser’s report, file exceptions thereto. Such exceptions shall be heard and decided by the court upon the evidence submitted to the appraiser as shown by the transcript. After hearing the exceptions to the appraiser’s report, or if no exceptions thereto have been filed within the time hereinbefore provided for, the court shall enter final judgment determining such fair market, pre-cancellation value of the shares of each withdrawing shareholder and shall direct payment thereof by the corporation to each withdrawing shareholder and the surrender of the duly indorsed certificate or certificates representing his shares. The court shall be empowered to direct payment by the corporation in installments reasonably calculated to avoid any impending corporate insolvency while reimbursing the withdrawing shareholder in as direct a manner as may be practicable.
  5. If a professional service corporation fails to bring the above provided for action for the redemption of its shares within the time provided, then within ten (10) days after the end of said period, the president of the corporation, or if he be then dead, the secretary thereof, shall so notify, in writing, the Secretary of State of Kentucky, and upon receipt of such notice by the Secretary of State of Kentucky, the charter of the professional service corporation shall be void.
  6. If the obligation of the corporation to redeem any shares of its outstanding stock as set out in subsections (1) to (5) of this section would render the corporation insolvent and the court has deemed an installment redemption as provided in subsection (4) of this section to be unwarranted, then without delay the corporation shall commence to liquidate and dissolve, unless the remaining shareholders shall have prior thereto purchased or redeemed all of the withdrawing shareholder’s shares or satisfied such shareholder’s claim against the corporation.

History. Enact. Acts 1962, ch. 236, § 10; 1968, ch. 166; 1980, ch. 188, § 240, effective July 15, 1980; 1980, ch. 288, § 12, effective July 15, 1980.

Legislative Research Commission Note.

This section was amended by two 1980 acts which do not appear to be in conflict and have been compiled together.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

274.100. Transfer without delivery. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 10) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.105. Contents of annual reports.

Each professional service corporation shall file an annual report as provided in KRS 14A.6-010 . A duplicate original copy of each annual report shall be filed with the regulating board which licenses the shareholders of the corporation.

History. Enact. Acts 1962, ch. 236, § 11; 1972, ch. 274, § 155; 1980, ch. 288, § 13, effective July 15, 1980; 2010, ch. 151, § 70, effective January 1, 2011.

274.110. Warranties. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 11) was repealed by Acts 1958, ch. 77, § 10-102, effective Juy 1, 1960.

274.115. Business restrictions.

No professional service corporation organized or authorized to conduct business under this chapter shall engage in any business other than the rendering of the professional service or services for which it was specifically incorporated, provided, however, that nothing in this chapter or in any other provisions of existing law applicable to corporations shall be interpreted to prohibit such corporation from investing its funds in real estate, mortgages, stocks, bonds or any other type of investment, or from owning real or personal property necessary for the rendering of professional services.

History. Enact. Acts 1962, ch. 236, § 12; 1980, ch. 288, § 14, effective July 15, 1980.

Opinions of Attorney General.

A business activity consisting of making arrangements whereby hospital emergency rooms are supplied with physicians who provide the necessary medical services and who are independent contractors vis-a-vis the Public Service Commission, does not constitute the practice of medicine; and, accordingly, a professional service corporation specifically incorporated to render the medical services of a physician may not lawfully engage in such activity. OAG 79-295 .

274.120. No warranty by pledgee. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 12) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.125. Application of chapter.

This chapter shall not apply to any person within this state who, prior to the passage of this chapter, was permitted to organize a corporation and perform professional services by the means of such corporation, and this chapter shall not apply to any corporation organized by such persons prior to the passage of this chapter, provided, that any such corporation may bring itself within the provisions of this chapter by amending its articles of incorporation in such a manner as to be consistent with all of the provisions of this chapter and by affirmatively stating in the amended articles of incorporation that the shareholders have elected to bring the corporation within, and have accepted the provisions of, this chapter.

History. Enact. Acts 1962, ch. 236, § 13.

274.130. Levy or attachment; surrender of certificate. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 13) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.140. Stock inures to creditor. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 14) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.150. Liens of corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 15) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.160. Alterations. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 16) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.170. Lost or destroyed certificates. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 17) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.180. Law merchant governs. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 18) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.190. Uniformity of construction. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 19) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.200. Indorsement defined. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 20) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.210. Certificate owner defined. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 21) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.220. Definitions. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 22) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.230. Application of chapter. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 23) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.240. Citation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1944, ch. 12, § 25) was repealed by Acts 1958, ch. 77, § 10-102, effective July 1, 1960.

274.245. Admission of foreign professional service corporation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1980, ch. 288, § 2; 2010, ch. 133, § 27) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-010 .

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge & Honabach, Kentucky Business Entity Laws: The 2010 Amendments, Vol. 74, No. 5, September 2010, Ky. Bench & Bar 6.

274.250. Application of foreign professional service corporation for a certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1980, ch. 288, § 3) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-030 .

274.255. Revocation of certificate of authority. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1980, ch. 288, § 4) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-070 through 14A.9-090 .

274.990. Penalty.

Any person who fails or refuses to do any act or perform any duty required of him by this chapter, or who causes or permits a false statement to be included in the articles of incorporation of any professional service corporation, shall be fined not more than one thousand dollars ($1,000) or imprisoned for a period of not more than one (1) year, or both.

History. Enact. Acts 1962, ch. 236, § 14.

274.991. Additional penalties for violation of KRS 506.010, 506.030, 506.040, 521.020, or 521.050.

  1. If a domestic professional service corporation is convicted of a violation of KRS 506.010 , 506.030 , 506.040 , 521.020 , or 521.050 , or if an officer, employee, or agent of the corporation violates any of those sections under circumstances which bring corporate liability under KRS 502.050(1)(b), the court shall order that the charter of the professional service corporation be suspended for a period of not more than five (5) years for a first offense, ten (10) years for a second offense, and permanently for a third or subsequent offense.
  2. If a foreign professional service corporation is convicted of violating any section specified in subsection (1) of this section, or if an officer, employee, or agent of the corporation violates any of those sections under circumstances which bring corporate liability under KRS 502.050(1)(b), the court shall order that the professional service corporation not be permitted to do business in Kentucky for the appropriate period specified in subsection (1) of this section.
  3. The penalties specified in this section shall be in addition to any other penalty specified by law for the commission of the offenses listed in subsection (1) of this section.

History. Enact. Acts 1994, ch. 477, § 9, effective July 15, 1994.

CHAPTER 275 Limited Liability Companies

275.001. Short title for chapter.

This chapter shall be known and may be cited as the “Kentucky Limited Liability Company Act.”

History. Enact. Acts 1994, ch. 389, § 93, effective July 15, 1994.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Woodford, The Ethical Implications of the Limited Liability Status in the Practice of Law, 87 Ky. L.J. 489 (1998-99).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

ALR

Construction and application of limited liability company acts, 79 A.L.R.5th 689.

Construction and Application of Limited Liability Company Acts — Issues Relating to Formation of Limited Liability Company and Addition or Disassociation of Members Thereto, 43 A.L.R.6th 611.

Construction and Application of Limited Liability Company Acts — Issues Relating to Liability of Limited Liability Company for Acts of Its Members, Managers, Officers, and Agents, 46 A.L.R.6th 1.

Construction and Application of Limited Liability Company Acts — Issues Relating to Personal Liability of Individual Members and Managers of Limited Liability Company as to Third Parties, 47 A.L.R.6th 1.

Construction and Application of Limited Liability Company Acts — Issues Relating to Derivative Actions and Actions Between Members of Limited Liability Company, 48 A.L.R.6th 1.

Construction and Application of Limited Liability Company Acts — Issues Relating to Dissolution and Winding Up of Affairs of Limited Liability Company, 49 A.L.R.6th 1.

Issues Concerning Bankruptcy Proceedings of Limited Liability Companies, 37 A.L.R. Fed. 2d 129.

275.003. Construction of chapter.

  1. It shall be the policy of the General Assembly through this chapter to give maximum effect to the principles of freedom of contract and the enforceability of operating agreements. Unless displaced by particular provisions of this chapter, the principles of law and equity shall supplement this chapter. Although this chapter is in derogation of common law, the rules of construction that require strict construction of statutes which are in derogation of common law shall not apply to its provisions. This chapter shall not be construed to impair the obligations of any contract existing when this chapter, or any amendment of it, becomes effective, nor to affect any action or proceeding begun or right accrued before the chapter or amendment takes effect.
  2. A written operating agreement may provide that the limited liability company interest of any member who fails to make any contribution that the member is obligated to make or who otherwise violates an obligation undertaken in the operating agreement shall be subject to specified penalties for, or specified consequences, such failure. Such penalty or consequence may take the form of:
    1. Reducing or eliminating the defaulting member’s proportionate interest in the limited liability company;
    2. Subordinating the member’s interest to that of nondefaulting members;
    3. A forced sale of that limited liability company interest;
    4. Forfeiture of his or her limited liability company interest;
    5. The lending by other members of the amount necessary to meet the defaulting member’s commitment;
    6. A fixing of the value of his or her limited liability company interest by appraisal or by formula and redemption or sale of the limited liability company interest at such; or
    7. Other penalty or consequence.
  3. A written operating agreement may provide rights to any person, including a person who is not a member or not otherwise a party to the operating agreement, to the extent set forth therein.
  4. Except to the extent set forth in a written operating agreement, a limited liability company is bound by and a party to the operating agreement.
  5. Action validly taken pursuant to one (1) provision of this chapter shall not be deemed invalid solely because it is identical or similar in substance to an action that could have been taken pursuant to some other provision of this chapter but fails to satisfy one (1) or more requirements prescribed by such other provision.
  6. No member or other person shall have a vested property right resulting from any provision of the operating agreement which may not be modified by its amendment or as otherwise permitted by law.
  7. Each member and manager and any other party to an operating agreement shall discharge all duties and exercise all rights consistently with the obligation of good faith and fair dealing. The obligation of good faith and fair dealing may not be eliminated in the operating agreement, but it may prescribe the standards by which the performance of the obligation is to be measured provided the standards are not manifestly unreasonable.
  8. To the extent the articles of organization and the operating agreement do not otherwise provide, the Kentucky Limited Liability Company Act shall govern relations among the limited liability company, the members, the managers, and the assignees.

History. Enact. Acts 1994, ch. 389, § 92, effective July 15, 1994; 2010, ch. 133, § 28, effective July 15, 2010; 2012, ch. 81, § 104, effective July 12, 2012.

Research References and Practice Aids

Kentucky Bench & Bar.

Dolson, Contractual Dissenters’ Rights for Kentucky LLCs, Volume 75, No. 1, January 2011, Ky. Bench & Bar 18.

Northern Kentucky Law Review.

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

275.005. Purpose of limited liability company.

A limited liability company may be organized under this chapter for any lawful purpose, including the provision of one (1) or more professional services conducted in or outside the Commonwealth. Except as otherwise provided in KRS 275.150 , if the purpose for which a limited liability company is organized or its activities make it subject to one (1) or more special provisions of law, the limited liability company shall also comply with those provisions.

History. Enact. Acts 1994, ch. 389, § 1, effective July 15, 1994.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.010. Powers of limited liability companies.

  1. Except as otherwise set forth in this chapter or unless the articles of organization or operating agreement provide otherwise, every limited liability company shall have the powers to do all things necessary or convenient to carry out its business and affairs.
  2. A limited liability company is a legal entity distinct from its members.
  3. Professional limited liability companies shall be governed by the laws, whether statutory or common law, applicable to other limited liability companies. Except for those provisions concerning the personal liability of members, managers, employees, and agents of a limited liability company, nothing in this chapter shall restrict, limit, or expand in any manner the authority and duty of any regulating board to:
    1. License individual persons providing professional services; and
    2. Regulate the practice of persons providing professional services which are within the jurisdiction of the regulating board, even though the persons are members, managers, employees, or agents of a professional limited liability company, or provide professional services through a professional limited liability company, including the establishment of regulations concerning:
      1. The qualifications of members or managers of a professional limited liability company;
      2. The transfer of limited liability company interests in a professional limited liability company; or
      3. The provision of one (1) or more professional services through a professional limited liability company.

History. Enact. Acts 1994, ch. 389, § 2, effective July 15, 1994; 2007, ch. 137, § 92, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 92, effective July 15, 2010.

NOTES TO DECISIONS

0.5.Construction.

Limited liability company is not a legal coat that one slips on to protect the owner from liability, but then discards or ignores altogether when it is time to pursue a damage claim. Turner v. Andrew, 413 S.W.3d 272, 2013 Ky. LEXIS 580 ( Ky. 2013 ).

1.Entity Separate from Members.

Because a limited liability company was a legal entity separate from its members pursuant to KRS 275.010 , 275.015(15), and 275.240(1) provided that property transferred to a limited liability company was not the property of the members, the debtor never held a legal or equitable interest in the property in question; because the property was not sought to be recovered under 11 USCS § 550 and the trustee did not ask that the property be preserved for the benefit of or ordered transferred to the estate under 11 USCS §§ 510(c), 551, the property was not property of the estate under 11 USCS § 541(a)(1) and thus could not be sold under 11 USCS § 363. Baker v. Erpenbeck (In re Erpenbeck), 2004 Bankr. LEXIS 739 (Bankr. E.D. Ky. Apr. 1, 2004).

2.Proper Plaintiff.

It was indisputable that the statutes mandated that a limited liability company (LLC) be the named plaintiff in ay suit asserting a lost business income claim rightfully belonging to the LLC; the LLC and its solitary member were not legally interchangeable. Turner v. Andrew, 413 S.W.3d 272, 2013 Ky. LEXIS 580 ( Ky. 2013 ).

Member created the limited liability company (LLC) and it appeared it was conducting the trucking business at issue, and by law, the only appropriate plaintiff to assert the lost business damages claim was the LLC; if the trial court was to find that the LLC was conducting the business on the date in question, defendants were entitled to summary judgment because the member personally had no standing to bring the business loss claim in his own name. Turner v. Andrew, 413 S.W.3d 272, 2013 Ky. LEXIS 580 ( Ky. 2013 ).

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.015. Definitions for chapter.

As used in this chapter, unless the context otherwise requires:

  1. “Articles of organization” means the articles filed in conformity with the provisions of KRS 275.020 and 275.025 , and those articles as amended or restated;
  2. “Business entity” means a domestic or foreign limited liability company, corporation, partnership, limited partnership, business or statutory trust, and not-for-profit unincorporated association;
  3. “Corporation” means a profit or nonprofit corporation formed under the laws of any state or a foreign country;
  4. “Court” means every court having jurisdiction in the case;
  5. “Deliver” or “delivery” means any method of delivery used in conventional commercial practice, including delivery by hand, mail, commercial delivery, and electronic transmission;
  6. “Dissent” means a right to object to a proposed action or transaction and, in connection therewith, to demand a redemption of a limited liability company interest;
  7. “Electronic transmission” or “electronically transmitted” means any process of communication not directly involving the physical transfer of paper that is suitable for the retention, retrieval, and reproduction of information by the recipient;
  8. “Event of disassociation” means an event that causes a person to cease to be a member as provided in KRS 275.280 ;
  9. “Foreign limited liability company” means an organization that is:
    1. An unincorporated association;
    2. Organized under laws of a state other than the laws of this Commonwealth, or under the laws of any foreign country; and
    3. Organized under a statute pursuant to which an association may be formed that affords to each of its members limited liability with respect to the liabilities of the entity;
  10. “Foreign nonprofit corporation” means a corporation incorporated for a nonprofit purpose under the laws of a state other than the Commonwealth or under the laws of a foreign country;
  11. “Knowledge” means actual knowledge of a fact;
  12. “Limited liability company” or “domestic limited liability company” means a limited liability company formed under this chapter and, except with respect to a nonprofit limited liability company, having one (1) or more members;
  13. “Limited liability company interest” or “interest in the limited liability company” means the interest that may be issued in accordance with KRS 275.195 ;
  14. “Limited partnership” means a limited partnership formed under the laws of the Commonwealth or any other state or a foreign country;
  15. “Majority-in-interest of the members” means those members entitled to cast a majority of the votes to be cast by the members on any matter under the terms of the operating agreement described in KRS 275.175(3);
  16. “Manager” or “managers” means, with respect to a limited liability company that has set forth in its articles of organization that it is to be managed by managers, the person or persons designated in accordance with KRS 275.165 ;
  17. “Member” or “members” means a person or persons who have been admitted to membership in a limited liability company as provided in KRS 275.275 and who have not ceased to be members as provided in KRS 275. 172 or 275.280 ;
  18. “Name of record with the Secretary of State” means any real, fictitious, reserved, registered, or assumed name of a business entity;
  19. “Nonprofit limited liability company” means a limited liability company formed for a nonprofit purpose having one (1) or more or no members that has elected in its articles of organization to be treated as a nonprofit limited liability company in accordance with KRS 275.025(6);
  20. “Nonprofit purpose” includes any purpose authorized under KRS 273.167 ;
  21. “Operating agreement” means any agreement, written or oral, among all of the members, as to the conduct of the business and affairs of a limited liability company. If a limited liability company has only one (1) member, an operating agreement shall be deemed to include:
    1. A writing executed by the member that relates to the affairs of the limited liability company and the conduct of its business regardless of whether the writing constitutes an agreement; or
    2. If the limited liability company is managed by a manager, any other agreement between the member and the limited liability company as it relates to the limited liability company and the conduct of its business, regardless of whether the agreement is in writing;
  22. “Person” means an individual, a partnership, a domestic or foreign limited liability company, a trust, an estate, an association, a corporation, or any other legal entity;
  23. “Principal office” means the office, in or out of the Commonwealth, so designated in writing with the Secretary of State where the principal executive offices of a domestic or foreign limited liability company are located;
  24. “Proceeding” means civil suit and criminal, administrative, and investigative action;
  25. “Professional limited liability company” means a limited liability company organized under this chapter or the laws of another state or foreign country for purposes that include, but are not limited to, the providing of one (1) or more professional services. Except as otherwise expressly provided in this chapter, all provisions of this chapter governing limited liability companies shall be applicable to professional limited liability companies;
  26. “Professional services” mean the personal services rendered by physicians, osteopaths, optometrists, podiatrists, chiropractors, dentists, nurses, pharmacists, psychologists, occupational therapists, veterinarians, engineers, architects, landscape architects, certified public accountants, public accountants, physical therapists, and attorneys;
  27. “Real name” shall have the meaning set forth in KRS 365.015 ;
  28. “Regulating board” means the governmental agency which is charged by law with the licensing and regulation of the practice of the profession which the professional limited liability company is organized to provide; and
  29. “State” means a state, territory, or possession of the United States, the District of Columbia, or the Commonwealth of Puerto Rico.

