A new statute governing limited liability companies (LLCs) took effect in California on January 1, 2014. The California Revised Uniform Limited Liability Company Act (RULLCA) replaced the Beverly-Killea Limited Liability Company Act. The new law has several important changes for both existing and new LLCs, and the California Secretary of State (SOS) has revised its regulations to reflect the changes to the law. Existing LLCs, to name just one change, may find that they need to modify their operating agreements and other internal governing documents to comply with the new law. New LLCs filers should be aware of changes to the standards used by the SOS for LLC names.
The RULLCA passed the California State Legislature in 2012 as Senate Bill No. 323, and California Governor Jerry Brown signed it into law on September 21, 2012. Legislators based the new law on the Uniform Limited Liability Company Act drafted by the Uniform Law Commission (ULC) of the National Conference of Commissioners on Uniform State Laws, an organization that proposes uniform laws for state legislatures. Eight U.S. states, including California, and the District of Columbia have enacted versions of the ULC’s proposed law, and legislation to enact it is pending in South Carolina.
The new law officially repealed and replaced the Beverly-Killea Limited Liability Company Act for all domestic and foreign LLCs in California on January 1, 2014. Since the prior LLC statute governed everything from the formation of the company to its dissolution, it is not yet clear how the change in the law will affect certain aspects of existing businesses. One provision clearly states that the RULLCA shall apply to all LLCs existing or or created after January 1, 2014, and to all manager or member actions taken on or after that date. CA Corp. Code § 17713.04(a). Any actions taken by members or managers before January 1, 2014, however, are still governed by the old law. CA Corp. Code § 17713.04(b). Ongoing actions may eventually be covered by both laws in some way.
Both member- and manager-managed LLCs may need to review their operating agreements to see if they comply with the RULLCA. The law makes some modifications to the requirements for enacting or modifying operating agreements, and it imposes fiduciary duties, previously reserved for members, on managers. If an operating agreement relieves a member of responsibilities they would have otherwise had, the new law also relieves them of any fiduciary duty related to that responsibility. The Corporations Code outlines these fiduciary duties in § 17704.09.
The SOS’s office has revised its procedures and forms in order to comply with the RULLCA. The new forms are available on its website, as is information about its new LLC regulations. The SOS may not approve a proposed name that “is likely to mislead the public,” and the name must “be distinguishable in the [SOS’s] records…from” any existing domestic or foreign LLC and any reserved LLC name. CA Corp. Code § 17701.08(b). A foreign LLC may register to do business in California solely under an assumed name if its legal name would otherwise violate one of these restrictions. CA Corp. Code § 17708.05(b).
Business and commercial lawyer James G. Schwartz has represented businesses in the Bay Area since 1976, helping them stay apprised of all the changes and developments in California’s business and corporate statutes. To schedule a free and confidential consultation to see how we can assist you, please contact us today online or at (925) 463-1073.
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