RULLCA: California’s Revised LLC Act

In January 2014, California replaced its Limited Liability Company (LLC) law with the California Revised Uniform Limited Liability Company Act (RULLCA). RULLCA repealed the law that had governed California LLCs for two decades, and provides new provisions governing the formation and operation of limited liability companies.

RULLCA will govern all California LLCs organized on or after January 1, 2014. The new law made several new changes to the formation process of an LLC. For example, if the formation filing information provided to the California Secretary of State is inaccurate, members, managers, and other parties in the LLC formation may now be held liable under certain circumstances.

RULLCA also contains provisions that govern LLCs in the absence of a clear and thorough operating agreement. For example, if an operating agreement specifies management by one or more managers, but is not clear, the LLC will be governed by its members.  Also, the law gives members of a manager-managed LLC the presumptive right to vote on selling, leasing, exchanging, or disposing of all, or mostly all, of the LLC’s property. They also have the presumptive right to approve a merger or conversion, or to amend the operating agreement.

RULLCA does offer LLCs the option to change or eliminate several provisions, but this would require proper formation and a properly drafted operating agreement.  It is advised that anyone looking to form a new LLC work with an attorney to make sure that they take advantage of all the law’s opportunities and are compliant with its requirements. Existing LLCs should review their formation documents and operating agreement to assure that such documents are compliant. Otherwise, the very reason the entity was created, shielding members and managers from liability, could be lost.

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