How Will The Courts Interpret This?

I recently commented on the awkwardness of Subdivisions (a) and (b) Corporations Code Section 17703.04 that seemingly are intended to establish that the members of an LLC aren’t liable qua members for the obligations of the LLC.  The statute also includes the following provision:

Nothing in this section [17703.04]  shall be construed to affect the liability of a member of a limited liability company to third parties for the member’s participation in tortious conduct, or pursuant to the terms of a written guarantee or other contractual obligation entered into by the member, other than an operating agreement.

Cal. Corp. Code § 17703.04(c).  The idea, here of course, is that members can voluntarily enter into contractual obligations or commit torts.  If they do, this statute won’t limit their personal liability.

But wait, there’s more!  Subdivision (e) of the same statute provides:

Notwithstanding subdivision (a), a member of a limited liability company may agree to be obligated personally for any or all of the debts, obligations, and liabilities of the limited liability company as long as the agreement to be so obligated is set forth in the articles of organization or in a written operating agreement that specifically references this subdivision.

What seems to be missing is whom the member may agree with.  Does the legislature mean the organizer? This is implied by the reference to the articles of organization.  Does the legislature mean the other members? This is implied by the reference to a written operating agreement.   There is a third possibility – the member may agree with a third party.  Moreover, how should this Subdivision be read in the context of the entire statute?  It clearly overrides Subdivision (a), but what about Subdivision (c) which seems to override Subdivision (e)?  Does this statute mean that a member can’t enter into an enforceable agreement with a third party unless the member has agreed in the articles or written operating agreement?

Finally, what about managers, which are also covered by Subdivision (a)?


Topics:  Corporate Governance, LLC, Professional Liability

Published In: Business Organization Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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