[Federal Register Volume 65, Number 83 (Friday, April 28, 2000)]
[Rules and Regulations]
[Pages 24853-24855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-10481]



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 Rules and Regulations
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  Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Rules 
and Regulations  

[[Page 24853]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 46

[Docket No. FV99-361]


Perishable Agricultural Commodities Act: Recognizing Limited 
Liability Companies

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Department of Agriculture (USDA) has amended the 
regulations under the Perishable Agricultural Commodities Act (PACA or 
Act) to recognize a limited liability company (LLC) as a legal entity, 
and also to recognize each member of an LLC, and/or any other person 
authorized by the members to conduct business on behalf of an LLC, as 
``responsibly connected'' with the LLC, as defined in the PACA.

EFFECTIVE DATE: May 30, 2000.

FOR FURTHER INFORMATION CONTACT: Charles W. Parrott, Acting Chief, PACA 
Branch, Fruit and Vegetable Programs, AMS, USDA, Room 2095, So. Bldg., 
P.O. Box 96456, Washington, DC 20090-6456, phone (202) 720-2272. 
[email protected].

SUPPLEMENTARY INFORMATION: This regulation is issued under authority of 
section 15 of the PACA (7 U.S.C. 499o).

Background

    The Perishable Agricultural Commodities Act (PACA or Act) 
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 trade practices. In this way, the law fosters an efficient 
nationwide distribution system for fresh and frozen fruits and 
vegetables, benefiting 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 and regulations, the term ``person'' means any 
individual, partnership, corporation, association, or separate legal 
entity. 7 USC 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 USC 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 USC 499h.
    Previously, the PACA regulations did not specifically define a 
limited liability company as a ``person,'' although USDA policy was to 
recognize an LLC as a separate legal entity, just as LLC's are 
recognized in most states, subject to licensing under the PACA. The 
regulatory amendments herein codify that policy by expanding the 
current regulations to include LLC's under the PACA, especially with 
regard to the licensing of LLC's and the responsibly connected status 
of LLC members and managers.

Comments

    A proposed rule to amend PACA regulations was published in the 
Federal Register on October 25, 1999 (64 FR 57405). The proposal sought 
to amend several of Title 7, Part 46, to recognize an LLC as a legal 
entity, and also to recognize each member of an LLC, and/or any other 
person authorized by the members to conduct business on behalf of an 
LLC, as ``responsibly connected'' with the LLC, as defined in the PACA. 
The proposal also sought revision of an information collection 
previously approved by the Office of Management and Budget (OMB). AMS 
received no comments, and therefore, is making no changes to the final 
rule.

Executive Orders 12866 and 12988

    This final rule is issued under the Perishable Agricultural 
Commodities Act (7 U.S.C. 499 et seq.), as amended, and has been 
determined to be not significant for the purposes of Executive Order 
12866, and therefore, has not been reviewed by OMB.
    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform and is not intended to have retroactive effect. 
This final rule will not preempt any State or local laws, regulations, 
or policies, unless they present an irreconcilable conflict with this 
rule. There are no administrative procedures that must be exhausted 
prior to any judicial challenge to the provisions of this rule.

Effects on Small Businesses

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601 et seq., USDA has considered the economic 
impact of this final rule on small entities. The purpose of the RFA is 
to fit regulatory actions to the scale of businesses subject to such 
actions in order that small businesses will not be unduly or 
disproportionately burdened. Small agricultural service firms have been 
defined by the Small Business Administration (13 CFR 121) as those with 
less than 500 employees. The PACA requires all businesses that operate 
subject to its provisions to maintain a license issued by USDA. There 
are approximately 15,700 PACA licensees, the majority of which may be 
classified as small entities.
    The amendments to the PACA regulations recognize a limited 
liability company (LLC) as a legal entity under the PACA regulations, 
and revise the definition of ``responsibly connected'' under the 
regulations to include any member of an LLC, and/or any other person 
authorized by the members to conduct business on behalf of an LLC. The 
LLC business structure has become widely accepted throughout the United 
States as a new legal entity and these regulatory amendments clarify 
how

[[Page 24854]]

USDA deals with these entities and their principals under the PACA.
    Like a sole proprietorship, partnership, corporation, or any other 
separate legal entity, a LLC, whether a small or large business, must 
obtain and maintain a valid PACA license if it buys or sells commercial 
quantities of fruits and vegetables in interstate or foreign commerce. 
AMS believes that this final rule will have no more impact on an LLC 
than the current PACA regulations have on sole proprietorships, 
partnerships, associations, or corporations operating subject to the 
PACA, whether large or small.
    Since LLC's are required to be licensed under the PACA as a 
``separate legal entity,'' they are subject to disciplinary actions by 
USDA for violating the PACA and regulations. Therefore, these 
regulatory amendments mainly impact those persons USDA considers as 
``responsibly connected'' with the LLC. If USDA suspends or revokes a 
firm's license for PACA violations, the firm and any person found 
``responsibly connected'' with the firm are restricted for a certain 
period of time from holding a PACA license or from being employed with 
another PACA licensee. These restrictions apply to any firm which has 
been found to have violated the PACA, regardless of the firm's size or 
type of ownership.
    Given the preceding discussion, AMS has determined that the 
provisions of this final rule would not have a significant economic 
impact on a substantial number of small entities.

Paperwork Reduction Act

    In compliance with Office of Management and Budget (OMB) 
regulations (5 CFR part 1320) which implement the Paperwork Reduction 
Act of 1995 (Pub. L. 104-13), the information collection and record 
keeping requirements covered by this final rule were approved by OMB on 
November 29, 1999, and expire on April 30, 2001.

