Revised Uniform Limited Liability Company Act Signed Into Law

Governor Jerry Brown signed SB 323, the California Revised Uniform Limited Liability Company Act (popularly known as RULLCA), into law on September 21, 2012. The law, which will take effect on January 1, 2014, 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 replaces the Beverly-Killea Limited Liability Company Act, Corp C §§17000-17656 (Beverly-Killea) in its entirety and will be codified as new Title 2.6 of the California Corporations Code at
§§17701.01-17713.06. The new law applies automatically to existing LLCs; there is no “opt in” or “opt out” procedure. RULLCA 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. Specifically, 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. It also 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). Finally, 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 many aspects of Beverly-Killea, most notably the provisions on LLC dissolutions. Minority members will continue to have the right to seek judicial dissolution of the LLC and majority members will continue to have the right to buy out the minority at fair value and continue the LLC’s existence.