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Law Alert!

California Revised Uniform Limited Liability Company Act
Signed Into Law, Takes Effect January 1, 2014

(Posted October 2, 2012)

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On September 21, 2012, S.B. 323, the California Revised Uniform Limited Liability Company Act (popularly known as RULLCA), was signed into law by Governor Jerry Brown as 2012 Stats, ch 419. RULLCA will take effect on January 1, 2014, and will apply to all existing California limited liability companies (LLCs) as well as all foreign LLCs previously registered with the Secretary of State as of that date. It displaces entirely the current California law governing LLCs (the Beverly-Killea Limited Liability Company Act, Corp C 17000-17656 (Beverly-Killea)) and will be codified as new Title 2.6 of the California Corporations Code at 17701.01-17713.06. Counsel who represent existing LLCs should note that the new law does not require existing LLCs to file any new documents with the California Secretary of State or any other governmental agency on the occasion of its enactment. The new law applies automatically to existing LLCs-there is no "opt in" or "opt out" procedure.

RULLCA is a modified version of the Revised Uniform Limited Liability Company Act first promulgated by the National Conference of Commissioners on Uniform State Laws in 2006 and reflects developments in LLC law over the last 20 years. It clarifies many issues that existed under Beverly-Killea and includes a more robust set of default rules on many topics, which apply if the LLC operating agreement is silent. RULLCA was intended to bring California LLC law more in line with the LLC laws of other states, making it easier for multi-state businesses to operate, both inside and outside California.

Much of the substance of RULLCA is similar to current law. At the same time, RULLCA includes a number of substantive changes. As under current law, an LLC is formed on filing articles of organization with the Secretary of State, and the LLC's operating agreement serves as the foundational contract among LLC members. RULLCA adds detailed provisions concerning which RULLCA sections can be, and which cannot be, overridden by the operating agreement. RULLCA also furnishes more detail regarding withdrawal and the consequences of withdrawal (called "dissociation") of an LLC member from the LLC.

RULLCA retains the existing manager-managed and member-managed constructs as options for LLC members to use in configuring their relationship, and the articles of organization remain the vehicle by which the members state their choice of management structure. Unless the articles provide otherwise, an LLC is member-managed. RULLCA adds detailed rules concerning the fiduciary duties of members and managers in both manager-managed and member-managed LLCs, but preserves the standard in existing law governing the duty of care (essentially, a gross negligence standard). 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.

RULLCA preserves the Beverly-Killea provisions on LLC dissolutions, including 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. To assure continuity for existing LLCs, RULLCA also carries over the existing Beverly-Killea provisions that define the powers of LLCs. All of the Beverly-Killea provisions that have an impact on the office of the California Secretary of State are substantially the same under RULLCA, as are the provisions governing mergers and conversions of LLCs.

The full text of RULLCA is available here. CEB's title, Forming and Operating California Limited Liability Companies (2d Ed), will be extensively revised before the effective date of RULLCA to reflect the new law.

The Regents of the University of California, 2012. Unauthorized use and/or duplication of this material without express and written permission is strictly prohibited.

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