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


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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