This Volte-Face Might Prove Problematical For LLCs

Under the Beverly-Killea Limited Liability Company Act, the articles of organization prevailed over conflicting provisions of a written operating agreement.  Cal. Corp. Code § 17005(f) (repealed).  The drafters of the California Revised Uniform Limited Liability Company Act marched to the beat of their own drummer.  In Corporations Code Section 17701.12(d) they provided that in the case of a conflict between the articles of organization and the operating agreement both of the following rules apply:

  • The operating agreement prevails as to members, dissociated members, transferees and managers; and
  •  The articles prevail as to other persons to the extent that they reasonably rely on it.

It will be interesting to see if, or how, the courts will apply Section 17701.12(d) to LLCs formed under the Beverly-Killea Act.  Section 17713.04(a) provides that the CARULLCA applies to these LLCs and “to all actions taken by the managers or members of a limited liability company on or after” January 1, 2014.  This suggests that as to members and managers, the operating agreement will now control the articles.  Section 17713.04(b), however, provides that the new law applies only to contracts entered into by an LLC on or after January 1, 2014.  Since the operating agreement and articles are contracts, this militates in favor of applying the former law.

This is but one example of how the legislature may have rewritten existing LLC contracts in ways both overt and subtle.  The absence of a savings clause in the former Beverly-Killea Act makes this constitutionally suspect, something that I warned about in 2011 when the CARULLCA bill was introduced.  See The Shades Of Samson Occum, Daniel Webster And John Marshall Haunt New LLC Act Bill.

 

Topics:  Choice of Entity, Corporate Governance, LLC, 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.

© Allen Matkins Leck Gamble Mallory & Natsis LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »