A new law coming into effect in California on January 1, 2014 will govern the formation and operation of all limited liability companies (LLCs) in this state. It’s out with the old and in with the new!
The California Revised Uniform Limited Liability Company Act (popularly known as RULLCA and codified at Cal Corp Code §§17701.01-17713.13) takes effect January 1st. RULLCA was based on the uniform LLC act drafted by the National Conference of Commissioners on Uniform State Laws—but it also includes many carry-over provisions from the existing California LLC law, the Beverly Killea Limited Liability Company Act (Beverly Killea).
If you represent an existing LLC, there’s no “opt-in” or “opt-out” procedure. RULLCA will apply automatically to all existing California LLCs as well as all foreign LLCs previously registered with the Secretary of State as of that date. Of course, it will also apply to all LLCs to be formed in California and all foreign LLCs doing business in California after January 1st.
Although RULLCA will displace Beverly-Killea as of January 1st, as Brian Ripley notes on his blog, Beverly-Killea will still be relevant to acts or transactions by an LLC or its members or managers before January 1, 2014, as well as to contracts dated before January 1, 2014.
RULLCA clarifies many issues and includes a more robust set of default rules on many topics, which apply if the LLC operating agreement is silent. Although much of the substance of RULLCA is similar to current law, there are a number of changes:
- It adds detailed provisions on which RULLCA sections can be overridden by the operating agreement.
- It furnishes more detail on withdrawal and the consequences of withdrawal (called “dissociation”) of an LLC member from the LLC.
- It adds detailed rules on the fiduciary duties of members and managers in both manager-managed and member-managed LLCs, but preserves existing law governing the duty of care.
- It clarifies the extent to which the operating agreement can define, alter, or even eliminate (in limited circumstances) aspects of fiduciary duty, and authorizes the operating agreement to relieve members and managers from liability for money damages arising from breach of duty, subject to specific limitations.
Many important provisions of Beverly Killea were preserved, e.g., the right of minority members to seek judicial dissolution of the LLC and the right of the majority members to buy out the minority at fair value and continue the LLC’s existence.
For a deeper look at the changes to the LLC law under RULLCA and a link to RULLCA itself, go to CEB’s Law Alert. CEB will also be covering the new law in articles in the latest issues of the California Business Law Practitioner and the California Business Law Reporter.
CEB’s new edition of its best-selling title Forming and Operating California Limited Liability Companies reflects the new law.
Other CEB blog posts you may find interesting:
- Before Starting Up a Start-Up
- What’s in a (Business) Name?
- So Happy Together: 15 Things to Discuss with Joint Venturers
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