California’s New LLC Act – Call Me Laocoon, But I Foresee A Mess!

by Allen Matkins

On Friday, Governor Brown signed SB 323 (Vargas) into law. It was chaptered by the Secretary of State the same day.  Section 20 of the bill adds the California Revised Uniform Limited Liability Company Act (RULLCA) to the Corporations Code as a new Title 2.6.  The RULLCA will become operative on January 1, 2014 (See new Corporations Code Section 17713.13).  The existing Beverly-Killea Limited Liability Company Act found in Title 2.5 is repealed as of that same date unless a later enacted statute, that is enacted before that date, deletes or extends that date.

Out with old, in with the new, what could be wrong with that?  It turns out plenty.

At the most fundamental level, the repeal of the Beverly-Killea Act as to existing limited liability companies is unconstitutional.  The legislature in enacting the Beverly-Killea Act failed to include a savings clause.  Article 1, Section 10 of the United States Constitution forbids states from making any law impairing the obligation of contracts.  This fundamental limitation on state authority was most famously applied to state charters in Trustees of Dartmouth College v. Woodward, 17 U.S. (Wheaton) 518 (1819).

Yes, that is an old decision, but age does not controvert its fundamental correctness.   Yes, the constitutional question may seem to be an academic point, but it is likely to have significant practical ramifications.  I believe that the constitutional infirmity of the RULLCA will be raised just as soon as someone discovers that her rights are better under the Beverly-Killea Act than under the RULLCA. For an example of a twentieth century challenge, see Washington v. Alaska Airlines, Inc., 413 P.2d 352 (Wash. 1966).  If the challenge to RULLCA is successful, then look out for the ensuing chaos.

If a constitutional infirmity were not sufficient cause for concern, the RULLCA suffers from some more practical, but no less significant deficiencies.  New Section 17713.04(a) provides that (except as otherwise provided) the RULLCA will apply to all domestic LLCs existing on January 1, 2014 and to all actions taken by the managers or members of a limited liability company on or after that date. However, the next subdivision states that the RULLCA applies only to contracts entered into after that date and the prior law applies to contracts entered into before that date.  What happens if an operating agreement entered into before January 1, 2014 is amended after that date?  Will only the amendment be subject to the RULLCA or will the fact of the amendment drag the entire agreement into the new law?

The enactment of the RULLCA and the forced transition (if found constitutional) is going to impose significant burdens on LLCs formed under the Beverly-Killea Act.  Many lawyers will likely advise their clients to conform their operating agreements to the RULLCA. But what if the repeal of the Beverly-Killea Act is found unconstitutional? Many members or managers are likely to be unaware of the change and fail to conform to the new law.


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 | Attorney Advertising

Written by:

Allen Matkins

Allen Matkins on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.