What Exactly Was The Legislature Trying To Say?

more+
less-

Section 17703.04(a) is one of many bizarre provisions in California’s new Revised Uniform Limited Liability Company Act:

(a) All of the following apply to debts, obligations, or other liabilities of a limited liability company, whether arising in contract, tort, or otherwise:

(1) They are solely the debts, obligations, or other liabilities of the limited liability company to which the debts, obligations, or other liabilities relate.

(2) They do not become the debts, obligations, or other liabilities of a member or manager solely by reason of the member acting as a member or manager acting as a manager for the limited liability company.

What exactly is the legislature saying here?  It might just be a truism – the liabilities of an LLC are the liabilities of the LLC to which the liabilities relate.  If that is all that is intended, then the statute is pointless, jejune and harmless.

But that interpretation ignores the word “solely”.  So, it seems that the legislature is saying that the liabilities of an LLC are solely the liabilities of the LLC to which the liabilities relate.  If this is what the legislature is saying, then the statute is truly preposterous.  There are many situations in which an LLC may incur liabilities that are not solely their own.  For example, an LLC might co-sign a promissory note or a contract.  An LLC might also incur joint liability in tort.

The point of the statute appears to be that members and managers as such aren’t liable for an LLC’s debts, obligations or other liabilities, but that is covered by Subdivision (2).  What does Subdivision (1) add and why didn’t the legislature just say that directly?

 

Topics:  Corporate Governance, Debt, LLC

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 »