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Tuesday
May072013

California LLCs Singing a New Song – The Laws They Are a-Changin’

 

by Robert A. Hull

One of the most sweeping changes to the California law governing limited liability companies is set to go into effect January 1, 2014, when California’s Revised Uniform Limited Liability Company Act (“RULLCA”) will displace the provisions of the Beverly-Killea Limited Liability Company Act (the “Beverly Act”), which presently governs California LLCs. RULLCA is based on revisions to the Uniform Limited Liability Company Act (the “Revised Uniform Act”), which was adopted by the National Conference of Commissions on Uniform State Laws. RULLCA contains some modifications to the Revised Uniform Act to include some existing California law.

RULLCA applies to LLCs (both domestic and registered foreign LLCs) in California starting January 1, 2014. It applies to all actions of members/managers commencing on that date, though the Beverly Act still applies to such actions prior to that date.

Presently-existing LLCs will not have to file any additional documents in order to comply with RULLCA. RULLCA, in its present form, does not address Series LLCs.

LLC members and managers should have an understanding of RULLCA’s impact.

 

Some notable provisions of RULLCA:

 

  • The Operating Agreement will prevail over provisions of the Articles of Organization as to members, dissociated members, transferees and managers (though the Articles prevail as to other persons to the extent those persons reasonably rely on the Articles).

  • RULLCA’s provisions regarding non-liquidating distributions generally conform to the provisions of the Uniform Limited Partnership Act of 2008 and largely follow the Beverly Act, with certain exceptions. For example, if the Operating Agreement does not otherwise provide, such distributions under RULLCA are made based on the value of the LLC contributions of the LLC members while the Beverly Act looks to the members’ capital contributions and the allocation of profits.

  •  New language is added concerning which provisions can be overridden by the Operating Agreement, and which provisions cannot be. Provisions an Operating Agreement cannot vary are set forth in Sections 17701.10(c) and (d) of RULLCA.

  • RULLCA limits how Operating Agreements may change the fiduciary duties of members or managers. In addition, RULLCA establishes limits for LLCs regarding the indemnification of members and managers from liability for money damages arising from breaches of certain duties.

  • Most of the Beverly Act’s liability protection from the claims of third parties from LLC activities remains intact.

  • RULLCA provides specific provisions on notices, quorums, actions and consents, in the event these are not addressed by the Operating Agreement.

  • Expect more explicitly defined consequences to an LLC member who chooses to dissociate from the LLC.

All members and managers of LLCs will want to consult counsel to determine whether amendment of their present Operating Agreement is advisable to avoid unexpected or unwanted consequences.

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