California Amends Its Revised Uniform Limited Liability Company Law
On October 11, 2015, California Governor Jerry Brown signed into law Assembly Bill 506, which amends the California Revised Uniform Limited Liability Company Act that became effective on January 1, 2014. AB 506 was primarily drafted by the Partnership and Limited Liability Companies Committee of the Business Law Section of the California State Bar to fix what were perceived as problems with the original California RULLCA. I’ll be posting a more detailed look at the revisions to RULLCA, but at first glance the amendments reinforce my belief that ALL California LLCs should adopt an Operating Agreement that is expressly drafted to comply with RULLCA as amended by AB 506.
Here’s the text of the Legislative Counsel’s comments on AB 506:
“Existing law, the California Revised Uniform Limited Liability Company Act, authorizes one or more persons to form a limited liability company by, among other things, signing and delivering articles of organization to the Secretary of State. The act authorizes a person, as defined, to dissociate as a member of a limited liability company at any time by withdrawing as a member by express will. The act deems a person to be dissociated from a limited liability company upon the occurrence of certain events, including, among others, an individual’s death. The act provides the effects when a person, including an individual, is dissociated from a limited liability company. Existing law limits the application of an operating agreement.
This bill would specify that upon dissociation a person’s right to vote as a member in the management and conduct of the limited liability company’s activities terminates. The bill would authorize, if a member dies, or a guardian or conservator of the estate is appointed for the member, or a member’s interest is being administered by an attorney-in-fact under a valid power of attorney, the member’s executor, administrator, guardian, conservator, attorney-in-fact, or other legal representative to exercise all of the member’s rights for the purpose of settling the member’s estate or administering the member’s property, including any power the member had under the articles of organization or an operating agreement to give a transferee the right to become a member. The bill would also modify the definition of “electronic transmission by the limited liability company” and would expand the definition of “person” under the act. The bill would modify what an operating agreement may provide, as specified. The bill would provide that specified provisions of the Labor Code, relating to consideration for employment and employment contracts, shall not apply to membership interests issued by any limited liability company or foreign limited liability company, as specified.
Existing law requires that any distributions made by a limited liability company before its dissolution and winding up be among the members in accordance with the operating agreement.This bill would further require that the profits and losses of a limited liability company be allocated among the members, and among classes of members, in the manner provided in the operating agreement, and would require that profits and losses be allocated in proportion to the value of the contributions from each member if the operating agreement does not otherwise provide.Existing law requires the consent of all members of the limited liability company to approve a merger or conversion and to amend the operating agreement. This bill would eliminate that requirement.Existing law requires a limited liability company to reimburse for any payment made and indemnify for any debt, obligation, or other liability incurred by a member of a member-managed limited liability company or the manager of a manager-managed limited liability company in the course of the member’s or manager’s activities on behalf of the limited liability company, if, in making the payment or incurring the debt, obligation, or other liability, the member or manager complied with specified duties.This bill would require the limited liability company to indemnify the agent of a limited liability company to the extent that the agent has been successful on the merits in defense or settlement of any claim, issue, or matter if the agent acted in good faith and in a manner that the agent reasonably believed to be in the best interests of the limited liability company and its members, as provided.Under existing law, the persons who filed the certificate of dissolution are required to sign and file with the Secretary of State a certificate of cancellation of articles of organization upon the completion of the winding up of the affairs of the limited liability company, except as specified. Existing law requires the certificate of cancellation of articles of organization to include, among other things, that upon the filing of the certificate of cancellation, the limited liability company is required to be canceled and its powers, rights, and privileges are required to cease. Under existing law, a limited liability company that is dissolved continues to exist for the purpose of, among other things, winding up its affairs and prosecuting and defending actions by or against it in order to collect and discharge obligations.This bill would instead provide that a limited liability company that has filed a certificate of cancellation continues to exist for those purposes, as specified.This bill would limit the applicability of the act to acts or transactions by a limited liability company or by the members or managers of the limited liability company occurring, or an operating agreement or other contracts entered into by the limited liability company or by the members or managers of the limited liability company, on or after January 1, 2014.This bill would incorporate additional changes to Section 17710.06 of the Corporations Code made by this bill and AB 1471 to take effect if both bills are chaptered and this bill is chaptered last.This bill would incorporate additional changes to Section 17713.12 of the Corporations Code made by this bill and AB 1517 to take effect if both bills are chaptered and this bill is chaptered last.”