HISTORY: Enact. Acts 1994, ch. 389, § 3, effective July 15, 1994; 1998, ch. 341, § 21, effective July 15, 1998; 2006, ch. 149, § 232, effective July 12, 2006; 2007, ch. 137, § 93, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 93, effective July 15, 2010; 2015 ch. 34, § 45, effective June 24, 2015; 2017 ch. 193, § 11, effective June 29, 2017.

NOTES TO DECISIONS

1.Entity Separate from Members.

Because a limited liability company was a legal entity separate from its members pursuant to KRS 275.010 , 275.015(15), and 275.240(1) provided that property transferred to a limited liability company was not the property of the members, the debtor never held a legal or equitable interest in the property in question; because the property was not sought to be recovered under 11 USCS § 550 and the trustee did not ask that the property be preserved for the benefit of or ordered transferred to the estate under 11 USCS §§ 510(c), 551, the property was not property of the estate under 11 USCS § 541(a)(1) and thus could not be sold under 11 USCS § 363. Baker v. Erpenbeck (In re Erpenbeck), 2004 Bankr. LEXIS 739 (Bankr. E.D. Ky. Apr. 1, 2004).

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.020. Procedure for forming limited liability company.

  1. One (1) or more persons may serve as the organizer and form a limited liability company by delivering articles of organization to the Secretary of State for filing. It shall not be necessary that the person or persons be members of the limited liability company.
  2. Unless a delayed effective date is specified, the existence of the limited liability company shall begin when the articles of organization are filed by the Secretary of State. If a delayed effective date is specified, the existence of the limited liability company shall begin when the articles of organization are effective as specified in KRS 14A.2-070 .
  3. The Secretary of State’s filing of the articles of organization shall be conclusive proof that the organizer or organizers satisfied all conditions precedent to organization, except in a proceeding by the state to cancel or revoke the organization or involuntarily dissolve the limited liability company.

History. Enact. Acts 1994, ch. 389, § 4, effective July 15, 1994; 1998, ch. 341, § 22, effective July 15, 1998; 2007, ch. 137, § 94, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 94, effective July 15, 2010; 2010, ch. 151, § 141, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was amended by 2010 Ky. Acts ch. 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear in conflict, therefore, they have been codified together.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.025. Contents of articles of organization.

  1. The articles of organization shall set forth:
    1. A name for the limited liability company that satisfies the requirements of KRS 14A.3-010 ;
    2. The registered office and initial registered agent that satisfy the requirements of KRS 14A.4-010 ;
    3. The mailing address of the initial principal office of the limited liability company; and
    4. A statement that the limited liability company is to be managed by a manager or managers or that the limited liability company is to be managed by its members.
  2. The term of a limited liability company shall be perpetual unless a period of duration other than perpetual is set forth in the articles of organization.
  3. The articles of organization of a professional limited liability company shall designate the professional services to be practiced through the professional limited liability company.
  4. The articles of organization may set forth any other matter that under this chapter is permitted to be set forth in an operating agreement not inconsistent with law.
  5. A member of a limited liability company shall not have a vested property right resulting from any provision of the articles of organization.
  6. If the limited liability company is a nonprofit limited liability company, then the articles of organization shall state that fact and its nonprofit purpose. This provision of the articles of organization shall not be removed from the articles of organization without written notice to the Attorney General of Kentucky given not less than ten (10) business days prior to the filing of the amendment.
  7. The fact that the articles of organization are on file with the Secretary of State is notice:
    1. That the limited liability company formed by the filing of the articles of organization is a limited liability company formed under the laws of the Commonwealth of Kentucky; and
    2. Of all other facts set forth in the articles of organization which are required to be set forth by subsections (1), (3), and (6) of this section.

History. Enact. Acts 1994, ch. 389, § 5, effective July 15, 1994; 1998, ch. 341, § 23, effective July 15, 1998; 2007, ch. 137, § 95, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 95, effective July 15, 2010; 2010, ch. 151, § 71, effective January 1, 2011; 2011, ch. 29, § 13, effective June 8, 2011.

Legislative Research Commission Note.

(6/8/2011). 2011 Ky. Acts ch. 29, sec. 24, provides that the amendments to this section in 2011 Ky. Acts ch. 29, sec. 13, are retroactive to January 1, 2011.

(1/1/2011). This section was amended by 2010 Ky. Acts ch. 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict, therefore, they have been codified together.

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Fassler and Lavelle, Taxation Of Kentucky Limited Liability Companies, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 41.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The Lost Distinction Between Agency and Decisional Authority: Unfortunate Consequences of the Member-Managed versus Manager-Managed Distinction in the Limited Liability Company., 93 Ky. L.J. 737 (2004/2005).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.030. Amendment of articles of organization.

  1. A limited liability company shall amend its articles of organization to add or change a provision that is required by this chapter to be included in the articles of organization. A limited liability company may amend its articles of organization to add, change, or delete a provision that is permitted to be or that is not required to be in the articles of organization. The articles of organization shall be amended if:
    1. There is a change in the name of the limited liability company;
    2. There is a change in the latest date upon which the limited liability company is to dissolve;
    3. There is a change in whether the management of the limited liability company is vested in managers or members; or
    4. There is a change in any other matter required to be set forth in the articles of organization under KRS 275.025 . Amendment of the articles of organization to change the mailing address of the principal office of the limited liability company shall be done as provided in KRS 275.040 , and a change to the registered office or the registered agent shall be done as provided in KRS 14A.4-020 .
  2. Except as provided in subsection (3) of this section, or unless the articles of organization or the operating agreement provide otherwise, an amendment to the articles of organization of a limited liability company shall be approved by the members in accordance with KRS 275.175 .
  3. Unless the articles of organization or the written operating agreement provide otherwise, a manager or, if there is no manager, any member may amend the articles of organization of the limited liability company without action by the members to delete:
    1. The name and address of the initial registered agent or initial registered office if a statement of change pursuant to KRS 14A.4-020 or predecessor law is on file with the Secretary of State; or
    2. The mailing address of the initial principal office, if a statement of change pursuant to KRS 14A.5-010 or predecessor law is on file with the Secretary of State.
  4. To amend its articles of organization, a limited liability company shall file with the Secretary of State articles of amendment that satisfy KRS 14A.2-010 to 14A.2-150 setting forth:
    1. The name of the limited liability company;
    2. The text of each amendment adopted;
    3. The date of each amendment’s adoption; and
    4. A statement that the amendment was duly adopted by the managers or the members in accordance with the articles of organization, the operating agreement of the limited liability company, or this chapter.
  5. The articles of organization may be amended in any respect as may be desired, if the articles of organization as amended contain only provisions that may be lawfully contained in articles of organization at the time of making the amendment.
  6. Unless the articles of organization provide otherwise, no member of a limited liability company shall have the right to dissent from an amendment to the articles of organization.
  7. A professional limited liability company that has ceased to be utilized for rendering a professional service may by amendment of its articles of organization delete the provisions required by KRS 275.025(3) and adopt a name conforming to KRS 275.100 , whereupon the limited liability company shall no longer be a professional limited liability company.

History. Enact. Acts 1994, ch. 389, § 6, effective July 15, 1994; 2007, ch. 137, § 96, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 96, effective July 15, 2010; 2010, ch. 133, § 29, effective July 15, 2010; 2010, ch. 151, § 72, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). In subsection (1) of this statute, “KRS 275.120 ” has been changed to “KRS 14A.4-020 ” in codification. The original citation was added through amendment by 2010 Ky. Acts ch. 133, effective 7/15/2010, but the cited statute was repealed as part of the omnibus Kentucky Business Entity Filing Act, 2010 Ky. Acts ch. 151, effective 1/1/2011. The correct citation, consistent with an identical change made to subsection 3(a) of this section by the Kentucky Business Entity Filing Act, has been substituted by the Reviser of Statutes under the authority of KRS 7.136(1).

(7/15/2010). This section was amended by 2010 Ky. Acts chs. 133 and 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendments, and these Acts do not appear to be in conflict; therefore, they have been codified together.

Research References and Practice Aids

Kentucky Bench & Bar.

Dolson, Contractual Dissenters’ Rights for Kentucky LLCs, Volume 75, No. 1, January 2011, Ky. Bench & Bar 18.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

275.035. Restatement of articles of organization.

  1. A limited liability company may restate its articles of organization by delivering to the Secretary of State for filing articles of restatement setting forth the name of the limited liability company and the text of the restated articles of organization together with a certificate stating whether the restatement contains an amendment to the articles of organization requiring member approval and, if it does, setting forth the information required by KRS 275.030(4).
  2. Restated articles of organization shall supersede the original articles of organization and all amendments to them when the restated articles of organization become effective pursuant to KRS 14A.2-070 .
  3. The Secretary of State may certify restated articles of organization as the articles of organization currently in effect, without including the certificate information required by subsection (1) of this section.

History. Enact. Acts 1994, ch. 389, § 7, effective July 15, 1994; 2010, ch. 151, § 142, effective January 1, 2011.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.040. Statement of change of mailing address.

A limited liability company that changes the mailing address of its principal place of business shall comply with KRS 14A.5-010 .

History. Enact. Acts 1994, ch. 389, § 8, effective July 15, 1994; repealed and reenact., Acts 2010, ch. 151, § 73, effective January 1, 2011.

275.045. Requirements for documents to be filed with the Secretary of State.

Each document delivered by a domestic or foreign limited liability company to the Secretary of State for filing shall satisfy the requirements of KRS 14A.2-010 to 14A.2-150 .

History. Enact. Acts 1994, ch. 389, § 9, effective July 15, 1994; 2007, ch. 137, § 97, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 97, effective July 15, 2010; ch. 151, § 74, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed and reenacted without change to the existing language by 2010 Ky. Acts ch. 51, effective 7/15/10, and repealed and reenacted with the new language by 2010 Ky. Acts ch. 151, effective 1/1/2011. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment by ch. 51 not serve to void amendments made by other bills, and these Acts do not appear to be in conflict, therefore, they have been codified together.

275.050. Prescribed forms. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 98) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-050 .

275.055. Fees for filing documents with Secretary of State.

The Secretary of State shall collect the following fees when the documents described in this section are delivered to him for filing:

  1. Articles of organization $40.00 (2) Amendment of article of organization $40.00 (3) Restatement of articles of organization $40.00 (4) Amendment and restatement of articles of organization $80.00 (5) Articles of dissolution with respect to a domestic limited liability company $40.00 (6) Articles of merger $50.00 (7) Articles of correction $20.00 (8) Articles of share exchange $50.00 (9) Any other document required or permitted to be filed by this chapter $15.00

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History. Enact. Acts 1994, ch. 389, § 11, effective July 15, 1994; 2007, ch. 137, § 99, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 99, effective July 15, 2010; repealed, reenact., and amend., Acts 2010, ch. 151, § 75, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed, reenacted, and amended by 2010 Ky. Acts ch. 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict, therefore, they have been codified together.

275.060. Effective date and time of document. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 100) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-070 .

275.065. Articles of correction. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 101) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-090 .

275.070. Duty of Secretary of State to file document — Manner of filing — Effect of filing or refusal to file. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 102) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-100 .

275.075. Appeal of refusal of Secretary of State to file document. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 15) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-110 .

275.080. Effect of certificate of Secretary of State attached to copy of filed document. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 103) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-120 .

275.085. Certificate of existence — Certificate of authorization. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 17) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-130 , 14A.2-140 .

275.090. Prohibition against knowingly signing false document — Penalty. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 168) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.2-030 .

275.095. Personal liability when acting without authority.

All persons purporting to act as or on behalf of a limited liability company, knowing there has been no organization under this chapter, or who assume to act for a limited liability company without authority to do so, shall be jointly and severally liable for all liabilities created while so acting.

History. Enact. Acts 1994, ch. 389, § 19, effective July 15, 1994; 2007, ch. 137, § 104, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 104, effective July 15, 2010.

Compiler’s Notes.

KRS 275.095 has been printed in the supplement to reflect a change to the catchline made by the Kentucky Reviser of Statutes.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.100. Name of limited liability company.

The name of each limited liability company shall satisfy the requirements of KRS 14A.3-010 .

History. Enact. Acts 1994, ch. 389, § 20, effective July 15, 1994; 2007, ch. 137, § 105, effective June 26, 2007; repealed and reenact., 2010, ch. 51, § 105, effective July 15, 2010; ch. 133, § 30, effective July 15, 2010; repealed and reenact., Acts 2010, ch. 151, § 76, effective January 1, 2011.

Legislative Research Commission Note.

(7/15/2010). This section was amended by 2010 Ky. Acts ch. 133, and repealed and reenacted by 2010 Ky. Acts ch. 51, both effective 7/15/2010. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict; therefore, they have been codified together. Effective 1/1/2011, this section was also repealed and reenacted by the omnibus Kentucky Business Entity Filing Act, 2010 Ky. Acts ch. 151.

275.105. Reserved limited liability company name. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 106) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-020 .

275.110. Registration of name of foreign limited liability company. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 22) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-040 .

275.115. Registered office — Registered agent.

Each domestic limited liability company shall continuously maintain in this Commonwealth a registered office and a registered agent that comply with KRS 14A.4-010 .

History. Repealed, reenact., and amend., Acts 2010, ch. 151, § 77, effective January 1, 2011.

275.120. Change of registered office or registered agent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 24) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-020 .

275.125. Resignation of registered agent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 25) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-040 .

275.130. Service of process. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 26) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011.

275.135. Members or managers as agents.

  1. Except as provided in subsection (2) of this section, every member shall be an agent of the limited liability company for the purpose of its business or affairs, and the act of any member, including but not limited to the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business or affairs of the limited liability company of which he is a member, shall bind the limited liability company, unless the member so acting has, in fact, no authority to act for the limited liability company in the particular matter, and the person with whom the member is dealing has knowledge or has received notification of the fact that the member has no such authority.
  2. If the articles of organization provide that management of the limited liability company is vested in a manager or managers:
    1. No member, solely by reason of being a member, shall be an agent of the limited liability company; and
    2. Every manager shall be an agent of the limited liability company for the purpose of its business or affairs, and the act of any manager, including, but not limited to, the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business or affairs of the limited liability company of which he is the manager shall bind the limited liability company, unless the manager so acting has, in fact, no authority to act for the limited liability company in the particular matter, and the person with whom the manager is dealing has knowledge or has received notification of the fact that the manager has no such authority.
  3. An act of a manager or a member which is apparently not for the carrying on in the usual way of the business or affairs of the limited liability company shall not bind the limited liability company unless, at the time of the transaction or at any other time, the act is authorized in accordance with the operating agreement.
  4. An act of a manager or member in contravention of a restriction on authority shall not bind the limited liability company to persons having knowledge of the restriction.

History. Enact. Acts 1994, ch. 389, § 27, effective July 15, 1994; 1998, ch. 341, § 25, effective July 15, 1998; 2007, ch. 137, § 107, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 107, effective July 15, 2010.