List of Subjects in 7 CFR Part 46

    Agricultural commodities, Brokers, Penalties, Reporting and 
recordkeeping requirements.


    For the reasons set forth in the preamble, 7 CFR part 46 is amended 
as follows:

PART 46--[AMENDED]

    1. The authority citation for part 46 continues to read as follows:

    Authority: Sec. 15, 46 Stat. 537; 7 U.S.C. 499o.


    2. In Sec. 46.2, paragraphs (i) and (ff) are revised to read as 
follows:


Sec. 46.2  Definitions.

* * * * *
    (i) Person means any individual, partnership, limited liability 
company, corporation, association, or separate legal entity.
* * * * *
    (ff) Responsibly connected means affiliation as individual owner, 
partner in a partnership, member, manager, officer, director or holder 
of more than a 10 percent ownership stake in a limited liability 
company, or officer, director or holder of more than 10 percent of the 
outstanding stock of a corporation or association.

    3. Sec. 46.4 is amended as follows:
    a. Paragraphs (b)(3) and (b)(4) are revised,
    b. Paragraphs (b)(6)(ii) and (b)(6)(iii) are removed,
    c. Paragraph (b)(6)(iv) is redesignated as paragraph (b)(6)(ii) and 
revised,
    d. Paragraphs (b)(6)(v) and (b)(6)(vi) are redesignated as 
paragraphs (b)(6)(iii) and (b)(6)(iv), and
    e. The introductory text of paragraph (b)(6), and paragraph (c) are 
revised to read as follows:


Sec. 46.4  Application for license.

* * * * *
    (b) * * *
* * * * *
    (3) Type of ownership. If a corporation or limited liability 
company, the applicant shall furnish the month, day, and year 
incorporated or organized; the State in which incorporated or 
organized; the name in which incorporated or organized; and the address 
of the principal office. A limited liability company shall also furnish 
a copy of its articles of organization and its operating agreement.
    (4) Full legal name, all other names used, if any, and home address 
of owner. If a partnership, the applicant shall furnish the legal 
names, all other names used, if any, and home address of all partners, 
indicating whether general, limited, or special partners. If a limited 
liability company, the applicant shall furnish the full legal names, 
all other names used, if any, and home address of all members, 
managers, officers, directors and holders of more than 10 percent of 
the ownership stake, and the percentage of ownership in the company 
held by each such person. If an association or corporation, the 
applicant shall furnish the full legal names, all other names used, if 
any, and home address of all officers, directors and holders of more 
than 10 percent of the outstanding stock and the percentage of stock 
held by each such person. Minors shall also furnish the full name and 
home address of their guardian. If the applicant is a trust, the name 
of the trust and the full name and home address of the trustee must be 
furnished. If the applicant is a limited liability company and a member 
or holder of more than 10 percent of the ownership stake is a 
partnership, another limited liability company, corporation, 
association, or separate legal entity, the applicant shall furnish the 
full legal names and home address of that member's partners, members, 
managers, directors, and officers.
* * * * *
    (6) Whether the applicant, or in case the applicant is a 
partnership, any partner, or in case the applicant is a limited 
liability company, any member, manager, officer, director or holder of 
more than 10 percent of the ownership stake, or in case the applicant 
is an association or corporation, any officer, director, or holder of 
more than 10 percent of the outstanding stock, has prior to the filing 
of the application:
    (i) * * *
    (ii) Within three years been adjudicated or discharged as a 
bankrupt or was an officer, director, stockholder, partner, member, 
manager or owner of a firm adjudicated or discharged as a bankrupt. * * 
*
* * * * *
    (c) The application shall be signed by the owner, all general 
partners, or in case the applicant is a limited liability company, a 
member or manager, or in case the applicant is an association, or 
corporation, a duly authorized officer.
* * * * *

    4. In Sec. 46.11, the first sentence is revised to read as follows:


Sec. 46.11  What constitutes valid license, form and use.

    Each license shall bear a serial number, the names in which 
authorized to conduct business, type of ownership, if the business is 
individually owned, the name of the owner; if a partnership, the names 
of all general partners; if a limited liability company, the names of 
all members, managers, officers, directors and holders of more than 10 
percent of the ownership stake, and the percentage of ownership in the 
company held by each such person; if a corporation or association, the 
names of all officers, directors, and shareholders of more than 10 
percent of the outstanding stock and the percentage of stock held by 
each such person; the facsimile signature of the Deputy Administrator, 
the seal of the Department and shall be duly countersigned. * * *

[[Page 24855]]


    5. In Sec. 46.13, paragraphs (a)(2) and (a)(5) are revised to read 
as follows:


Sec. 46.13  Address, ownership, changes in trade name, changes in 
number of branches, changes in members of partnership, and bankruptcy.

* * * * *
    (a) * * *
    (2) Any change in officers, directors, members, managers, holders 
of more than 10 percent of the outstanding stock in a corporation, with 
the percentage of stock held by such person, and holders of more than 
10 percent of the ownership stake in a limited liability company, and 
the percentage of ownership in the company held by each such person;
* * * * *
    (5) When the licensee, or if the licensee is a partnership, any 
partner is subject to proceedings under the bankruptcy laws. A new 
license is required in case of a change in the ownership of a firm, the 
addition or withdrawal of partners in a partnership, or in case 
business is conducted under a different corporate charter, or in case a 
limited liability company conducts business under different articles or 
organization from those under which the license was originally issued.
* * * * *

    Dated: April 21, 2000.
Robert C. Keeney,
Deputy Administrator, Fruit and Vegetable Programs.
[FR Doc. 00-10481 Filed 4-27-00; 8:45 am]
BILLING CODE 3410-02-P