Tuesday, December 19, 2017
Washington Marijuana Law Has Entity Type Quirks (And LLCs Are Still Not Corporations)
A recent case in Washington state introduced me to some interesting facets of Washington's recreational marijuana law. The case came to my attention because it is part of my daily search for cases (incorrectly) referring to limited liability companies (LLCs) as "limited liability corporations." The case opens:
In 2012, Washington voters approved Initiative Measure 502. LAWS OF 2013, ch. 3, codified as part of chapter 69.50 RCW. Initiative 502 legalizes the possession and sale of marijuana and creates a system for the distribution and sale of recreational marijuana. Under RCW 69.50.325(3)(a), a retail marijuana license shall be issued only in the name of the applicant. No retail marijuana license shall be issued to a limited liability corporation unless all members are qualified to obtain a license. RCW 69.50.331(1)(b)(iii). The true party of interest of a limited liability company is “[a]ll members and their spouses.”1 Under RCW 69.50.331(1)(a), the Washington State Liquor and Cannabis Board (WSLCB) considers prior criminal conduct of the applicant.2
(b) No license of any kind may be issued to:. . . .(iii) A partnership, employee cooperative, association, nonprofit corporation, or corporation unless formed under the laws of this state, and unless all of the members thereof are qualified to obtain a license as provided in this section;
True party of interest: Persons to be qualified
Sole proprietorship: Sole proprietor and spouse.General partnership: All partners and spouses.Limited partnership, limited liability partnership, or limited liability limited partnership: All general partners and their spouses and all limited partners and spouses.Limited liability company: All members and their spouses and all managers and their spouses.Privately held corporation: All corporate officers (or persons with equivalent title) and their spouses and all stockholders and their spouses.Publicly held corporation: All corporate officers (or persons with equivalent title) and their spouses and all stockholders and their spouses.
Multilevel ownership structures: All persons and entities that make up the ownership structure (and their spouses).
(1) A corporation has 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 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 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 office in a corporation.
Requirement for and duties of board of directors.
(1) Each corporation must have a board of directors, except that a corporation may dispense with or limit the authority of its board of directors by describing in its articles of incorporation, or in a shareholders' agreement authorized by RCW 23B.07.320, who will perform some or all of the duties of the board of directors.(2) Subject to any limitation set forth in this title, the articles of incorporation, or a shareholders' agreement authorized by RCW 23B.07.320:(a) All corporate powers shall be exercised by or under the authority of the corporation's board of directors; and(b) The business and affairs of the corporation shall be managed under the direction of its board of directors, which shall have exclusive authority as to substantive decisions concerning management of the corporation's business.
(4) Persons who exercise control of business - The WSLCB will conduct an investigation of any person or entity who exercises any control over the applicant's business operations. This may include both a financial investigation and/or a criminal history background.