Legislative Research Commission Note.

(7/15/2010). 2010 Ky. Acts ch. 51, sec. 183, provides, “The specific textual provisions of Sections 1 to 178 of this Act which reflect amendments made to those sections by 2007 Ky. Acts ch. 137 shall be deemed effective as of June 26, 2007, and those provisions are hereby made expressly retroactive to that date, with the remainder of the text of those sections being unaffected by the provisions of this section.”

NOTES TO DECISIONS

1.Business Opportunity Doctrine.

Judgment which did not award damages based on a managing member’s breach of fiduciary duty to a limited liability company (LLC) was error because, regardless of the LLC’s ability to complete projects diverted to another company formed by the managing member, the managing member could have and should have informed the other LLC members, and this conduct violated KRS 275.170 ; KRS 271B.8-310 (1) was illustrative of Kentucky law regarding the primacy of fiduciary duty over misappropriation of corporate opportunity, and the Court of Appeals of Kentucky adopted the doctrine of corporate opportunity. Patmon v. Hobbs, 280 S.W.3d 589, 2009 Ky. App. LEXIS 48 (Ky. Ct. App. 2009).

2.Employee.

Employer-employee relationship is a familiar and well-established species of agency relationship, and it carries with it a wide range of specific legal obligations applicable in circumstances far beyond the Kentucky Occupational Safety and Health Act regulations; a member of a limited liability company (LLC) conducting business and performing work as an agent of the LLC does not automatically become an employee of the LLC. Auslander Props., LLC v. Nalley, 558 S.W.3d 457, 2018 Ky. LEXIS 371 ( Ky. 2018 ).

Limited liability company (LLC) was not an employee for purposes of the Kentucky Occupational Safety and Health Act because nothing in the record suggested that the sole member of the LLC was an employee of his own LLC. Auslander Props., LLC v. Nalley, 558 S.W.3d 457, 2018 Ky. LEXIS 371 ( Ky. 2018 ).

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The Lost Distinction Between Agency and Decisional Authority: Unfortunate Consequences of the Member-Managed versus Manager-Managed Distinction in the Limited Liability Company., 93 Ky. L.J. 737 (2004/2005).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

275.140. Effect of statements by members or managers.

  1. Except as provided in subsection (2) of this section, an admission, statement, or representation made by any member concerning the business or affairs of a limited liability company within the scope of the member’s authority as provided for by this chapter shall be evidence against the limited liability company.
  2. If the articles of organization provide that management of the limited liability company is vested in a manager or managers:
    1. An admission, statement, or representation made by a manager concerning the business or affairs of a limited liability company within the scope of the manager’s authority as provided for by this chapter shall be evidence against the limited liability company; and
    2. The admission, statement, or representation of any member, acting solely in the capacity of a member, shall not constitute evidence against the limited liability company.

History. Enact. Acts 1994, ch. 389, § 28, effective July 15, 1994.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.145. Effect of notice to members or managers.

  1. Except as provided in subsection (2) of this section, notice to any member of any matter relating to the business or affairs of the limited liability company, and the knowledge of the member acting in the particular matter, acquired while a member or known at the time of becoming a member, and the knowledge of any other member who reasonably could and should have communicated the knowledge to the acting member, shall operate as notice to or knowledge of the limited liability company, except in the case of a fraud on the limited liability company committed by or with the consent of that member.
  2. If the articles of organization provide that management of the limited liability company is vested in a manager or managers:
    1. Notice to any manager of any matter relating to the business or affairs of the limited liability company, and the knowledge of the manager acting in the particular matter, acquired while a manager or known at the time of becoming a manager, and the knowledge of any other manager who reasonably could and should have communicated the knowledge to the acting manager, shall operate as notice to or knowledge of the limited liability company, except in the case of a fraud on the limited liability company committed by or with the consent of that manager; and
    2. Notice to or knowledge of any member of the limited liability company while the member is acting solely in the capacity of a member shall not constitute notice to or knowledge of the limited liability company.

History. Enact. Acts 1994, ch. 389, § 29, effective July 15, 1994.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.150. Immunity from personal liability.

  1. Except as provided in subsection (2) of this section or as otherwise specifically set forth in other sections in this chapter, no member, manager, employee, or agent of a limited liability company, including a professional limited liability company, shall be personally liable by reason of being a member, manager, employee, or agent of the limited liability company, under a judgment, decree, or order of a court, agency, or tribunal of any type, or in any other manner, in this or any other state, or on any other basis, for a debt, obligation, or liability of the limited liability company, whether arising in contract, tort, or otherwise. The status of a person as a member, manager, employee, or agent of a limited liability company, including a professional limited liability company, shall not subject the person to personal liability for the acts or omissions, including any negligence, wrongful act, or actionable misconduct, of any other member, manager, agent, or employee of the limited liability company. That a limited liability company has a single member or a single manager is not a basis for setting aside the rule otherwise recited in this subsection.
  2. Notwithstanding the provisions of subsection (1) of this section, under a written operating agreement or under another written agreement, a member or manager may agree to be obligated personally for any of the debts, obligations, and liabilities of the limited liability company.
  3. Subsection (1) of this section shall not affect the liability of a member, manager, employee, or agent of a limited liability company for his or her own negligence, wrongful acts, or misconduct.

History. Enact. Acts 1994, ch. 389, § 30, effective July 15, 1994; 1998, ch. 341, § 26, effective July 15, 1998; 2010, ch. 133, § 31, effective July 15, 2010; 2012, ch. 81, § 105, effective July 12, 2012.

NOTES TO DECISIONS

1.Personal Liability Not Found.

Absent the unequivocal assumption of personal liability set forth in KRS 275.150(2), a capital call provision in the operating agreement of a limited liability company (LLC) was not a post-judgment collection device by which any legitimate business debt of the LLC could be transferred to individual members by a court-ordered capital call. Since the individual members of the LLC had not agreed in writing to assume personal liability, the shield of limited liability had not been lifted. Racing Inv. Fund 2000, LLC v. Clay Ward Agency, Inc., 320 S.W.3d 654, 2010 Ky. LEXIS 180 ( Ky. 2010 ).

Individual who was the sole member and manager of a limited liability company (LLC) had not signed a lease and release in her individual capacity where the lease defined the tenant as the LLC, and there was no ambiguity that the member was signing on behalf of the LLC. Pannell v. Shannon, 425 S.W.3d 58, 2014 Ky. LEXIS 94 ( Ky. 2014 ).

Supreme Court of Kentucky concludes that a member of a limited liability company enjoys statutory immunity from liability under KRS 275.150 for actions taken during a period of administrative dissolution so long as the company is reinstated before a final judgment is rendered against the member. Pannell v. Shannon, 425 S.W.3d 58, 2014 Ky. LEXIS 94 ( Ky. 2014 ).

2.Personal Liability Found.

While the record established the corporate existence of the limited liability companies (LLCs), it was obvious that the LLCs were dummy corporations designed to protect defendant, the sole member and agent of the LLCs, from personal liability; unable to discern any difference between defendant and his various LLCs, under KRS 275.150(1), the circuit court did not commit any error when it held defendant individually liable for the corporate debts and declined to dismiss him as a defendant. Rednour Props., LLC v. Spangler Roof Servs., LLC, 2011 Ky. App. LEXIS 92 (Ky. Ct. App. June 10, 2011, sub. op., 2011 Ky. App. Unpub. LEXIS 974 (Ky. Ct. App. June 10, 2011).

Cited in

Tavadia v. Mitchell, 564 S.W.3d 322, 2018 Ky. App. LEXIS 253 (Ky. Ct. App. 2018).

Research References and Practice Aids

Kentucky Bench & Bar.

O’Roark, Professional Responsibility & Liability Trends to Watch in ‘95, Vol. 59, No. 1, Winter 1995, Ky. Bench & Bar 45.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

275.155. Proper parties to proceedings.

A member of a limited liability company shall not be a proper party to a proceeding by or against a limited liability company, solely by reason of being a member of the limited liability company, except if the object of the proceeding is to enforce a member’s right against or liability to the limited liability company or as otherwise provided in an operating agreement.

History. Enact. Acts 1994, ch. 389, § 31, effective July 15, 1994.

NOTES TO DECISIONS

1.Proper Plaintiff.

It was indisputable that the statutes mandated that a limited liability company (LLC) be the named plaintiff in ay suit asserting a lost business income claim rightfully belonging to the LLC; the LLC and its solitary member were not legally interchangeable. Turner v. Andrew, 413 S.W.3d 272, 2013 Ky. LEXIS 580 ( Ky. 2013 ).

Member created the limited liability company (LLC) and it appeared it was conducting the trucking business at issue, and by law, the only appropriate plaintiff to assert the lost business damages claim was the LLC; if the trial court was to find that the LLC was conducting the business on the date in question, defendants were entitled to summary judgment because the member personally had no standing to bring the business loss claim in his own name. Turner v. Andrew, 413 S.W.3d 272, 2013 Ky. LEXIS 580 ( Ky. 2013 ).

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.160. Operations outside Kentucky — Kentucky law controlling in cases of conflict.

  1. A limited liability company may conduct its business, carry on its operations, and exercise the power granted by this chapter in any state or in any foreign country.
  2. The personal liability of members, managers, employees, and agents of a limited liability company to any person or in any action or proceeding for the debts, obligations, or liabilities of a limited liability company or for the acts of omissions of other members, managers, employees, or agents of a limited company shall be governed solely and exclusively by this chapter and the laws of this Commonwealth. When a conflict arises between the law of this state and the laws of any other state with regard to the liability of the members of the limited liability company for the debts, obligations, and liabilities of the limited liability company, or of the acts or omissions of other members, managers, employees, or agents of the limited liability company, this Commonwealth’s law shall be deemed to govern in determining the liability.

History. Enact. Acts 1994, ch. 389, § 32, effective July 15, 1994.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.165. Management of company — Delegation of powers — Limitation on remuneration for services performed.

  1. Unless the articles of organization vest management of the limited liability company in a manager or managers, management of the business and affairs of the limited liability company shall vest in the members. Subject to any provisions in the articles of organization, the operating agreement or this chapter restricting or enlarging the management rights and duties of any person or group or class of persons, the members shall have the right and authority to manage the affairs of the limited liability company and to make all decisions with respect thereto.
  2. If the articles of organization vest management of the limited liability company in one (1) or more managers, except to the extent otherwise provided in the articles of organization, the operating agreement, or this chapter, the manager or managers shall have exclusive power to manage the business and affairs of the limited liability company. Unless otherwise provided in the articles of organization or the operating agreement, managers:
    1. Shall be designated, appointed, elected, removed, or replaced by a vote, approval, or consent of the majority-in-interest of the members;
    2. Shall not be required to be members of the limited liability company or natural persons; and
    3. Unless they are sooner removed or sooner resign, shall hold office until their successors shall have been elected and qualified.
  3. Unless otherwise set forth in a written operating agreement, a member or manager of a limited liability company has the power and authority to delegate to one (1) or more other persons the member’s or manager’s powers to manage or control the business and affairs of the limited liability company, including without limitation the power to delegate to agents and employees of a member, manager, or limited liability company or to delegate by an agreement to other persons. This delegation by a member or manager of a limited liability company shall not cause the member or manager to cease to be a member or manager of the limited liability company.
  4. A member or manager shall not be entitled to remuneration for services performed for the limited liability company except as may be set forth in a written operating agreement.

HISTORY: Enact. Acts 1994, ch. 389, § 33, effective July 15, 1994; 1998, ch. 341, § 27, effective July 15, 1998; 2007, ch. 137, § 108, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 108, effective July 15, 2010; 2015 ch. 34, § 52, effective June 24, 2015.

NOTES TO DECISIONS

1.Authority.

Company manager had authority to file Chapter 11 petition because, while operating agreement contained restriction on filing for bankruptcy, it was unenforceable as against public policy and manager had authority to file for bankruptcy under operating agreement and Kentucky law. In re Lexington Hosp. Grp., LLC, 577 B.R. 676, 2017 Bankr. LEXIS 3129 (Bankr. E.D. Ky. 2017 ).

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The Lost Distinction Between Agency and Decisional Authority: Unfortunate Consequences of the Member-Managed versus Manager-Managed Distinction in the Limited Liability Company., 93 Ky. L.J. 737 (2004/2005).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.170. Duties of care and loyalty — Approval of conflict of interest transactions — Remedy for breach of the duty of loyalty.

Unless otherwise provided in a written operating agreement:

  1. With respect to any claim for breach of the duty of care, a member or manager shall not be liable, responsible, or accountable in damages or otherwise to the limited liability company or the members of the limited liability company for any action taken or failure to act on behalf of the limited liability company unless the act or omission constitutes wanton or reckless misconduct.
  2. The duty of loyalty applicable to each member and manager shall be to account to the limited liability company and hold as trustee for it any profit or benefit derived by that person without the consent of more than one-half (1/2) by number of the disinterested managers, or a majority-in-interest of the members from:
    1. Any transaction connected with the conduct or winding up of the limited liability company; or
    2. Any use by the member or manager of its property, including, but not limited to, confidential or proprietary information of the limited liability company or other matters entrusted to the person as a result of his or her status as manager or member.
  3. In determining whether a transaction has received the approval of a majority-in-interest of the members, membership interests owned by or voted under the control of the member or manager whose actions are under review in accordance with subsection (2) of this section, and membership interests owned by an entity owned by or voted under the control of that member or manager, shall not be counted in a vote of the members to determine whether to consent, and the membership interests shall not be counted in determining whether a quorum, if required by a written operating agreement, exists to consider whether to consent. That a transaction was fair to the limited liability company shall not constitute a defense to the failure to request and receive the required consent of the disinterested managers or members.
  4. A member of a limited liability company in which management is vested in managers under KRS 275.165(2) and who is not a manager shall have no duties to the limited liability company or the other members solely by reason of acting in his or her capacity as a member.

History. Enact. Acts 1994, ch. 389, § 34, effective July 15, 1994; 1998, ch. 341, § 28, effective July 15, 1998; 2007, ch. 137, § 109, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 109, effective July 15, 2010; 2010, ch. 133, § 32, effective July 15, 2010; 2012, ch. 81, § 106, effective July 12, 2012.

Legislative Research Commission Note.

(7/15/2010). This section was amended by 2010 Ky. Acts ch. 133, and repealed and reenacted by 2010 Ky. acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict; therefore, they have been codified together.

NOTES TO DECISIONS

1.Business Opportunity Doctrine.

Judgment which did not award damages based on a managing member’s breach of fiduciary duty to a limited liability company (LLC) was error because, regardless of the LLC’s ability to complete projects diverted to another company formed by the managing member, the managing member could have and should have informed the other LLC members, and this conduct violated KRS 275.170 ; KRS 271B.8-310 (1) was illustrative of Kentucky law regarding the primacy of fiduciary duty over misappropriation of corporate opportunity. Patmon v. Hobbs, 280 S.W.3d 589, 2009 Ky. App. LEXIS 48 (Ky. Ct. App. 2009).

When awarding damages for a former limited liability company (LLC) member's breach of loyalty in diverting a business opportunity, it was error to deduct sums the former member paid to complete the opportunity because (1) Ky. Rev. Stat. Ann. § 275.170 required the former member's complete disgorgement of any profits, (2) the deduction let the member keep most funds the member's misconduct generated, which the member had to hold in trust for the LLC, and (3) the member's total benefit from the diverted opportunity was not found. Patmon v. Hobbs, 495 S.W.3d 722, 2016 Ky. App. LEXIS 125 (Ky. Ct. App. 2016).

2.Standing.

Circuit court properly dismissed a shareholder's causes of action for against a corporate officer for lack of standing because the claims were derivative, not direct, where the officer owed the shareholder a fiduciary duty to inform him personally if she had reason to know that assets would be (or were being) misappropriated, the common-law fiduciary and statutory duties ran directly to the corporation or limited liability company. Griffin v. Jones, 2015 Ky. App. LEXIS 115 (Ky. Ct. App. Aug. 14, 2015), review denied, ordered not published, 2016 Ky. LEXIS 360 (Ky. Aug. 17, 2016).

3.Standard of Care.

Instruction regarding an uncle’s alleged breach as a limited liability company (LLC) manager erred because the instruction did not state the statutory standard for holding the uncle liable. Dickson v. Shook, 2019 Ky. App. LEXIS 44 (Ky. Ct. App. Mar. 29, 2019, sub. op., 2019 Ky. App. Unpub. LEXIS 909 (Ky. Ct. App. Mar. 29, 2019).

Per the language of Ky. Rev. Stat. Ann. §§ 275.170 , 275.180 , the existence and scope of any fiduciary duties owed by defendants, non managing members of the company, to debtor were governed exclusively by the Operating Agreements, which unambiguously waived any fiduciary duties defendants would have owed to the company. The Amended and Restated Operating Agreement similarly disclaimed any default statutory duties generally owed by members. Wheatley v. McCarty (In re CC Operations, LLC), 618 B.R. 471, 2020 Bankr. LEXIS 1104 (Bankr. W.D. Ky. 2020 ).

