[Federal Register Volume 64, Number 71 (Wednesday, April 14, 1999)]
[Notices]
[Pages 18397-18398]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-8975]


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 Notices
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 This section of the FEDERAL REGISTER contains documents other than rules 
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  Federal Register / Vol. 64, No. 71 / Wednesday, April 14, 1999 / 
Notices  

[[Page 18397]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service
[Docket No. FV99-360]


Information About Recognizing Limited Liability Companies Under 
the Perishable Agricultural Commodities Act (PACA)

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Notice.

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SUMMARY: This document provides notice to the public that it is USDA 
policy to recognize a limited liability company (LLC) as a legal entity 
under the Perishable Agricultural Commodities Act (PACA), and that any 
member of an LLC, and/or any other person authorized by the members to 
conduct business on behalf of an LLC, may be considered to be 
``responsibly connected'' with the LLC.

DATES: April 14, 1999.

ADDITIONAL INFORMATION: Contact Charles W. Parrott, Assistant Chief, 
PACA Branch, Fruit and Vegetable Division, AMS, USDA, Room 2095-So. 
Bldg., P.O. Box 96456, Washington, DC 20090-6456. Email_
[email protected]. This notice will also be posted on the 
Internet at www.ams.usda.gov/fv/paca.htm.

SUPPLEMENTARY INFORMATION: The Perishable Agricultural Commodities Act 
(PACA) establishes a code of fair trade practices covering the 
marketing of fresh and frozen fruits and vegetables in interstate and 
foreign commerce. The PACA protects growers, shippers, distributors, 
and retailers dealing in those commodities by prohibiting unfair and 
fraudulent practices. In this way, the law fosters an efficient 
nationwide distribution system for fresh and frozen fruits and 
vegetables, benefitting the whole marketing chain from farmer to 
consumer. USDA's Agricultural Marketing Service (AMS) administers and 
enforces the PACA.
    Any person who buys or sells commercial quantities of fruits and 
vegetables in interstate or foreign commerce must be licensed under the 
PACA. Under the Act, the term ``person'' means any individual, 
partnership, corporation, association, or separate legal entity. 7 
U.S.C. 499a(b)(1); 7 CFR 46.2(i). Separate licenses are required for 
each person. A person is designated as ``responsibly connected'' with a 
firm under the PACA if that person is affiliated as an owner, as a 
partner in a partnership, or as an officer, director or holder of more 
than 10 percent of the outstanding stock of a corporation or 
association. 7 U.S.C. 499a(b)(9); 7 CFR 46.2(ff). In the event that a 
licensee is found to have violated the Act and USDA suspends or revokes 
the firm's license, then the licensee and its ``responsibly connected'' 
principals face PACA licensing and employment restrictions which may 
include the denial of a license, a prohibition on employment with 
another PACA licensee, or the requirement that a bond be posted as a 
prerequisite to licensing or employment in the fruit and vegetable 
industry. 7 U.S.C. 499h.
    Although the PACA and PACA regulations do not specifically list the 
LLC as a ``person,'' it is USDA policy to recognize an LLC as a 
separate legal entity, just as LLCs are recognized in most states, 
subject to licensing under the PACA regulations. This notice provides 
information about how AMS handles LLCs under the PACA, especially with 
regard to the licensing of LLCs and the responsibly connected status of 
LLC members.
    An LLC may be described as a cross between a partnership and a 
corporation. This hybrid business structure is now available to 
businesses in most states. The personal liability protection afforded 
by the LLC is similar to that of a corporation. For example, the 
members are insulated from liability arising solely from being a member 
but are not insulated from liability for the acts of the LLC which 
violate any laws or regulations. Liability issues may vary somewhat 
according to state law and the LLC's organizational agreement.
    Although an LLC affords personal liability protection to its owners 
that is similar to that of a corporation, the ownership characteristics 
of an LLC more closely resemble those of a partnership. The LLC owners 
are often referred to as members, and member-managers may be 
designated. Membership requirements in an LLC can be determined by the 
members; for example, members may join through financial contributions 
or through the performance of services.
    In general, state LLC statutes require the filing of documentation 
similar to articles of incorporation, sometimes called articles of 
organization. In addition, an operating agreement is entered into which 
usually designates who has the authority to run the LLC company. This 
operating agreement usually details the process to be followed in 
choosing the manager(s) and sets forth the manager(s)' authority and 
the authority retained by the members. The manager(s) is often, but not 
always, a member of the LLC. Specific requirements vary by state.
    Because of the unique composite nature of the LLC, an LLC's members 
are analogous to partners in a partnership, while managers, who are not 
always members, may be analogous to corporate officers, depending on 
the manager's responsibilities as set out by the LLC's operating 
agreement. Therefore, it is USDA's policy that all LLC members, 
regardless of the member's financial contribution, are ``responsibly 
connected'' persons under the PACA, just as all partners are 
``responsibly connected'' with a partnership. In addition, any 
person(s), whether or not a member, who is authorized by the LLC to be 
in charge of the daily business operations, management, and control of 
the LLC, may be considered responsibly connected to the LLC by USDA, 
just as officers in a corporation are under the PACA. The determination 
of whether a person other than a member is ``responsibly connected'' 
will depend upon the terms of the LLC's operating agreement. These 
agreements are similar to a partnership agreement or corporate bylaws 
which outline who is in charge of the business' daily operations. Those 
persons whom the LLC authorizes to be in charge of the day-to-day 
operation, management and control of the LLC's daily business 
activities may include, but are not limited to, those with the titles 
of managers, officers, and/or directors.
    An LLC members' ownership in the company closely resembles a

[[Page 18398]]

partnership. Therefore, all LLC members, including corporations or 
other entities, must be identified on the firm's PACA license 
application. If a member is a corporation or other legal entity, more 
information, such as the names of officers of the corporation or other 
data, will be required by AMS. PACA license applications submitted by 
LLCs should include organizational information about the company, 
including, but not limited to, documentation filed with the state in 
which the LLC is legally established, such as its articles of 
organization and its operating agreement. Only one member's signature 
is required to make a valid PACA application. In addition, just as is 
required of other legal entities, if the articles of organization or 
the operating agreements change, the LLC should notify AMS' PACA Branch 
as soon as possible and the LLC should submit revised documents to the 
PACA Branch.
    The LLC business structure has become widely accepted throughout 
the United States as a new legal entity. AMS is hereby providing notice 
to all current and future licensees that certain information is 
required in order to obtain a license as an LLC under the PACA. In 
addition, notice is given to all LLC members that they are presumed to 
be ``responsibly connected'' persons and to all LLC managers, who are 
not also members, that they are potentially ``responsibly connected'' 
persons. The ``responsibly connected'' status of LLC managers will be 
determined on a case-by-case basis, depending upon the terms of the 
LLC's operating agreement and the ways in which the person's status is 
analogous to that of an officer, director or shareholder of a 
corporation. Therefore, both members and managers may be subject to 
PACA sanctions if the Act is violated by the LLC.

    Dated: April 6, 1999
Robert C. Keeney,
Deputy Administrator, Fruit and Vegetable Programs.
[FR Doc. 99-8975 Filed 4-13-99; 8:45 am]
BILLING CODE 3410-02-U