If It’s An LLC, Why Cite Corporate Law?

I continue to be surprised when courts refer to state laws governing corporations when the subject entity is a limited liability company.  A recent example of this confusion can be found in Piatelli Co. v. Chambers, 2014 U.S. Dist. LEXIS 1556 (D. Nev. Jan. 7, 2014).  That case involved a dispute over whether an agreement had been approved by the members of an LLC.  The operating agreement provided:

No annual or regular meetings of the Members are required to be held. However, if such meetings are held, such meetings will be noticed, held and conducted pursuant to the Act. In any instance in which the approval of the Members is required under this Agreement, such approval may be obtained in any manner permitted by the Act, except that proxies shall not be allowed.  Unless otherwise provided in this Agreement, approval of the Members will mean the approval of a Majority vote of the Members.

Another provision of the operating agreement specified that the term “Act” refers to the Beverly Killea Limited Liability Act, Cal. Corp. Code § 17000, et seq.  Because Section 17001 defined “vote” to include action by written consent, the Court found that the disputed agreement had been approved under California law when it was signed by four of the five members of the LLC.  California’s current LLC law includes a similar definition.  Cal. Corp. Code § 17701.02(ac).

The Court, however, also considered whether the same result obtained under Nevada law.  Here is where I believe the opinion ran off the rails.  The Court stated “Nevada’s analogous statute likewise defines “vote” to include actions constituting “written consent” citing  NRS § 78.010(1)(a).  That statute, however, is part of Chapter 78 of Nevada Revised Statutes which governs corporations.  Nevada’s statutes governing LLCs are found in Chapter 86 and that chapter does not define “vote”.  In fact, there is some evidence that the Nevada legislature did not equate “vote” with written consent.  NRS 86.286(1) provides in part: ”An operating agreement may be adopted only by the unanimous vote or unanimous written consent of the members . . .” (emphasis added).

Topics:  Corporations Code, Limited Liability Companies, Operating Agreements

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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