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Rutledge & Honabach, Kentucky Business Entity Laws: The 2010 Amendments, Vol. 74, No. 5, September 2010, Ky. Bench & Bar 6.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

275.172. Expulsion of member of limited liability company — Conditions.

  1. On application by the limited liability company, a person is expelled as a member by judicial order:
    1. If the person has engaged or is engaging in wrongful conduct that has adversely and materially affected, or will adversely and materially affect, the company’s activities;
    2. If the person has willfully or persistently committed, or is willfully and persistently committing, a material breach of the operating agreement or the person’s duties or obligations under KRS 275.170 ;
    3. If the person has engaged or is engaging in conduct relating to the company’s activities which makes it not reasonably practicable to carry on the activities with the person as a member; or
    4. For such other reasons as are set forth in a written agreement.
  2. Upon the effective date of the expulsion, the expelled member shall be dissociated from and cease to be a member of the company and with respect to the expelled member’s limited liability company interest shall be an assignee.
  3. Except as set forth in a written operating agreement, the dissociation of a member in accordance with this section does not entitle the former member or any assignee to any distribution.

HISTORY: 2017 ch. 193, § 2, effective June 29, 2017.

275.175. Number of votes required to do business — Circumstances requiring affirmative vote of members — Written operating agreement for company without members — No right of dissent — Written operating agreement provisions relating to right to vote, approve, or consent.

  1. Unless otherwise provided in the articles of organization, a written operating agreement, or this chapter, the affirmative vote, approval, or consent of a majority-in-interest of the members or a simple majority of the managers, each having a single vote, shall be required to decide any matter connected with the business affairs of the limited liability company.
  2. Unless otherwise provided in a written operating agreement, irrespective of whether management of the limited liability company is vested in a manager or managers, the affirmative vote, approval, or consent of the members shall be required to:
    1. Amend a written operating agreement;
    2. Authorize a manager or member to do any act on behalf of the limited liability company that contravenes an operating agreement, including any written provision thereof which expressly limits the purpose, business, or affairs of the limited liability company or the conduct thereof;
    3. Amend the articles of organization;
    4. Merge or convert the limited liability company or approve a sale of all or substantially all of its assets;
    5. Admit a new member, including the assignee of a member, as a member;
    6. Remove a member after the assignment of all assignable interest in the limited liability company;
    7. Waive an agreement to contribute to the limited liability company;
    8. Approve the voluntary dissolution of the limited liability company;
    9. Approve any acting contravention of a written operating agreement; or
    10. Allow the voluntary resignation of a member from a manager-managed limited liability company.
  3. Unless otherwise provided in the articles of organization, a written operating agreement, or this chapter, for all purposes of this chapter, the members of a limited liability company shall vote, approve, or consent in proportion to their contributions, based upon the agreed value as stated in the records of the limited liability company as required by KRS 275.185 , made by each member to the extent they have been received by the limited liability company and have not been returned.
  4. In a nonprofit limited liability company that does not have members, the capacity and authority to manage the business and affairs of the company shall be set forth in a written operating agreement.
  5. Unless otherwise provided in the articles of organization or the written operating agreement, no member of a limited liability company shall have the right to dissent from an amendment to the operating agreement or the articles of organization.
  6. An operating agreement may set forth provisions relating to notice of the time, place, or purpose of any meeting at which any matter is to be voted on by any members, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum, and voting requirements, voting in person or by proxy, or any other matter with respect to the exercise of any such right to vote, approve, or consent.
  7. Except as otherwise provided in a written operating agreement, an action requiring the vote, approval, or consent of the members may be taken without a meeting and without prior notice if the vote, approval, or consent is set forth in a writing approved by not less than the necessary number, percentage, or threshold of members, interests, or votes.

HISTORY: Enact. Acts 1994, ch. 389, § 35, effective July 15, 1994; 1998, ch. 341, § 29, effective July 15, 1998; 2007, ch. 137, § 110, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 110, effective July 15, 2010; 2013, ch. 106, § 6, effective June 25, 2013; 2015 ch. 34, § 53, effective June 24, 2015; 2017 ch. 193, § 12, effective June 29, 2017.

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The Lost Distinction Between Agency and Decisional Authority: Unfortunate Consequences of the Member-Managed versus Manager-Managed Distinction in the Limited Liability Company., 93 Ky. L.J. 737 (2004/2005).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.177. Enforcement of limitations on amendment of operating agreement.

If a written operating agreement contains a provision to the effect that any amendment to the operating agreement of the limited liability company shall be in writing and adopted in accordance with the provisions of the operating agreement, then the provision shall be enforceable in accordance with its terms, and any agreement as to the conduct of the business and affairs of the limited liability company which is not in writing and adopted in accordance with the provisions of the operating agreement shall not be considered part of the operating agreement and shall be void and unenforceable.

History. Enact. Acts 2007, ch. 137, § 15, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 15, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.180. Operating agreement provisions on personal liability and indemnification.

A written operating agreement may:

  1. Eliminate or limit the personal liability of a member or manager for monetary damages for breach of any duty provided for in KRS 275.170 ; and
  2. Provide for indemnification of a member or manager for judgments, settlements, penalties, fines, or expenses incurred in a proceeding to which a person is a party because the person is or was a member or manager.

History. Enact. Acts 1994, ch. 389, § 36, effective July 15, 1994; 1998, ch. 341, § 30, effective July 15, 1998.

NOTES TO DECISIONS

1.Waiver of Fiduciary Duties.

Per the language of Ky. Rev. Stat. Ann. §§ 275.170 , 275.180 , the existence and scope of any fiduciary duties owed by defendants, who were non-managing members of the company, to debtor were governed exclusively by the Operating Agreements, which unambiguously waived any fiduciary duties defendants would have owed to the company. The Amended and Restated Operating Agreement similarly disclaimed any default statutory duties generally owed by members. Wheatley v. McCarty (In re CC Operations, LLC), 618 B.R. 471, 2020 Bankr. LEXIS 1104 (Bankr. W.D. Ky. 2020 ).

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.185. Required records — Inspection right of member — Limitations upon use of records.

  1. A limited liability company shall keep at its principal office or other location as set forth in a written operating agreement, the following:
    1. A current list, and all past lists, setting forth the full name and last known mailing address of each member and, if any, each manager;
    2. A copy of the articles of organization and all amendments thereto, together with executed copies of any power of attorney pursuant to which any articles of amendment have been executed;
    3. Copies of the limited liability company’s federal, state, and local income tax returns and financial statements, if any, for the three (3) most recent years or, if those returns and statements were not prepared, copies of the information and statements provided to, or which should have been provided to, the members to enable them to prepare their federal, state, and local tax returns for those years;
    4. Copies of any effective written operating agreements and all amendments thereto, and copies of any written operating agreements no longer in effect; and
    5. Unless contained in writing in an operating agreement:
      1. A writing setting forth the amount of cash, if any, and a statement of the agreed value of other property or services, if any, contributed by each member and the times at which or events upon the happening of which any additional contributions are to be made;
      2. A writing stating events, if any, upon the happening of which the limited liability company is to be dissolved and its affairs wound up; and
      3. Other writings, if any, prepared pursuant to a requirement, if any, in an operating agreement.
  2. Subject to subsection (5) of this section, upon reasonable written request to the limited liability company, a member may, at the member’s own expense, inspect and copy during ordinary business hours any limited liability company record, where the record is located or at a reasonable location.
  3. Members, if the management of the limited liability company is vested in the members, or managers, if management of the limited liability company is vested in managers, shall render, to the extent the circumstances render it just and reasonable, true and full information of all matters affecting the members to any member, and the member’s agent, and to the legal representative of any deceased member or of any member under legal disability.
  4. Failure of the limited liability company to keep or maintain any of the records or information required pursuant to this section shall not be grounds for imposing liability on any member or manager for the debts and obligations of the limited liability company.
  5. A written operating agreement may impose reasonable limitations upon the inspection and use of any record of or information with respect to a limited liability company. Except as to limitations set forth in a written operating agreement to which a member requesting information has assented, the limited liability company bears the burden of proof in demonstrating the reasonableness of any restrictions imposed.

History. Enact. Acts 1994, ch. 389, § 37, effective July 15, 1994; 2007, ch. 137, § 111, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 111, effective July 15, 2010; 2013, ch. 106, § 7, effective June 25, 2013.

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.190. Annual report.

Each limited liability company and each foreign limited liability company qualified to transact business in this Commonwealth is subject to KRS 14A.6-010 .

History. Enact. Acts 1994, ch. 389, § 38, effective July 15, 1994; 2007, ch. 137, § 112, effective June 26, 2007; repealed and reenact., 2010, ch. 51, § 112, effective July 15, 2010; 2010, ch. 151, § 78, effective January 1, 2011.

Legislative Research Commission Note.

(1/1/2011). This section was repealed and reenacted without change to the existing language by 2010 Ky. Acts ch. 51, effective 7/15/10, and repealed and reenacted with the new language by 2010 Ky. Acts ch. 151, effective 1/1/2011. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment by ch. 51 not serve to void amendments made by other bills, and these Acts do not appear to be in conflict, therefore, they have been codified together.

275.195. Consideration for issuance of interest — Members.

  1. A limited liability company interest may be issued in exchange for consideration consisting of cash, property, services rendered, or a promissory note or other obligation to contribute cash or property or to perform services.
  2. A person may be admitted to a limited liability company as a member of the limited liability company and may receive a limited liability company interest without making a contribution or being obligated to make a contribution to the limited liability company.
  3. Unless otherwise provided in the operating agreement, a person may be admitted to a limited liability company as a member without acquiring a limited liability company interest.

History. Enact. Acts 1994, ch. 389, § 39, effective July 15, 1994; 2007, ch. 137, § 113, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 113, effective July 15, 2010.

NOTES TO DECISIONS

1.Membership Not Shown.

Simply acquiring economic rights does not, in and of itself, equate to “ownership” or “membership” in a limited liability company. Therefore, there was a failure of consideration for an agreement to purchase an ownership interest in a limited liability company because a seller did not have such an interest since he was not a member of the company under KRS 275.275 ; at most, the seller had an interest that he received in exchange for tendering $75,000 to the company. Spurlock v. Begley, 308 S.W.3d 657, 2010 Ky. LEXIS 80 ( Ky. 2010 ).

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.200. Obligation to make contribution — Compromise.

  1. An obligation of a member to make a contribution to the limited liability company shall not be enforceable unless set forth in a writing signed by the member.
  2. Unless otherwise provided in an operating agreement, a member shall be obligated to the limited liability company to perform any enforceable promise to contribute cash or property or to perform services, even if the member is unable to perform because of death, disability, or other reason.
  3. If a member does not make a required contribution of property or services, then the member shall be obligated, at the option of the limited liability company, to contribute cash equal to that portion of value of the stated contribution that has not been made.
  4. Unless otherwise provided in an operating agreement, an obligation of a member to make a contribution may be compromised only with the unanimous consent of the members.
  5. Notwithstanding any compromise approved pursuant to subsection (4) of this section, a creditor of a limited liability company who extends credit or otherwise acts in reliance on an obligation after the member executes a writing which reflects that obligation and before any such compromise is reached, may enforce the original obligation.

History. Enact. 1994, ch. 389, § 40, effective July 15, 1994; 2007, ch. 137, § 114, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 114, effective July 15, 2010.

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Rutledge & Honabach, Kentucky Business Entity Laws: The 2010 Amendments, Vol. 74, No. 5, September 2010, Ky. Bench & Bar 6.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.205. Allocation of profits and losses among members.

Profits and losses of a limited liability company shall be allocated among the members and among classes of members in the manner provided in the operating agreement. If a written operating agreement does not otherwise provide, profits and losses shall be allocated on the basis of the agreed value, as stated in the records of the limited liability company as required by KRS 275.185 , of the contributions made by each member to the extent they have been received by the limited liability company and have not been returned.

History. Enact. Acts 1994, ch. 389, § 41, effective July 15, 1994; 1998, ch. 341, § 31, effective July 15, 1998.

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.210. Distribution of cash or other assets.

Except as otherwise provided in KRS 275.310 , distributions of cash or other assets of a limited liability company shall be allocated among the members and among classes of members in the manner provided in writing in an operating agreement. If the operating agreement does not so provide in writing, each member shall share in any distribution on the basis of the agreed value, as stated in the records of the limited liability company as required by KRS 275.185 , of the contributions made by each member to the extent they have been received by the limited liability company and have not been returned. A member shall be entitled to receive distributions described in this section from a limited liability company to the extent and at the times or upon the happenings of the events specified in an operating agreement or at the times determined by the members or managers pursuant to KRS 275.175 .

History. Enact. Acts 1994, ch. 389, § 42, effective July 15, 1994; 1998, ch. 341, § 32, effective July 15, 1998.

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.215. Effect of event of disassociation which does not cause dissolution. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 43, effective July 15, 1994) was repealed by Acts 1998, ch. 341, § 59, effective July 15, 1998.

275.220. Member not entitled to distribution other than in cash — Restriction on in-kind distribution.

Unless otherwise provided in a written operating agreement:

  1. A member, regardless of the nature of the member’s contribution, shall not have a right to demand and receive any distribution from the limited liability company in any form other than cash;
  2. A member shall not be compelled to accept from a limited liability company a distribution of any asset in kind to the extent that the percentage of the asset distributed to the member exceeds the percentage that the member would have shared in a cash distribution equal to the value of the property at the time of distribution; and
  3. The property of a limited liability company shall not be subject to KRS 381.135(1)(a)1.

History. Enact. Acts 1994, ch. 389, § 44, effective July 15, 1994; 1998, ch. 341, § 33, effective July 15, 1998; 2010, ch. 133, § 33, effective July 15, 2010.

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

Kentucky Survey Issue: Article: The 2010 Amendments to Kentucky’s Business Entity Laws, 38 N. Ky. L. Rev. 383 (2011).

275.225. Circumstances preventing distribution — Determination — Definition.

  1. No distribution shall be made if, after giving effect to the distribution:
    1. The limited liability company would not be able to pay its debts as they become due in the usual course of business;
    2. The limited liability company’s assets would be less than the sum of its liabilities plus, unless otherwise provided in an operating agreement, the amount that would be needed, if the limited liability company were to be dissolved at the time of the distribution, to satisfy the preferential rights of other members upon dissolution which are superior to the rights of the member receiving the distribution; or
    3. The distribution violates the operating agreement.
  2. The determination that a distribution is not prohibited under subsection (1) of this section may be based upon:
    1. Financial statements prepared on the basis of accounting practices and principles that are reasonable under the circumstances; or
    2. A fair valuation or other method that is reasonable under the circumstances.
  3. Except as provided in subsection (5) of this section, the effect of a distribution under subsection (1) of this section shall be measured as of:
    1. The date the distribution is authorized if the payment occurs within one hundred twenty (120) days after the date of authorization; or
    2. The date payment is made if it occurs more than one hundred twenty (120) days after the date of authorization.
  4. A limited liability company’s indebtedness to a member incurred by reason of a distribution made in accordance with this section shall be at parity with the limited liability company’s indebtedness to its general unsecured creditors, except to the extent subordinated by agreement.
  5. If terms of the indebtedness provide that payment of principal and interest is to be made only if, and to the extent that, payment of a distribution to members could then be made under this section, then indebtedness of a limited liability company, including indebtedness issued as a distribution, shall not be a liability for purposes of determinations made under subsection (1) of this section.
  6. If the indebtedness is issued as a distribution, then each payment of principal or interest on the indebtedness shall be treated as a distribution, the effect of which shall be measured on the date the payment is actually made.
  7. For purposes of this section, the term “distribution” shall not include amounts constituting reasonable compensation for present or past services or reasonable payments made in the ordinary course of business pursuant to a bona fide retirement plan or other benefit program.

History. Enact. Acts 1994, ch. 389, § 45, effective July 15, 1994; 2007, ch. 137, § 115, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 115, effective July 15, 2010; 2010, ch. 133, § 34, effective July 15, 2010.

Legislative Research Commission Note.

(7/15/2010). This section was amended by 2010 Ky. Acts ch. 133, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict; therefore, they have been codified together.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.230. Liability for unlawful distribution — Effect of unlawful distribution — Limitation of action.

  1. A member or manager who votes for or assents to a distribution in violation of an operating agreement or KRS 275.225 shall be personally liable to the limited liability company for the amount of the distribution that exceeds the amount that could have been distributed without violating KRS 275.225 or an operating agreement if it is established that the member or manager did not comply with KRS 275.170 .
  2. Each member or manager held liable under subsection (1) of this section for an unlawful distribution shall be entitled to contribution:
    1. From each other member or manager who could be held liable under subsection (1) of this section for the unlawful distribution; and
    2. From each member, assignee, or other recipient for the amount received in violation of KRS 275.225 or an operating agreement.
  3. A proceeding under this section shall be barred unless it is commenced within two (2) years after the date on which the effect of the distribution is measured under KRS 275.225(3).

