New Measures Under California’s Uniform Limited Liability Company Act May Complicate Contracts For Real Estate Companies

On January 1, 2014, The California Revised Uniform Limited Liability Company Act (popularly known as RULLCA; Cal. Corp. Code §§17701.01-17713.13) went into effect. RULLCA, a modified version of the Revised Uniform Limited Liability Company Act first promulgated by the National Conference of Commissioners in 2006, was intended to bring California’s Limited Liability Company laws more in line with the Limited Liability Company (LLC) laws of other states, making it easier for multi-state businesses to operate within, and outside of California.

However, many real estate companies are confused and left in the dark on the new limitations, especially since the new law applies automatically to existing LLCs.

For example, unless a specific alternative arrangement is incorporated into the operating agreement, a default provision allows the selection or removal of a manager by a majority of the members of an LLC, irrespective of reason or timing. Regardless, if the company controls the real estate assets, a manager can be easily removed if he is outnumber by money partners. 

The new law requires a 100 percent vote to approve a merger or modify the operating agreement and also calls for the unanimous consent of all members of an LLC for the manager to sell, lease or exchange the company's property if operated outside the ordinary course of the company's activities.  

Parts of RULLCA also limit the ability to modify fiduciary duties through an operating agreement.

The full text of RULLCA is available here.

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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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