On September 21, 2012, Governor Brown signed Senate Bill 323 (Vargas) (the “Bill”) into law. Specifically, Section 20 of the Bill adds the California Revised Uniform Limited Liability Company Act (“RULLCA”) to the Corporations Code to govern the formation and operation of limited liability companies (“LLCs”). The RULLCA will become operative on January 1, 2014 and replaces the existing Beverly-Killea Limited Liability Company Act. [1] Why Make This Change? In 1994, California adopted the Beverly-Killea Limited Liability Company Act, which first recognized LLCs in California. At about the same time, nearly every other state also adopted their own respective statutes recognizing LLCs, resulting in widely varying provisions. [2] The RULLCA is based on the Revised Uniform Limited Liability Company Act (the “Uniform Act”) adopted by the National Conference of Commissioners on Uniform State Laws, with modifications to continue certain aspects of existing California law. The intent of the Uniform Act is to replace the varying LLC statutes in each state (including California’s Beverly-Killea Limited Liability Company Act) with uniform provisions to enable LLCs to more easily operate on a multi-state basis. [3] As such, the Revised Act moves California LLC statutes toward national uniformity, while establishing a more robust set of default rules that apply to topics on which the LLC operating agreement may be silent. [4] What Are the Consequences? The bill has far-reaching consequences for existing LLCs as well as those LLCs formed after the effective date of the Bill. While there are some unique California provisions of the Beverly-Killea Act that will be preserved, such as dissenters’ rights and the prohibition on professional LLCs, there will also be several profound changes. Some of the more notable revisions include:
- Authorization for an operating agreement to be in a record or implied, as well as being written or oral, and would authorize the recognition of a combination of those forms.
- Distinction between manager-managed LLCs and member-managed LLCs (default type) for defining the scope of a member’s agency and limiting the fiduciary duties of members who do not control the LLC ( Article 3: Relations of Members and Managers to Persons Dealing with a Limited Liability Company).
- Establishment of classes of members, not unlike classes of shareholders in a corporation ( Article 12: Class Provisions).
- Definition of the circumstances under which a member may be dissociated from a LLC and effects of disassociation on the member and the LLC ( Article 6: Member’s Dissociation).
- Allowance for the transfer of member’s interests and the effect on member’s status with the LLC and the management of the LLC ( Article 5: Transferable Interests and Rights of Transferees and Creditors).
- Various provisional changes governing the operations and capitalization of the LLC.
This is not an exhaustive list of the changes associated with the RULLCA, but highlight some of the more significant provisions of the Bill. For further information about the RULLCA, forming a LLC, or other related questions, please contact us at (619)298-2880.
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