History. Enact. Acts 1994, ch. 389, § 46, effective July 15, 1994; 2012, ch. 81, § 107, effective July 12, 2012.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.235. Member’s rights and remedies when entitled to receive a distribution.

At the time a member becomes entitled to receive a distribution, the member shall have the status of, and shall be entitled to all remedies available to, a creditor of the limited liability company with respect to the distribution.

History. Enact. Acts 1994, ch. 389, § 47, effective July 15, 1994.

Research References and Practice Aids

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.240. Title to property held by company.

  1. Property transferred to or otherwise acquired by a limited liability company shall be the property of the limited liability company and not of the members individually.
  2. Property may be acquired, held, and conveyed in the name of the limited liability company. Any estate in real property may be acquired in the name of the limited liability company, and title to any interest so acquired shall vest in the limited liability company rather than in the members individually.

History. Enact. Acts 1994, ch. 389, § 48, effective July 15, 1994.

NOTES TO DECISIONS

1.Title Held by Company.

Because a limited liability company was a legal entity separate from its members pursuant to KRS 275.010 , 275.015(15), and 275.240(1) provided that property transferred to a limited liability company was not the property of the members, the debtor never held a legal or equitable interest in the property in question; because the property was not sought to be recovered under 11 USCS § 550 and the trustee did not ask that the property be preserved for the benefit of or ordered transferred to the estate under 11 USCS §§ 510(c), 551, the property was not property of the estate under 11 USCS § 541(a)(1) and thus could not be sold under 11 USCS § 363. Baker v. Erpenbeck (In re Erpenbeck), 2004 Bankr. LEXIS 739 (Bankr. E.D. Ky. Apr. 1, 2004).

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.245. Transfer of property held in name of company.

  1. Except as provided in subsection (2) of this section, property of the limited liability company held in the name of the limited liability company may be transferred by an instrument of transfer executed by any member so authorized in the name of the limited liability company.
  2. If the articles of organization provide that management of the limited liability company is vested in a manager or managers:
    1. Title to property of the limited liability company that is held in the name of the limited liability company may be transferred by an instrument of transfer executed by any manager so authorized in the name of the limited liability company; and
    2. A member, solely by reason of being a member, shall not have authority to transfer property of the limited liability company.

History. Enact. Acts 1994, ch. 389, § 49, effective July 15, 1994; 1998, ch. 341, § 34, effective July 15, 1998.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.247. Sale of assets other than in regular course of business.

  1. Except as may be otherwise provided in a written operating agreement, a limited liability company may sell, lease, exchange, or otherwise dispose of all or substantially all of its property with or without the good will, otherwise than in the usual and regular course of business, on the terms and conditions and for the consideration determined by a majority-in-interest of the members.
  2. Unless otherwise provided in the articles of organization or a written operating agreement, no member shall have the right to dissent from a sale, lease, exchange, or other disposition by a limited liability company of all or substantially all of its property outside the ordinary course of business.

History. Enact. Acts 2007, ch. 137, § 4, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 4, effective July 15, 2010.

Research References and Practice Aids

Kentucky Bench & Bar.

Dolson, Contractual Dissenters’ Rights for Kentucky LLCs, Volume 75, No. 1, January 2011, Ky. Bench & Bar 18.

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.250. Status of company interest as personal property.

A limited liability company interest shall be personal property.

History. Enact. Acts 1994, ch. 389, § 50, effective July 15, 1994.

275.255. Assignment of interest.

  1. Unless otherwise provided in a written operating agreement:
    1. A limited liability company interest shall be assignable in whole or in part;
    2. An assignment shall entitle the assignee to receive, to the extent assigned, only the distributions to which the assignor would be entitled;
    3. An assignment of a limited liability company interest shall not dissolve the limited liability company or entitle the assignee to participate in the management and affairs of the limited liability company or to become or exercise any rights of a member other than the right to receive distributions pursuant to subsection (1)(b) of this section;
    4. Until the assignee of a limited liability company interest becomes a member pursuant to KRS 275.265(1), the assignor shall continue to be a member and to have the power to exercise any rights of a member, subject to the members’ right to remove the assignor pursuant to KRS 275.280(1)(c)2.;
    5. Until an assignee of a limited liability company interest becomes a member, the assignee shall have no liability as a member solely as a result of the assignment; and
    6. The assignor of a limited liability company interest shall not be released from liability as a member solely as result of the assignment.
  2. A written operating agreement may provide that a member’s limited liability company interest may be evidenced by a certificate of limited liability company interest issued by the limited liability company and may also provide for the assignment or transfer of any interest represented by the certificate.
  3. Unless otherwise provided in a written operating agreement, the pledge of or granting of a security interest, lien, or other encumbrance in or against any or all of the limited liability company interest of a member shall not constitute an assignment and shall not cause the member to cease to be a member or cease to have the power to exercise any rights or powers of a member.
  4. Limitations upon the assignment or pledge of a membership interest set forth or adopted in accordance with this section shall be enforced notwithstanding KRS 355.9-406 and 355.9-408 .

History. Enact. Acts 1994, ch. 389, § 51, effective July 15, 1994; 2007, ch. 137, § 116, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 116, effective July 15, 2010.

NOTES TO DECISIONS

1.Membership Not Shown.

Simply acquiring economic rights does not, in and of itself, equate to “ownership” or “membership” in a limited liability company. Therefore, there was a failure of consideration for an agreement to purchase an ownership interest in a limited liability company because a seller did not have such an interest since he was not a member of the company under KRS 275.275 ; at most, the seller had an interest that he received in exchange for tendering $75,000 to the company. Spurlock v. Begley, 308 S.W.3d 657, 2010 Ky. LEXIS 80 ( Ky. 2010 ).

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.260. Member’s transferable interest subject to charging order.

  1. This section provides the exclusive remedy by which the judgment creditor of a member or the assignee of a member may satisfy a judgment out of the judgment debtor’s limited liability company interest.
  2. On application to a court of competent jurisdiction by a judgment creditor of a member or a member’s assignee, a court may charge the judgment debtor’s interest in the limited liability company with payment of the unsatisfied amount of the judgment. To the extent so charged, the judgment creditor has only the rights of an assignee and shall have no right to participate in the management or to cause the dissolution of the limited liability company. The court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor in respect of the limited liability company interest and make all other orders, directions, accounts, and inquiries the judgment debtor might have made or which the circumstances of the case may require to give effect to the charging order.
  3. A charging order constitutes a lien on and the right to receive distributions made with respect to the judgment debtor’s limited liability company interest. A charging order does not of itself constitute an assignment of the limited liability company interest.
  4. The court may order a foreclosure upon the limited liability company interest subject to the charging order at any time. The purchaser of the limited liability company interest at the foreclosure sale has the rights of an assignee. At any time before foreclosure, the charged limited liability company interest may be redeemed:
    1. By the judgment debtor;
    2. With property other than limited liability company property, by one (1) or more of the other members; and
    3. With limited liability company property, by the limited liability company with the consent of all members whose interest are not so charged.
  5. This section does not deprive a member or a member’s assignee of the benefit of any exemption laws applicable to the member’s or assignee’s limited liability company interest.
  6. The limited liability company is not a necessary party to an application for a charging order. Service of the charging order on a limited liability company may be made by the court granting the charging order or as the court should otherwise direct.
  7. This section does not apply to the enforcement of a judgment by a limited liability company against a member of that company.
  8. This section does apply to the issuance of a charging order against the interest of a member or assignee of a member of a foreign limited liability company.

HISTORY: Enact. Acts 1994, ch. 389, § 52, effective July 15, 1994; 1998, ch. 341, § 35, effective July 15, 1998; 2007, ch. 137, § 117, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 117, effective July 15, 2010; 2010, ch. 133, § 35, effective July 15, 2010; 2011, ch. 29, § 23, effective June 8, 2011; 2017 ch. 193, § 13, effective June 29, 2017.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.265. Assignee of an interest as a member of the company.

  1. Unless otherwise provided in a written operating agreement, an assignee of a limited liability company interest shall become a member only if a majority-in-interest of the members consent. The consent of a member may be evidenced in any manner specified in writing in an operating agreement, but in the absence of specification, consent shall be evidenced by one (1) or more written instruments, dated and signed by the requisite members. Except as otherwise provided in a written operating agreement, the assignor of a limited liability company interest shall not participate in the vote, approval, or consent of the admission of the assignee as a member.
  2. An assignee who becomes a member shall have, to the extent assigned, the rights and powers and shall be subject to the restrictions and liabilities of a member under the articles of organization, any written operating agreement, and this chapter. An assignee who becomes a member also shall be liable for any obligations of his or her assignor to make contributions under KRS 275.200 . However, the assignee shall not be obligated for liabilities of which the assignee had no knowledge at the time he or she became a member and which could not be ascertained from the articles of organization or any written operating agreement.
  3. Unless otherwise provided in a written operating agreement, the assignor shall not be released from his or her liability to the limited liability company under KRS 275.200 , whether or not an assignee of a limited liability company interest becomes a member.
  4. Unless otherwise provided in a written operating agreement, a member who assigns his or her entire limited liability company interest shall cease to be a member or to have the power to exercise any rights of the member when the assignee becomes a member with respect to the entire assigned interest.
  5. Unless otherwise set forth in the operating agreement, a successor in interest to a member who is disassociated from the limited liability company shall have the rights and obligations of an assignee with respect to the member’s interest.

History. Enact. Acts 1994, ch. 389, § 53, effective July 15, 1994; 1998, ch. 341, § 36, effective July 15, 1998; 2010, ch. 133, § 36, effective July 15, 2010.

NOTES TO DECISIONS

1.Membership Not Shown.

Simply acquiring economic rights does not, in and of itself, equate to “ownership” or “membership” in a limited liability company. Therefore, there was a failure of consideration for an agreement to purchase an ownership interest in a limited liability company because a seller did not have such an interest since he was not a member of the company under KRS 275.275 ; at most, the seller had an interest that he received in exchange for tendering $75,000 to the company. Spurlock v. Begley, 308 S.W.3d 657, 2010 Ky. LEXIS 80 ( Ky. 2010 ).

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.270. Member’s legal representative to have rights of assignee if member dies or is declared incompetent. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 54, effective July 15, 1994) was repealed by Acts 1998, ch. 341, § 59, effective July 15, 1998.

275.275. Admission to membership in company.

  1. Subject to subsection (2) of this section, a person may become a member in a limited liability company:
    1. In the case of the person acquiring a limited liability company interest directly from a limited liability company, upon compliance with an operating agreement or, if an operating agreement does not so provide in writing, upon the written consent of all members; and
    2. In the case of an assignee of the limited liability company interest, as provided in KRS 275.255 and 275.265 .
  2. The effective time of admission of a member to a limited liability company shall be the later of:
    1. The date the limited liability company is formed;
    2. The time provided in the operating agreement or, if no time is provided, when the person’s admission is reflected in the records of the limited liability company; or
    3. The time the member is admitted under KRS 275.285(4).
  3. Upon becoming a member in a limited liability company, the member is bound by and a party to the operating agreement.

History. Enact. Acts 1994, ch. 389, § 55, effective July 15, 1994; 2011, ch. 29, § 14, effective June 8, 2011; 2012, ch. 81, § 108, effective July 12, 2012.

NOTES TO DECISIONS

1.Membership Not Shown.

Simply acquiring economic rights does not, in and of itself, equate to “ownership” or “membership” in a limited liability company. Therefore, there was a failure of consideration for an agreement to purchase an ownership interest in a limited liability company because a seller did not have such an interest since he was not a member of the company under KRS 275.275 ; at most, the seller had an interest that he received in exchange for tendering $75,000 to the company. Spurlock v. Begley, 308 S.W.3d 657, 2010 Ky. LEXIS 80 ( Ky. 2010 ).

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.280. Cessation of membership.

  1. A person shall disassociate from and cease to be a member of a limited liability company upon the occurrence of one (1) or more of the following events:
    1. Subject to the provisions of subsection (3) of this section, the member withdraws by voluntary act from the limited liability company;
    2. The member ceases to be a member of the limited liability company as provided in KRS 275.265 ;
    3. The member is removed as a member:
      1. In accordance with a written operating agreement;
      2. Unless otherwise provided in a written operating agreement, if after an assignment there is at least one (1) other member, when the member assigns all of the member’s limited liability company interest that may be unilaterally assigned, upon receipt of the written consent of a majority- in-interest of the members who have not assigned their interest; or
      3. If after the assignment there are no other members, upon the effective time and date of the assignment;
    4. Unless otherwise provided in a written operating agreement or by written consent of majority-in-interest of the members, at the time the member:
      1. Makes an assignment for the benefit of creditors;
      2. Files a voluntary petition in bankruptcy;
      3. Is adjudicated bankrupt or insolvent;
      4. Files a petition or answer seeking for the member any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation;
      5. Files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the member in any proceeding of this nature; or
      6. Seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of the member or of all or any substantial part of the member’s property;
    5. Unless otherwise provided in a written operating agreement or by written consent of a majority-in-interest of the members remaining at the time, if within one hundred twenty (120) days after the commencement of any proceeding against the member seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation, the proceeding has not been dismissed, or if within one hundred twenty (120) days after the appointment without the member’s consent or acquiescence of a trustee, receiver, or liquidator of the member, or of all or any substantial part of the member’s properties, the appointment is not vacated or stayed or within one hundred twenty (120) days after the expiration of any stay, the appointment is not vacated;
    6. Unless otherwise provided in a written operating agreement or by written consent of a majority-in-interest of the members remaining at the time, in the case of a member that is an individual:
      1. The member’s death; or
      2. The entry of an order by a court of competent jurisdiction adjudicating the member incompetent to manage his or her person or estate;
    7. Unless otherwise provided in a written operating agreement or by written consent of a majority-in-interest of the members remaining at the time, in the case of a member that is a trust or is acting as a member by virtue of being a trustee of a trust, the termination of the trust, but not merely the substitution of a new trustee;
    8. Unless otherwise provided in a written operating agreement or by written consent of a majority-in-interest of the members remaining at the time, in the case of a member that is a separate limited liability company, the dissolution and commencement of winding up of the separate limited liability company;
    9. Unless otherwise provided in a written operating agreement or by written consent of the majority-in-interest of the members remaining at the time, in the case of a member that is a corporation, the filing of articles of dissolution or the equivalent for the corporation or the revocation of its articles of incorporation and the lapse of ninety (90) days after notice to the corporation of revocation without a reinstatement of its articles of incorporation; or
    10. Unless otherwise provided in a written operating agreement or by written consent of a majority-in-interest of the members remaining at the time, in the case of an estate, the distribution by the fiduciary of the estate’s entire interest in the limited liability company.
  2. The members may provide in a written operating agreement for other events the occurrence of which shall result in a person ceasing to be a member of the limited liability company.
  3. Unless otherwise provided in a written operating agreement:
    1. In a member-managed limited liability company a member may resign from a limited liability company upon thirty (30) days” prior written notice to the limited liability company; and
    2. In a manager-managed limited liability company, a member may not resign without the consent of all other members.
  4. Upon the effective date of the resignation, the resigning member shall be dissociated from and cease to be a member of the limited liability company and shall be with respect to the resigning member’s limited liability company interest an assignee thereof.
  5. The successor-in-interest of a disassociated member shall be an assignee.
  6. Except as set forth in a written operating agreement, the dissociation of a member does not entitle the former member or any assignee thereof to any distribution.

HISTORY: Enact. Acts 1994, ch. 389, § 56, effective July 15, 1994; 1998, ch. 341, § 37, effective July 15, 1998; 2010, ch. 133, § 37, effective July 15, 2010; 2011, ch. 29, § 15, effective June 8, 2011; 2012, ch. 81, § 109, effective July 12, 2012; 2017 ch. 193, § 14, effective June 29, 2017.

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Rutledge & Honabach, Kentucky Business Entity Laws: The 2010 Amendments, Vol. 74, No. 5, September 2010, Ky. Bench & Bar 6.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.285. Dissolution of company.

