California’s RULLCA is in Full Effect for LLC’s, Have You Amended Your Articles of Organization and/or Operating Agreement?

Just over one year ago on January 1, 2014 the RULLCA, or California Revised Uniform Limited Liability Company Act, replaced the repealed Beverly-Killea Limited Liability Act. If your company is a California LLC and you have yet to amend your operating agreement or articles of organization, now is a good time to learn whether you should. It is important to know who this change in law applies to and what should be done as a result.

Here are a few factors that may affect whether you make any changes.

Existing LLC’s or Limited Liability Companies are not required to file any special or new documents to come under the governance of the new law – it is automatic. Because of this, it may be necessary to amend any operating agreements which were drafted according to the prior law because they may not be in full compliance with RULLCA.

For example, consent of member requirements have changed. Under the RULLCA, members must consent unanimously to carry out certain acts unless these acts are otherwise expressly provided for in the operating agreement. In a manager-managed LLC, these acts include disposing of, exchanging, leasing, or selling LLC property outside the ordinary course of business, whether in its entirety or a substantial portion thereof. In addition, an amendment to the operating agreement or the undertaking of any act outside what would be considered the ordinary course of activities for the LLC shouldalso now be consented to by all members unanimously, as should an approval for a conversion or merger under RULLCA..

And with exception to third-parties reasonably relying on the articles of organization, under the new law the operating agreement will control if and when there is a conflict between said articles and the LLC’s operating agreement (it was the opposite under the Beverly-Killea Act). Ultimately, if yours is an existing LLC that has relied on a statement in your articles of organization, your operating agreement should be amended so that there are no provisions that conflict, or your company will be subject to the change.

Moreover, RULLCA’s default rules also provide mandatory indemnification for any member in a member-managed LLC and any manager of a manager-managed LLC who comply with the duties set forth in the Act. However, and with few exceptions, RULLCA provides that an operating agreement may alter or eliminate such indemnification and, in limited circumstances, may completely limit or eliminate a member or manager’s liability to the LLC and other members for monetary damages. As such, existing LLC’s should consider the benefits and liabilities of the proposed RULLCA indemnification policies and, to the extent possible, amend its operating agreement to address any concerns.

The new law may also affect fiduciary duties, dissociation events, and various other aspects of Limited Liability Companies. To learn more, speak with one of our knowledgeable Los Angeles business attorneys at Spotora & Associates who can advise and assist with any existing LLC agreements.

Visit Spotora Law to learn more about our firm!

This entry was posted on Monday, January 12th, 2015 at 10:13 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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