CLIENT ALERT! – California Business Organizations – Changes in the Law

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Important

Did you know?

On January 1, 2014, California corporate and LLC laws are changing. The new rules may require that existing companies update their governing documents to ensure that their operations are not affected by these changes.

New LLC Act

The most significant change is implementation of a new LLC Act. The new act, known as the Revised Uniform Limited Liability Company Act (“RULLCA”), replaces California’s existing Beverly-Killea Limited Liability Company Act and includes a number of improvements to the law. However, some of the default rules in the new law vary significantly from the old default rules. As a result, existing LLCs may see their existing operational arrangements restructured unintentionally.

Limits on Manager Authority?

For example, under the new default rules, manager-managed LLC’s may see significant limits on the manager’s authority to act without a vote or consent of all members, before engaging in certain transactions. Other default rules can result in members losing voting and other rights upon the occurrence of certain dissociation events, such as a member’s bankruptcy, or termination of a trust.

In most cases, the company’s Operating Agreement governs things, and can supersede the law’s default provisions. But, since the new default rules didn’t exist when those documents were drafted, their language may fail to clearly express intent to supersede the default rules.

What you should do.

So, I am urging my clients who have formed California LLCs to consult with counsel as soon as possible. Ideally, prior to January 1st. We can review existing operating agreements, identify inconsistent provisions, and take the necessary actions to update your Operating Agreement to avoid problems.

Call me today to consult on this important issue!

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5 Responses to CLIENT ALERT! – California Business Organizations – Changes in the Law

  1. Joel Brykman says:

    Thanks for the head’s up!

  2. Dave Gregory says:

    LOL! It’s Dave, not Greg, Gordon.

    Well aware, for years, of the ramifications of being “based” in Nevada and doing business in California. Start each picture as a Nevada LLC and then move it to & register it in California as a foreign company once the money’s in and business commences.

    But I see the key word in your text regarding the the new LLC act is “may”. Always had a lengthy, detailed, and very specific Operating Agreement, so I presume that would not likely be affected much by the change.

    Sorry, but for a moment there, I saw us going back to the old LP days.

    Season’s Greetings,
    DG

  3. Dave Gregory says:

    Wow! I can see this totally messing-up the management of individual film production LLC’s.

    What is California trying to do to us? The film industry here is struggling enough as is.

    Nevada for me.

    • Gordon Firemark says:

      Hey Greg,

      Thanks for your comment.

      Actually, though, I don’t see it as messing things up. In the long run, the new act has a lot of sensible provisions. But, it DOES mean that existing film production companies and independent producers need to take a look at their Operating Agreements, just to make sure everything is in order. It’s probably a good idea to do that periodically, even when there aren’t changes in the law. Circumstances change, and Hollywood / the film industry itself is evolving at an unbelievable pace.

      Finally, Nevada isn’t a great option. It’s primary advantage has been low cost, but if your company is doing business in California, you STILL have to pay the taxes here, etc. If you don’t you’re at risk that your contracts won’t be enforceable in the California courts. And, since you’re mostly dealing with other California-based folks, you’d need those California courts to help you if there’s ever a fight.

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