A limited liability company shall be dissolved, and it shall commence to wind up its affairs upon the happening of the first to occur of the following:

  1. The expiration of the term of the limited liability company set forth in the articles of organization, if any;
  2. Upon the occurrence of events specified in the articles of organization or a written operating agreement;
  3. Unless otherwise set forth in the operating agreement, the written consent of all of the members of a limited liability company;
  4. There are no remaining members, except that the limited liability company shall not be dissolved and its affairs shall not be wound up when:
    1. A member is admitted to the limited liability company in the manner provided for in a written operating agreement, effective as of the occurrence of the event that terminated the continued membership of the last remaining member; or
    2. Unless otherwise provided in a written operating agreement, within ninety (90) days after the occurrence of the event that terminated the continued membership of the last remaining member, the successor-in-interest of the last remaining member agrees in writing to continue the limited liability company and to the admission of the successor-in-interest of that member or its designee to the limited liability company as a member, effective as of the occurrence of the event that terminated the continued membership of the last remaining member;
  5. Entry of a decree of judicial dissolution under KRS 275.290 ; or
  6. Filing of a certificate of dissolution by the Secretary of State under KRS 14A.7-020 ; but
  7. If a nonprofit limited liability company does not have members, subsection (4) of this section shall not apply.

HISTORY: Enact. Acts 1994, ch. 389, § 57, effective July 15, 1994; 1998, ch. 341, § 38, effective July 15, 1998; 2007, ch. 137, § 118, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 118, effective July 15, 2010; 2010, ch. 151, § 144, effective January 1, 2011; 2015 ch. 34, § 46, effective June 24, 2015.

Legislative Research Commission Note.

(1/1/2011). This section was amended by 2010 Ky. Acts ch. 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear in conflict, therefore, they have been codified together.

275.290. Judicial dissolution.

  1. The Circuit Court for the county in which the principal office of the limited liability company is located, or, if none, in the county of the registered office, may dissolve a limited liability company in a proceeding by a member if it is established that it is not reasonably practicable to carry on the business of the limited liability company in conformity with the operating agreement.
  2. If after a hearing the court determines that one (1) or more grounds for judicial dissolution exist, it may enter a decree of dissolution, and the clerk of the court shall deliver a certified copy of the decree to the Secretary of State, who shall file it. The dissolution shall be effective upon the filing of the decree by the Secretary of State or a later date as is specified in the decree.
  3. After entering the decree of dissolution, the court shall direct the winding up and liquidation of the limited liability company’s business and affairs in accordance with KRS 275.300 and the notification of claimants in accordance with KRS 275.320 and 275.325 .
  4. The effect of dissolution under this section shall be as provided in KRS 275.300(2) and (3).
  5. After dissolution pursuant to KRS 275.285 or otherwise, upon application of a limited liability company, a member, or a creditor of the company, the appropriate court may order judicial supervision of the winding up of the company, including the appointment of a person to wind up the company’s activities, if:
    1. After a reasonable time, the company has not wound up its activities; or
    2. The applicant establishes other good cause.

HISTORY: Enact. Acts 1994, ch. 389, § 58, effective July 15, 1994; 2011, ch. 29, § 16, effective June 8, 2011; 2012, ch. 81, § 110, effective July 12, 2012; 2015 ch. 34, § 76, effective June 24, 2015.

NOTES TO DECISIONS

Cited:

Patmon v. Hobbs, 280 S.W.3d 589, 2009 Ky. App. LEXIS 48 (Ky. Ct. App. 2009).

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.295. Administrative dissolution — Reinstatement. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 119; 2010, ch. 133, § 38) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.7-010 through 14A.7-040 .

275.300. Winding up of affairs — Effect of dissolution.

  1. Except as otherwise provided in a written operating agreement the business or affairs of the limited liability company may be wound up:
    1. By the members or managers who have authority pursuant to KRS 275.165 to manage the limited liability company prior to dissolution; or
    2. If one (1) or more of the members or managers have engaged in wrongful conduct, or upon other cause shown, by the Circuit Court for the county in which the principal office of the limited liability company is located or in which the registered office of the limited liability company is located, on application of any member, any member’s legal representative, or assignee.
  2. A dissolved limited liability company shall continue its existence but shall not carry on any business except that appropriate to wind up and liquidate its business and affairs, including:
    1. Collecting its assets;
    2. Disposing of its properties that will not be distributed in kind to its members;
    3. Discharging or making provision for discharging its liabilities, including as appropriate entering into agreements with creditors for the satisfaction thereof;
    4. Distributing its remaining property among its members and assignees in proportion to their rights to share therein; and
    5. Doing every other act necessary to wind up and liquidate its business and affairs.
  3. Except as otherwise provided in a written operating agreement, dissolution of a limited liability company shall not:
    1. Transfer title to the limited liability company’s property;
    2. Prevent transfer of a limited liability company interest, although the authorization to dissolve may provide for the limited liability company restricting the transfer of the limited liability company’s interest;
    3. Subject its members or managers to standards of conduct different from those prescribed herein;
    4. Amend the operating agreement or otherwise change quorum or voting requirements for its members or managers, provisions for selection, resignation, or removal of its members or managers, or provisions for amending the operating agreement, or terminate contribution obligations.
  4. Dissolution of a limited liability company shall not:
    1. Prevent commencement of a proceeding by or against the limited liability company in its name;
    2. Abate or suspend a proceeding pending by or against the limited liability company on the effective date of dissolution;
    3. Terminate the authority of the registered agent of the limited liability company;
    4. Alter the obligations and responsibilities of the limited liability company as prescribed by applicable federal or state law with regard to the filing or examination of all federal and state tax returns or the payment, assessment, or collection of any federal or state tax due with respect to those returns; or
    5. Abate or suspend KRS 275.150(1).

History. Enact. Acts 1994, ch. 389, § 60, effective July 15, 1994; 2007, ch. 137, § 120, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 120, effective July 15, 2010; 2010, ch. 133, § 39, effective July 15, 2010; 2012, ch. 81, § 111, effective July 12, 2012.

Legislative Research Commission Note.

(7/15/2010). This section was amended by 2010 Ky. Acts ch. 133, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict; therefore, they have been codified together.

NOTES TO DECISIONS

Cited:

Patmon v. Hobbs, 280 S.W.3d 589, 2009 Ky. App. LEXIS 48 (Ky. Ct. App. 2009).

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Rutledge & Honabach, Kentucky Business Entity Laws: The 2010 Amendments, Vol. 74, No. 5, September 2010, Ky. Bench & Bar 6.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.305. Binding acts of member or manager — Notice of dissolution.

  1. Except as provided in subsections (3) and (4) of this section, after dissolution of the limited liability company, each member or manager having authority to wind up the limited liability company’s business and affairs may bind the limited liability company:
    1. By any act appropriate for winding up the limited liability company’s affairs or completing transactions unfinished at dissolution; and
    2. By any other act that would have bound the limited liability company if it had not been dissolved, if the other party to the transaction did not have notice of the dissolution.
  2. The filing of articles of dissolution pursuant to KRS 275.315 , the entry of a decree of dissolution pursuant to KRS 275.290 , or the filing of a certificate of dissolution pursuant to KRS 14A.7-020 shall be presumed to constitute notice of dissolution for purposes of subsection (1)(b) of this section.
  3. An act of a member or manager which is not binding on the limited liability company pursuant to subsection (1) of this section shall be binding if it is otherwise authorized by the limited liability company.
  4. An act of a member or manager which would be binding under subsection (1) of this section, or would be otherwise authorized but which is in contravention of a restriction on authority, shall not bind the limited liability company to persons having knowledge of the restriction.

History. Enact. Acts 1994, ch. 389, § 61, effective July 15, 1994; 2010, ch. 151, § 145, effective January 1, 2011.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.310. Distribution of assets.

Upon the winding up of a limited liability company, the assets shall be distributed as follows:

  1. First, payment or adequate provisions for payment shall be made to creditors, including, to the extent permitted by law, members who are creditors in satisfaction of liabilities of the limited liability company;
  2. Second, unless otherwise provided in a written operating agreement, to members and assignees in satisfaction of liabilities for distributions under KRS 275.210 ; and
  3. Third, unless otherwise provided in a written operating agreement, to members and assignees for the return of their contributions; and
  4. Fourth, unless otherwise provided in a written operating agreement, to members and assignees in proportion to their respective rights to share in distributions from the limited liability company prior to dissolution.

History. Enact. Acts 1994, ch. 389, § 62, effective July 15, 1994; 1998, ch. 341, § 57, effective July 15, 1998; 2010, ch. 133, § 40, effective July 15, 2010.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge & Honabach, Kentucky Business Entity Laws: The 2010 Amendments, Vol. 74, No. 5, September 2010, Ky. Bench & Bar 6.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.315. Articles of dissolution.

After the dissolution of the limited liability company pursuant to KRS 275.285(2), (3), or (4), the limited liability company shall file articles of dissolution with the Secretary of State which set forth:

  1. The name of the limited liability company;
  2. A statement of the subsection of KRS 275.285 pursuant to which the limited liability company has dissolved;
  3. The effective date, which shall be a date certain, of the dissolution; and
  4. Any other information the members or managers filing the articles of dissolution shall deem proper.

History. Enact. Acts 1994, ch. 389, § 63, effective July 15, 1994; 2007, ch. 137, § 121, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 121, effective July 15, 2010; 2011, ch. 29, § 17, effective June 8, 2011.

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.320. Disposition of claims.

  1. Upon dissolution pursuant to KRS 275.285 , a limited liability company may dispose of the known claims against it by filing, if required, articles of dissolution pursuant to KRS 275.315 and by following the procedures described in this section.
  2. The limited liability company shall notify its known claimants in writing of the dissolution at any time after the effective date of dissolution. The written notice shall:
    1. Describe information that must be included in a claim;
    2. Provide a mailing address where a claim may be sent;
    3. State the deadline, which may not be fewer than one hundred twenty (120) days after the later of the date of the written notice, if required, or the filing of articles of dissolution pursuant to KRS 275.315 , by which the limited liability company must receive the claim; and
    4. State that the claim will be barred if not received by the deadline.
  3. A claim against the limited liability company shall be barred:
    1. If a claimant who is given written notice under subsection (2) of this section does not deliver the claim to the limited liability company by the deadline;
    2. If a claimant whose claim was rejected by the limited liability company does not commence a proceeding to enforce the claim within ninety (90) days after the date of the rejection notice.
  4. For purposes of this section, “claim” shall not include a contingent liability or a claim based on an event occurring after the effective date of dissolution.

History. Enact. Acts 1994, ch. 389, § 64, effective July 15, 1994.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.325. Publication of notice of dissolution — Barred claims — Enforceable claims.

  1. A dissolved limited liability company may publish notice of its dissolution pursuant to this section.
  2. The notice shall:
    1. Be published once in a newspaper of general circulation in the county where the limited liability company’s principal office, or, if none in this state, its registered office, is or was last located;
    2. Describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and
    3. State that a claim against the limited liability company will be barred unless a proceeding to enforce the claim is commenced within two (2) years, or five (5) years for a professional limited liability company, after the publication of the notice.
  3. If the dissolved limited liability company publishes a newspaper notice in accordance with subsection (2) of this section and, if required, files articles of dissolution pursuant to KRS 275.315 , the claim of each of the following claimants shall be barred unless the claimant commences a proceeding to enforce the claim against the limited liability company within two (2) years, or five (5) years for a professional limited liability company, after the later of publication date of the newspaper notice or the filing of the articles of dissolution pursuant to KRS 275.315 , the filing of a certificate of dissolution by the Secretary of State pursuant to KRS 14A.7-020 , or the filing of a decree of judicial dissolution by the Secretary of State pursuant to KRS 275.290(2):
    1. A claimant who did not receive written notice under KRS 275.320 ;
    2. A claimant whose claim was timely sent to the limited liability company but not acted on;
    3. A claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
  4. A claim may be enforced under this section:
    1. Against the limited liability company, to the extent of its undistributed assets; or
    2. If the assets have been distributed in liquidation, against a member of the limited liability company to the extent of his pro rata share of the claim or the assets of the limited liability company distributed to him in liquidation, whichever is less, but a member’s total liability for all claims under this section shall not exceed the total amount of assets, less liabilities assumed or taken subject to, distributed to him.

History. Enact. Acts 1994, ch. 389, § 65, effective July 15, 1994; 2010, ch. 151, § 146, effective January 1, 2011.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.330. Use of company’s name in judicial actions.

Suit may be brought by or against the limited liability company in its own name.

History. Enact. Acts 1994, ch. 389, § 66, effective July 15, 1994.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.335. Persons who may sue in company’s name — Recording of votes — Prosecution and settlement of suits.

  1. Unless otherwise provided in a written operating agreement, a suit on behalf of the limited liability company may be brought in the name of the company only by:
    1. One (1) or more members of the company, who are authorized to sue by the vote of more than one half (1/2) of the number of members eligible to vote thereon; or
    2. One (1) or more managers of the limited liability company, if the articles of organization vest management of the company in one (1) or more managers, who are authorized to do so by the vote of more than one-half (1/2) of the number of managers eligible to vote.
  2. Subsection (1)(a) of this section shall be applicable irrespective of whether the articles of organization vest management of the limited liability company in one (1) or more managers.
  3. Unless otherwise provided in a written operating agreement, in any vote of the members or managers pursuant to subsection (1) of this section, the vote of any member or manager who has an interest in the outcome of the suit that is adverse to the interest of the limited liability company shall be excluded.
  4. Unless otherwise provided in a written operating agreement, any vote pursuant to subsection (1) of this section shall be set forth in a record signed or otherwise approved by each member or manager voting in favor of bringing suit on behalf of the limited liability company.
  5. Except as otherwise provided in a writing approved in accordance with subsection (1) of this section that would also be sufficient to amend the operating agreement pursuant to the terms of the written operating agreement or, in the absence of a provision governing amendment of the operating agreement, the prosecution and settlement of any suit brought pursuant to subsection (1) of this section shall be pursuant to KRS 275.175 .
  6. Every member and manager of a limited liability company shall be deemed to have consented to the jurisdiction of the courts of the Commonwealth of Kentucky for any action by, in the name of, or on behalf of the limited liability company or for any violation of a duty owed the limited liability company or a member thereof.

HISTORY: Enact. Acts 1994, ch. 389, § 67, effective July 15, 1994; 2012, ch. 81, § 112, effective July 12, 2012; 2015 ch. 34, § 54, effective June 24, 2015.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge & Honabach, Kentucky Business Entity Laws: The 2010 Amendments, Vol. 74, No. 5, September 2010, Ky. Bench & Bar 6.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.337. Derivative actions.

  1. A member may maintain a direct action against a limited liability company, another member, or a manager to redress an injury sustained by, or to enforce a duty owed to, the member if the member can prevail without showing an injury or breach of duty to the company.
  2. A member may maintain a derivative action to redress an injury sustained by or enforce a duty owed to a limited liability company if:
    1. The member shall first make a demand on the other members and, if the company is manager-managed, the managers, requesting that they cause the company to bring an action to redress the injury or enforce the right, and they do not bring the action within a reasonable time; or
    2. A demand would be futile.
  3. A derivative action on behalf of a limited liability company shall be maintained only by a person that is a member at the time the action is commenced and who:
    1. Was a member when the conduct giving rise to the action occurred; or
    2. Acquired the status as a member by operation of law or pursuant to the terms of the operating agreement from a person that was a member at the time of the conduct giving rise to the action occurred.
  4. In a derivative action on behalf of the limited liability company, the complaint shall state with particularity:
    1. The date and content of the member’s demand and the response to the demand; or
    2. The reason the demand should be excused as futile.
  5. The derivative proceeding shall not be maintained if:
    1. It appears that the person commencing the proceeding does not fairly and adequately represent the interests of the shareholder in enforcing the rights of the limited liability company; or
    2. The person commencing the proceeding ceases to be a member in the limited liability company.
  6. Except as otherwise provided in subsection (9) of this section:
    1. Any proceeds or other benefits of a derivative action on behalf of a limited liability company, whether by judgment, compromise, or settlement, are the property of the company and not of the plaintiff; and
    2. If the plaintiff receives any proceeds or other benefits, the plaintiff shall immediately remit them to the company.
  7. A derivative action on behalf of a limited liability company shall not be voluntarily dismissed or settled without the court’s approval.
  8. The proper venue for a direct action under subsection (1) of this section or a derivative action shall be the Circuit Court for the county in which the company maintains its registered office and agent.
  9. On termination of the proceeding brought pursuant to this section, the court may:
    1. Require the plaintiff member to pay any defendant’s reasonable expenses, including counsel fees, incurred in defending the proceeding to the extent it finds that the proceeding or any portion thereof was commenced without reasonable cause or for an improper purpose; and
    2. Require the limited liability company to pay the plaintiff member’s reasonable expenses, including counsel fees, incurred in the proceeding to the extent it finds that the proceeding has resulted in a substantial benefit to the company.

HISTORY: 2015 ch. 34, § 50, effective June 24, 2015; 2017 ch. 193, § 15, effective June 29, 2017.

Legislative Research Commission Notes.

