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In January 2014, the existing limited liability company act in California (the Beverly-Killea Limited Liability Company Act) will be repealed and superseded by the California Revised Uniform Limited Liability Company Act, popularly known as RULLCA.
RULLCA was signed into law by Governor Jerry Brown on September 21, 2012, and is the focus of an increasing amount of scrutiny as managers, members, advisors and lenders to California LLC's attempt to understand and cope with the forthcoming changes, and in some cases, unpleasant surprises it presents.
Managers and members must consider two things in preparation for the new Act: first, whether the California LLC structure is the best option to serve an entity’s purposes moving forward, and, second, what revisions, if any, must be made to an existing LLC's operating agreement prior to RULLCA taking effect.
Significant Changes for Manager-Managed LLC's:
Small LLC's are managed by one or more managers, and not the members. The new law authorizes a manager-member LLC, but it requires that the company's articles of organization AND operating agreement EXPRESSLY establish management by a manager. Make sure it is in your articles of organization AND the operating agreement or by default, you will become "member-managed".
If you are a manager-managed LLC, there is a requirement that you obtain consent from ALL members of a LLC to do the following:
These provisions may ONLY be varied by a written operating agreement.
All managers of a California LLC, particularly those with several members, should review and amend any operating agreement to ensure that it expressly identifies when the consent of all members is required and when it is not. It should specifically address those matters which would be subject to the revised RULLCA rules.
For new transactions, real estate investors, and lenders, you should consider the implications of the LLC's failure to specify that only the consent of the manager is required in connection with a sale of the LLC's property. This could include real estate sales, whether by the LLC itself or as a part of the exercise of the lender's rights and remedies.
The old LLC rule provided only a vote of a majority of the members was required to amend the provisions of the articles of organization or operating agreement. Such agreements should be modified to address amendment consent, otherwise unanimous consent will be required.
There are other changes which you should discuss with your legal counsel:
This is only a summary of certain matters relating to the new law. I recommend you contact your attorney to discuss how the new law may impact your existing operating agreement and whether amendments may be necessary.
Following is a PDF download which I obtained online from the law firm of Loeb & Loeb LLP.