(6/29/2017). Subsection (5) of this statute concerning when a derivative action involving a limited liability company cannot be maintained was amended in 2017 Ky. Acts ch. 188, sec. 2. New language added to subsection (5)(a) of this statute read, in part, “represent the interests of the shareholder in enforcing the rights.” In codification, the Reviser of Statutes corrected a manifest clerical or typographical error under the authority of KRS 7.136(1)(h) by changing the word “shareholder” to “members” since limited liability companies do not have shareholders, but rather members, to be consistent with actual practice and language used in Sections 20 and 23 of that Act.

275.340. Effect of determination that member or manager lacks authority to sue on behalf of company. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 68, effective July 15, 1994) was repealed by Acts 2010, ch. 133, § 77, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.345. Right of company to merge with other business entities — Exception — No right of dissent.

  1. Unless otherwise provided in writing in a written operating agreement, and subject to any law applicable to business entities other than limited liability companies, one (1) or more limited liability companies may merge with or into one (1) or more other business entities with the limited liability company or other business entity being the surviving or resulting limited liability company or other business entity.
  2. Rights or securities of or interests in a business entity that is a party to the merger may be exchanged for or converted into cash, property, obligations, rights, or securities of or interests in the surviving or resulting business entity or of any other business entity.
  3. Unless otherwise provided in the articles of organization, a written operating agreement, or a written agreement and plan of merger, no member of a limited liability company shall have the right to dissent from a merger.
  4. A nonprofit limited liability company shall not merge with or into any business entity which is not a domestic nonprofit limited liability company or a domestic nonprofit corporation.

History. Enact. Acts 1994, ch. 389, § 69, effective July 15, 1994; 2007, ch. 137, § 122, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 122, effective July 15, 2010; 2019 ch. 131, § 4, effective June 27, 2019.

Research References and Practice Aids

Kentucky Bench & Bar.

Dolson, Contractual Dissenters’ Rights for Kentucky LLCs, Volume 75, No. 1, January 2011, Ky. Bench & Bar 18.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.350. Approval of proposed merger — No right of dissent.

  1. Unless otherwise provided in a written operating agreement, a limited liability company that is a party to a proposed merger shall approve the plan of merger in KRS 275.355 by a majority-in-interest of the members.
  2. Each business entity that is a party to a proposed merger shall approve the plan of merger in the manner and by the vote required by the laws applicable to the business entity.
  3. Each business entity that is a party to the merger shall have the rights to abandon the merger as provided for in the plan of merger or in the laws applicable to the business entity.
  4. Unless otherwise provided in the articles of organization, a written operating agreement, or a written agreement and plan of merger, no member of a limited liability company shall have the right to dissent from a merger.

History. Enact. Acts 1994, ch. 389, § 70, effective July 15, 1994; 1998, ch. 341, § 40, effective July 15, 1998; 2007, ch. 137, § 123, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 123, effective July 15, 2010.

Research References and Practice Aids

Kentucky Bench & Bar.

Dolson, Contractual Dissenters’ Rights for Kentucky LLCs, Volume 75, No. 1, January 2011, Ky. Bench & Bar 18.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.355. Plan of merger.

  1. Each constituent business entity shall enter into a written plan of merger, which shall be approved in accordance with KRS 275.350 .
  2. The plan of merger shall set forth:
    1. The name of each constituent business entity that is a party to the merger and the name of the surviving business entity into which each constituent business entity proposes to merge;
    2. The terms and conditions of the proposed merger, including but not limited to, a statement which sets forth whether limited liability is retained by the surviving business entity;
    3. The manner and basis of converting the interests in each limited liability company and the interests in each business entity that is a party to the merger into interests, shares, or other securities or obligations, as the case may be, of the surviving entity, or of any other business entity, or, in whole or in part, into cash or other property;
    4. The amendments to the articles of organization of a limited liability company, or articles of incorporation of a corporation or certificate of limited partnership, as the case may be, of the surviving business entity as are desired to be effected by the merger, or that no changes are desired;
    5. Other provisions relating to the proposed merger that are deemed necessary or desirable.

History. Enact. Acts 1994, ch. 389, § 71, effective July 15, 1994.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.360. Articles of merger.

  1. The business entity surviving from the merger shall deliver to the Secretary of State for filing articles of merger duly executed by each constituent business entity setting forth:
    1. The name and jurisdiction of formation or organization of each constituent business entity which is to merge;
    2. The name of the surviving business entity;
    3. The information required by KRS 275.355(2)(d);
    4. Any amendment to the articles of organization of the surviving limited liability company;
    5. A statement that the plan of merger was duly authorized and approved by each constituent business entity in accordance with KRS 275.350 ; and
    6. If the surviving entity is not a business entity organized under the laws of this Commonwealth, a statement that the surviving business entity:
      1. Agrees that it may be served with process in this Commonwealth in any proceeding for enforcement of any obligation of any constituent business entity party to the merger that was organized under the laws of this Commonwealth, as well as for enforcement of any obligation of the surviving business entity arising from the merger; and
      2. Appoints the Secretary of State as its agent for service of process in any such proceeding. The surviving entity shall specify the address to which a copy of the process shall be mailed to it by the Secretary of State.
  2. A merger shall take effect upon the later of the effective date of the filing of the articles of merger or the date set forth in the articles of merger.
  3. The articles of merger shall be executed by a limited liability company that is a party to the merger in the manner provided for in KRS 14A.2-020 and shall be filed with the Secretary of State in the manner provided for in KRS 14A.2-010 .
  4. A plan of merger approved in accordance with KRS 275.350 may effect any amendment to an operating agreement for a limited liability company if it is the surviving company in the merger. An approved plan of merger may also provide that the operating agreement of any constituent limited liability company to the merger, including a limited liability company formed for the purpose of consummating a merger, shall be the operating agreement of the limited liability company that is the surviving business entity. Any amendment to an operating agreement or adoption of a new operating agreement made pursuant to this subsection shall be effective at the effective time and date of the merger. The provisions of this subsection shall not be construed to limit the accomplishment of a merger or of any of the matters referred to in this section by any other means provided for in an operating agreement or other agreement or as otherwise permitted by law.

HISTORY: Enact. Acts 1994, ch. 389, § 72, effective July 15, 1994; 2010, ch. 133, § 41, effective July 15, 2010; 2010, ch. 151, § 126, effective January 1, 2011; 2015 ch. 34, § 56, effective June 24, 2015.

Legislative Research Commission Note.

(1/1/2011). This section was amended by 2010 Ky. Acts chs. 133 and 151, which do not appear to be in conflict and have been codified together.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.365. Effect of merger.

A merger shall have the following effects:

  1. The constituent business entities that are parties to the merger shall be a single entity, which shall be the entity designated in the plan of merger as the surviving business entity.
  2. Each party to the merger, except the surviving business entity, shall cease to exist.
  3. The surviving business entity shall possess all the rights, privileges, immunities, and powers of each constituent business entity and shall be subject to all the restrictions, disabilities, and duties of each of the constituent entities to the extent the rights, privileges, immunities, powers, restrictions, disabilities, and duties are applicable to the type of business entity that is the surviving business entity.
  4. All property, whether real, personal, or intangible, and all debts due on whatever account, including promises to make capital contributions and subscriptions for shares, and all other choses in action, and all and every other interest of, belonging to, or due to each of the constituent business entities shall be vested in the surviving business entity without further act or deed.
  5. The title to all real estate and any interest therein, vested in any constituent business entity shall not revert or be in any way impaired by reason of the merger.
  6. The surviving entity shall thenceforth be liable for all liabilities and obligations of each of the constituent business entities merged, and any claim existing or action or proceeding pending by or against any constituent business entity may be prosecuted as if the merger had not taken place, or the surviving business entity may be substituted in the action.
  7. Neither the rights of creditors nor any liens on the property of any constituent business entity shall be impaired by the merger.
  8. The interests in a limited liability company or other business entities that are to be converted or exchanged into interests, other securities, cash, obligations, or other property under the terms of the plan of merger are so converted and the former holders thereof are entitled only to the rights provided in the plan of merger or the rights otherwise provided by law.
  9. A partner or, in the case of a limited partnership, a general partner who becomes a member of a limited liability company as a result of a merger, as the case may be, shall remain liable as a partner or general partner for an obligation incurred by the partnership or limited partnership before the merger takes effect. The partner’s or general partner’s liability for all other obligations of the limited liability company incurred after the merger takes effect shall be that of a member as provided in this chapter. A limited partner who becomes a member as a result of a merger shall remain liable only as a limited partner for an obligation incurred by the limited partnership before the merger takes effect.
  10. If the surviving business entity is a limited liability company, such amendments to the articles of organization set forth in the articles of merger, and such amendments to the operating agreement thereof set forth in the plan of merger or the articles of merger, subject to KRS 275.200 , shall be effective.
  11. If the surviving business entity is a limited liability company, the written operating agreement provided for in the plan of merger, if any, shall be binding upon each member in that limited liability company, but any provision thereof obligating a member to make a contribution to the limited liability company is subject to KRS 275.200 .

HISTORY: Enact. Acts 1994, ch. 389, § 73, effective July 15, 1994; 1998, ch. 341, § 41, effective July 15, 1998; 2010, ch. 133, § 42, effective July 15, 2010; 2012, ch. 81, § 113, effective July 12, 2012; 2015 ch. 34, § 57, effective June 24, 2015.

Research References and Practice Aids

Kentucky Bench & Bar.

Rutledge & Honabach, Kentucky Business Entity Laws: The 2010 Amendments, Vol. 74, No. 5, September 2010, Ky. Bench & Bar 6.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.370. Conversion of partnership or limited partnership to limited liability company.

  1. A partnership or limited partnership may be converted to a limited liability company pursuant to this section.
  2. The terms and conditions of a conversion of a partnership or limited partnership to a limited liability company shall, in the case of a partnership, be approved by all the partners or by a number or percentage specified for conversion in the partnership agreement or, in the case of a limited partnership, by all the partners, notwithstanding any provision to the contrary in the limited partnership agreement.
  3. After the conversion is approved under subsection (2) of this section, the partnership or limited partnership shall file articles of organization with the office of the Secretary of State which satisfy the requirements of KRS 275.025 and include:
    1. A statement that the partnership or limited partnership was converted to a limited liability company from a partnership or limited partnership, as the case may be;
    2. Its former name;
    3. In the case of a partnership, a statement of the number of votes cast by the partners entitled to vote for and against the conversion and, if the vote is less than unanimous, the number or percentage required to approve the conversion under the partnership agreement; and
    4. If the converting partnership has filed a statement of registration as a limited liability partnership in accordance with KRS 362.555 , a statement of qualification in accordance with KRS 362.1-931 , or a statement of partnership authority, each shall be deemed canceled as of the effective date and time of the articles of organization as determined in accordance with KRS 275.020 ; and
    5. In the case of a limited partnership, the converting limited partnership’s certificate of limited partnership shall be deemed canceled as of the effective date and time of the articles of organization as determined in accordance with KRS 275.020 .
  4. The conversion shall take effect when the articles of organization are filed with the office of the Secretary of State or, as provided in KRS 275.020 , at a later date specified in the articles of organization.
  5. A partner or, in the case of a limited partnership, a general partner who becomes a member of a limited liability company as a result of a conversion shall remain liable as a partner or general partner for an obligation incurred by the partnership or limited partnership before the conversion takes effect. If the other party to a transaction with the limited liability company reasonably believes when entering the transaction that the member undertaking the transaction is a partner in a partnership or a general partner in a limited partnership, the member shall be liable for an obligation incurred by the limited liability company within ninety (90) days after the conversion takes effect. The partner’s or general partner’s liability for all other obligations of the limited liability company incurred after the conversion takes effect shall be that of a member as provided in this chapter. A limited partner who becomes a member as a result of a conversion shall remain liable only as a limited partner for an obligation incurred by the limited partnership before the conversion takes effect.

History. Enact. Acts 1994, ch. 389, § 74, effective July 15, 1994; 2007, ch. 137, § 124, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 124, effective July 15, 2010; 2010, ch. 133, § 43, effective July 15, 2010.

Compiler’s Notes.

This section is set out above to reflect a correction to the section reference appearing in subsection (3)(d) from 362.1-1001 to 362.1-931 due to renumbering by the state reviser effective in 2013.

Legislative Research Commission Note.

(7/15/2010). This section was amended by 2010 Ky. Acts ch. 133, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendment, and these Acts do not appear to be in conflict; therefore, they have been codified together.

(6/26/2007). 2007 Ky. Acts ch. 137, sec. 124, subsection (3)(d) cited “Section 146 of this Act.” It is apparent from context that the section referred to should have been Section 145 of the Act, KRS 362.555 . The Reviser of Statutes has made this change under the authority of KRS 7.136 .

NOTES TO DECISIONS

1.Applicability.

Restructuring of the business form of a partnership into a limited liability company was not a conversion under, or subject to, KRS 275.370 because a conversion deals only with one entity. Lach v. Man O' War, LLC, 256 S.W.3d 563, 2008 Ky. LEXIS 66 ( Ky. 2008 ).

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.372. Conversion of limited liability company into limited partnership.

  1. A limited liability company may convert into a limited partnership as provided in KRS 362.2-952 (4).
  2. A limited liability company may convert into a limited liability partnership as provided in KRS 362.1-903 .
  3. A limited liability company may convert into a limited liability partnership as provided in KRS 362.1-903 .
  4. The terms and conditions of the conversion of a limited liability company shall be approved by all of the members notwithstanding any provision to the contrary in the operating agreement.

History. Enact. Acts 2006, ch. 149, § 196, effective July 12, 2006; 2007, ch. 137, § 18, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 18, effective July 15, 2010; 2012, ch. 81, § 114, effective July 12, 2012.

Compiler’s Notes.

This section is set out above to reflect a correction to the section reference appearing in subsection (1) from 362.2-1102 (4) to 362.2-952 (4) due to renumbering by the state reviser effective in 2013.

Legislative Research Commission Note.

(6/26/2007). Ky. Acts ch. 137, sec. 18, provided for the creation of a new section of KRS Chapter 386 to read as this section did when it took effect on June 26, 2007. Since the text of KRS 275.372 was almost identical to the text of subsection (1) of the new language of sec. 18, under the authority of KRS 7.136(1)(a), the Reviser of Statutes in codification has amended KRS 275.372 to conform and add subsection (2) to this section rather than creating a new section of KRS Chapter 386.

275.375. Effect of conversion.

  1. A partnership or limited partnership that has been converted pursuant to this chapter shall be for all purposes the same entity that existed before the conversion.
  2. When a conversion takes effect:
    1. All property and contract rights owned by, and all rights, privileges, and immunities of the converting partnership or limited partnership shall remain vested in the converted limited liability company without assignment, reversion, or impairment;
    2. All obligations of the converting partnership or limited partnership shall continue as obligations of the converted limited liability company;
    3. An action or proceeding pending against the converting partnership or limited partnership may be continued as if the conversion had not occurred and the name of the converted limited liability company may be substituted in any pending action or proceeding for the name of the converting partnership or limited partnership; and
    4. The written operating agreement of the converted limited liability company shall be binding upon each person who becomes a member of the limited liability company.

History. Enact. Acts 1994, ch. 389, § 75, effective July 15, 1994; 2007, ch. 137, § 125, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 125, effective July 15, 2010.

NOTES TO DECISIONS

Cited:

Lach v. Man O’ War, LLC, 256 S.W.3d 563, 2008 Ky. LEXIS 66 ( Ky. 2008 ).

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.376. Conversion of corporation or foreign corporation to limited liability company.

  1. A corporation may be converted to a limited liability company pursuant to this section.
  2. The terms and conditions of the conversion of a corporation to a limited liability company shall be set forth in a written plan of conversion and approved by the board of directors and by the shareholders of the corporation.
  3. The plan of conversion shall set forth:
    1. The name of the corporation planning to convert;
    2. The terms and conditions of the conversion, including the articles of organization and the written operating agreement, if any, of the limited liability company into which the corporation will convert; and
    3. The manner and basis of converting the shares of the corporation into membership interests, obligations, or other securities of the limited liability company or into cash or other property in whole or part.
  4. The plan of conversion may set forth any other provision relating to the conversion.
  5. For a plan of conversion to be approved:
    1. The board of directors shall recommend the plan of conversion to the shareholders, unless the board of directors determines that, because of conflict of interest or other special circumstances, it should make no recommendation and communicates the basis for its determination to the shareholders with a plan; and
    2. The shareholders entitled to vote shall approve the plan.
  6. The board of directors may condition its submission of the proposed conversion on any basis.
  7. The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders’ meeting in accordance with KRS 271B.7-050 . The notice shall also state that the purpose, or one (1) of the purposes, of the meeting is to consider the plan of conversion and contain or be accompanied by a copy or summary of the plan.
  8. Unless KRS Chapter 271B, the articles of incorporation, or the board of directors acting pursuant to subsection (6) of this section, require a greater vote or vote by voting groups, the plan of conversion to be authorized shall be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group.
  9. Separate voting by voting groups shall be required on a plan of conversion if the plan contains a provision that, if contained in a proposed amendment to the articles of incorporation, would require action by one (1) or more separate voting groups on the proposed amendment under KRS 271B.10-040 .
  10. After a conversion is authorized, and at any time before articles of organization are filed, the planned conversion may be abandoned subject to any contractual rights, without further shareholder action, in accordance with the procedure set forth in the plan of conversion or, if none is set forth, in the manner determined by the board of directors.
  11. After the conversion is approved, the corporation shall file articles of organization with the office of the Secretary of State that satisfy the requirements of KRS 275.025 and also include:
    1. A statement that the corporation was converted to a limited liability company;
    2. Its former name; and
    3. The designation, number of outstanding shares, and number of votes to be cast by each voting group entitled to vote separately on the plan of conversion and either the total number of undisputed votes cast for the plan separately by each voting group or a statement that the number cast for the plan by each voting group was sufficient for approval by that voting group.
  12. The conversion shall take effect when the articles of organization are filed with the office of the Secretary of State or, subject to KRS 14A.2-070 , at a later date specified in the articles of organization.
  13. Both a nonprofit corporation organized under the laws of the Commonwealth and a foreign nonprofit corporation, if not forbidden by the laws of its jurisdiction of organization, may convert into a nonprofit limited liability company, except that the only member or members of the converted nonprofit limited liability company shall be organizations qualified under Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code. The articles of organization filed to effect this conversion, in addition to the otherwise applicable requirements, shall contain an affirmative statement that the only member or members of the converted nonprofit limited liability company are qualified under Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code.

HISTORY: Enact. Acts 2007, ch. 137, § 16, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 16, effective July 15; 2010; 2010, ch. 133, § 44, effective July 15, 2010; 2010, ch. 151, § 143, effective January 1, 2011; 2015 ch. 34, § 47, effective June 24, 2015.

Legislative Research Commission Note.

(7/15/2010). This section was amended by 2010 Ky. Acts chs. 133 and 151, and repealed and reenacted by 2010 Ky. Acts ch. 51. Pursuant to Section 184 of Acts ch. 51, it was the intent of the General Assembly that the repeal and reenactment not serve to void the amendments, and these Acts do not appear to be in conflict; therefore, they have been codified together.

(6/26/2007). The Reviser of Statutes has corrected a manifest clerical or typographical error in this section pursuant to the authority of KRS 7.136 .

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.377. Effect of conversion of corporation to limited liability company.

  1. A limited liability company that has been converted pursuant to this chapter shall be for all purposes the same entity that existed before the conversion.
  2. When a conversion takes effect:
    1. All property and contract rights owned by, and all rights, privileges, and immunities of the converting corporation shall remain vested in the converted limited liability company without assignment, reversion, or impairment;
    2. All obligations of the converting corporation shall continue as obligations of the converted limited liability company;
    3. An action or proceeding pending against the converting corporation may be continued as if the conversion had not occurred, and the name of the converted limited liability company may be substituted in any pending action or proceeding for the name of the converting corporation; and
    4. The written operating agreement of the converted limited liability company shall be binding upon each person who becomes a member of the limited liability company.

History. Enact. Acts 2007, ch. 137, § 17, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 17, effective July 15, 2010; 2011, ch. 29, § 18, effective June 8, 2011.

275.380. Laws governing foreign limited liability company.

  1. Subject to the Constitution of this Commonwealth:
    1. The laws of the state or other jurisdiction under which a foreign limited liability company is organized shall govern its organization and internal affairs, including the inspection of the books, records, and documents, and the liability of its members, except as provided in subsection (2) of this section; and
    2. A foreign limited liability company shall not be denied registration by reason of any difference between the laws of another jurisdiction under which a foreign limited liability company is organized and the laws of this Commonwealth.
  2. A certificate of authority obtained pursuant to this chapter shall not authorize a foreign limited liability company to exercise any powers or engage in any business that a domestic limited liability company is forbidden to exercise or engage in by the laws of this Commonwealth.

History. Enact. Acts 1994, ch. 389, § 76, effective July 15, 1994; 2007, ch. 137, § 126, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 126, effective July 15, 2010.

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.385. Transaction of business by foreign limited liability company.

Each limited liability company and each foreign limited liability company qualified to transact business in this Commonwealth is subject to KRS 14A.6-010 .

History. Enact. Acts 1994, ch. 389, § 77, effective July 15, 1994; repealed and reenact., Acts 2010, ch. 151, § 79, effective January 1, 2011.

Research References and Practice Aids

Kentucky Bench & Bar.

MacDonald and Seiffert, The Kentucky Limited Liability Company Act: An Analysis Of Applications In Its Second Year, Vol. 60, No. 1, Winter 1996, Ky. Bench & Bar 20.

Rutledge, Recent Amendments to Kentucky Business Entity Laws, Vol. 71, No. 5, Sept. 2007, Ky. Bench & Bar 25.

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.390. Certificate of authority required of foreign limited liability company for access to courts — Civil penalty for violation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 78) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-010 , 14A.9-020 .

275.395. Application for certificate of authority for foreign limited liability company. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 127) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-030 .

275.400. Amended certificate of authority for foreign limited liability company. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 128) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-040 .

275.405. Effect of certificate of authority for foreign limited liability company. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 129) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-050 .

275.410. Name used by foreign limited liability company. [Repealed.]

Compiler’s Notes.

This section (Repealed and reenact., Acts 2010, ch. 51, § 130) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.3-040 .

275.415. Registered office and registered agent for foreign limited liability company.

Each foreign limited liability company authorized to transact business in this Commonwealth shall continuously maintain in this Commonwealth:

  1. A registered office that may be the same as any of its places of business; and
  2. A registered agent, who may be:
    1. An individual who resides in this Commonwealth and whose business office is identical with the registered office;
    2. A domestic corporation or not-for-profit domestic corporation whose business office is identical with the registered office;
    3. A foreign corporation or foreign not-for-profit corporation authorized to transact business in this Commonwealth whose business office is identical with the registered office; or
    4. A domestic limited liability company or a foreign limited liability company authorized to transact business in this Commonwealth whose business address is identical with the registered office.
  3. The registered agent shall execute and deliver to the Secretary of State a document accepting the agency appointment, and the appointment of the agent shall not be effective until delivered to the Secretary of State.

History. Enact. Acts 1994, ch. 389, § 83, effective July 15, 1994.

Research References and Practice Aids

Kentucky Law Journal.

Booth and Rutledge, The Limited Liability Company Act: Understanding Kentucky’s New Organizational Option, 83 Ky. L.J. 1 (1994-95).

275.420. Change of registered office or registered agent for foreign limited liability company. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 84) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-020 .

275.425. Statement of resignation of registered agent of foreign limited liability company. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 85) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-030 .

275.430. Service of process on foreign limited liability company. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 86) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.4-040 .

275.435. Certificate of withdrawal for foreign limited liability company. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 87) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-060 .

275.440. Grounds for revocation of certificate of authority of foreign limited liability company. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 88; 2010, ch. 133, § 45) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-070 .

275.445. Notice of determination — Revocation of certificate — Effect of revocation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 89; 2010, ch. 133, § 46) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-080 .

275.450. Appeal of revocation. [Repealed.]

Compiler’s Notes.

This section (Enact. Acts 1994, ch. 389, § 90) was repealed by Acts 2010, ch. 151, § 151, effective January 1, 2011. See now KRS 14A.9-090 .

275.454. Venue.

Any action brought by the Attorney General for the involuntary dissolution of a nonprofit limited liability company may be commenced in Franklin Circuit Court or in the Circuit Court of the county in which the registered office of the nonprofit limited liability company is situated.

History. Enact. Acts 2007, ch. 137, § 14, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 14, effective July 15, 2010.

275.455. Exercise of powers by Kentucky company in any state or country.

A limited liability company organized and existing under this chapter may conduct its business, carry on its operations, and have and exercise the powers granted by this chapter in any state or foreign country.

History. Enact. Acts 1994, ch. 389, § 91, effective July 15, 1994.

Research References and Practice Aids

Northern Kentucky Law Review.

Mellen, Myre and Lee, Limited Liability Companies and Registered Limited Liability Partnerships in Kentucky: A Practical Analysis, 22 N. Ky. L. Rev. 229 (1995).

275.500. Share exchange between corporation and limited liability company.

  1. A limited liability company may acquire all or part of the outstanding shares of one (1) or more classes or series of a domestic or foreign corporation if the corporation, limited liability company, and a majority of their owners approve the exchange and, if the corporation is a foreign corporation, the share exchange is permitted under the laws of the state or country under which the foreign corporation is incorporated.
  2. The plan of share exchange shall set forth:
    1. The name of the corporation whose shares will be acquired and the name of the acquiring limited liability company;
    2. The terms and conditions of the exchange; and
    3. The manner and basis of exchanging the shares to be acquired for limited liability company interests, obligations, or other securities of the acquiring limited liability company or for cash or other property, in whole or part.
  3. The plan of share exchange may set forth other provisions relating to the exchange.
  4. This section shall not limit the power of a limited liability company to acquire all or part of the shares of one (1) or more classes or series of a corporation through a voluntary exchange or otherwise.
  5. Unless otherwise provided in the articles of organization, a written operating agreement, or a written plan of share exchange, no member of a limited liability company shall have the right to dissent from a share exchange.

History. Enact. Acts 2007, ch. 137, § 5, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 5, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.505. Approval of plan of share exchange.

  1. Unless otherwise provided in a written operating agreement, the plan of share exchange described in KRS 275.500 shall be considered for adoption by the members of the limited liability company.
  2. Each business entity that is a party to the share exchange shall approve the plan of share exchange in the manner and by the vote required by the laws applicable to the business entity.

History. Enact. Acts 2007, ch. 137, § 6, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 6, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.510. Articles of share exchange.

  1. After a plan of share exchange has been approved in accordance with KRS 275.505 , the acquiring limited liability company shall deliver to the Secretary of State, for filing, the articles of share exchange setting forth:
    1. The plan of share exchange; and
    2. A statement that the plan of share exchange was duly authorized and approved by each of the constituent business entities in accordance with the laws applicable to each business entity.
  2. A share exchange shall take effect upon the effective date of the articles of share exchange.

History. Enact. Acts 2007, ch. 137, § 7, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 7, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.515. Effect of share exchange.

When a share exchange takes effect, the shares of each acquired corporation shall be exchanged as provided in the plan, and the former holders of the shares shall be entitled only to the exchange rights provided in the articles of share exchange.

History. Enact. Acts 2007, ch. 137, § 8, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 8, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.520. Issuance of membership interests and distributions by nonprofit limited liability company prohibited — Exception for some business entities.

  1. Unless a nonprofit limited liability company has only business entities formed for a nonprofit purpose as its members, a nonprofit limited liability company shall not have or issue membership interests in the limited liability company, and no distribution shall be paid, and no part of the income or profit of the limited liability company shall be distributed to its members or managers.
  2. No part of the income or profit of a nonprofit limited liability company shall be distributed to its manager or managers.
  3. A nonprofit limited liability company may pay compensation in a reasonable amount to its members or managers for services rendered and may confer benefits upon its members in conformity with its purposes, and these payments or benefits shall not be deemed to be a distribution of income or profit.

HISTORY: Enact. Acts 2007, ch. 137, § 9, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 9, effective July 15, 2010; 2015 ch. 34, § 48, effective June 24, 2015.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.525. Loans to members and managers by nonprofit limited liability company prohibited — Exception for some business entities.

  1. Unless a nonprofit limited liability company has only business entities formed for a nonprofit purpose as its members, no loan shall be made by the company to its members or managers, and any member or manager who assents to or participates in the making of a loan violating this prohibition shall be liable to the company for the amount of the loan until its repayment.
  2. No loan shall be made by a nonprofit limited liability company to its managers, and any member or manager who assents to or participates in the making of a loan violating this prohibition shall be liable to the company for the amount of the loan until its repayment.

HISTORY: Enact. Acts 2007, ch. 137, § 10, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 10, effective July 15, 2010; 2015 ch. 34, § 49, effective June 24, 2015.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.530. Distribution of assets of nonprofit limited liability company.

The assets of a nonprofit limited liability company in the process of dissolution shall be applied and distributed as follows:

  1. All liabilities and obligations of the nonprofit limited liability company shall be paid and discharged or adequate provisions made for them;
  2. Assets received and held by the nonprofit limited liability company upon condition requiring return, transfer, or conveyance, which condition occurs by reason of the dissolution, shall be returned, transferred, or conveyed in accordance with the condition’s requirements;
  3. Assets received and held by the nonprofit limited liability company subject to limitations permitting their use only for a nonprofit purpose, but not held upon a condition requiring return, transfer, or conveyance by reason of the dissolution, shall be transferred or conveyed to one (1) or more domestic or foreign nonprofit corporations, limited liability companies, societies, or organizations engaged in activities substantially similar to those of the dissolving nonprofit limited liability company, pursuant to a plan of distribution; and
  4. Any remaining assets may be distributed to those nonprofit corporations, limited liability companies, societies, or organizations as may be specified in a plan of dissolution, including those that are members of the nonprofit limited liability companies.

History. Enact. Acts 2007, ch. 137, § 11, effective June 26, 2007; repealed and reenact., Acts 2010, ch. 51, § 11, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.535. Procedure in liquidation of nonprofit limited liability company by court.

  1. In proceedings to liquidate the assets and affairs of a nonprofit limited liability company, the court shall have the power to issue injunctions and to appoint a receiver or receivers while the action is pending. The receivers shall have those powers and duties as the court from time to time may direct, to take action to preserve the corporate assets wherever situated, and to carry on the affairs of the nonprofit limited liability company until a full hearing can be held.
  2. After holding a hearing, upon notice as the court may direct to be given to all parties to the proceedings and to any other parties in interest designated by the court, the court may appoint a liquidating receiver or receivers with authority to collect the assets of the nonprofit limited liability company. The liquidating receiver or receivers shall have authority, subject to the order of the court, to sell, convey, and dispose of all or any part of the assets of the nonprofit limited liability company wherever situated, either at public or private sale. The order appointing the liquidating receiver or receivers shall state their powers and duties. The powers and duties may be increased or diminished at any time during the proceedings.
  3. The assets of the nonprofit limited liability company or the proceeds resulting from a sale, conveyance, or other disposition thereof shall be applied and distributed as follows:
    1. All costs and expenses of the court proceedings and all liabilities and obligations of the nonprofit limited liability company shall be paid, satisfied, and discharged, or adequate provision for them shall be made;
    2. Assets held by the nonprofit limited liability company upon condition requiring return, transfer, or conveyance, which condition occurs by reason of the dissolution or liquidation, shall be returned, transferred, or conveyed in accordance with the condition’s requirements;
    3. Assets received and held by the nonprofit limited liability company subject to limitations permitting their use only for a nonprofit purpose, but not held upon a condition requiring return, transfer, or conveyance by reason of the dissolution or liquidation, shall be transferred or conveyed to one (1) or more domestic or foreign nonprofit limited liability companies, societies, or organizations engaged in activities substantially similar to those of the dissolving or liquidating nonprofit limited liability company, as the court may direct; and
    4. Any remaining assets may be distributed to those persons, societies, organizations, or domestic or foreign limited liability companies, whether for profit or nonprofit, specified in the plan of distribution adopted or, if no plan of distribution has been adopted, as the court may direct.
  4. The court shall have power to allow, from time to time, as expenses of the liquidation, compensation to the receiver or receivers and to attorneys in the proceeding, and to direct the payment thereof out of the assets of the nonprofit limited liability company or the proceeds of any sale or disposition of the assets.
  5. A receiver of a nonprofit limited liability company appointed under the provisions of this section shall have authority to sue and defend in all courts in the receiver’s own name as receiver of the nonprofit limited liability company. The court appointing the receiver shall have exclusive jurisdiction of the nonprofit limited liability company and its property, wherever situated.

History. Enact. Acts 2007, ch. 137, § 12, effective June 26, 2007; repealed and reenact., 2010 Ky. Acts ch. 51, § 12, effective July 15, 2010.

Research References and Practice Aids

Kentucky Law Journal.

Rutledge, The 2007 Amendments to the Kentucky Business Entity Statutes, 97 Ky. L.J. 229 (2008).

275.540. Involuntary dissolution of nonprofit limited liability company.

A nonprofit limited liability company may be involuntarily dissolved by a decree of the Circuit Court in an action filed by the Attorney General when it is established that:

  1. The nonprofit limited liability company is guilty of abuse or misuse of its powers, privileges, or franchises, or the nonprofit limited liability company has become detrimental to the interest and welfare of this Commonwealth or its citizens; or
  2. The nonprofit limited liability company procured its articles of organization through fraud.

History. Enact. Acts 2007, ch. 137, § 13, effective June 26, 2007; repealed and reenact., 2010 Ky. Acts ch. 51, § 13, effective July 15, 2010.