Legislator Proposes Limited Immortality For California LLCs

Allen Matkins
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Allen Matkins

The California Revised Uniform Limited Liability Act originally provided that "A limited liability company that is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it in order to collect and discharge obligations, disposing of and conveying its property, and collecting and dividing its assets."  Cal. Corp. Code § 17707.06(a) (emphasis added).  Another statute provides that upon filing a certificate of cancellation "the limited liability company shall be canceled and its powers, rights, and privileges shall cease".   Cal. Corp. Code § 17707.08(b)(2)(C).  Read together, these statutes distinguished between the dying (Section 17707.06(a)) and the dead (Section 17707.08(b)(2)(C)).  In 2015, however, the legislature amended Section 17707.06(a) to substitute the words "has filed a certificate of cancellation" for "is dissolved", thereby seeming to confer a measure of immortality on cancelled LLCs even though Section 17707.08(b)(2)(C) declares them well and truly dead.  2015 Cal. Stats. c. 775 (AB 506 (Maienschein)). 

Assemblymember Jay Obernolte has introduced a bill, AB 1305, that would resolve the conflict between the two statutes.  (Perhaps he read my blog post describing the problem).  His solution is to add "except as provided in Section 17707.06."  While I applaud the effort to harmonize these statutes, I think it misapprehends the fact that a certificate of cancellation is filed "upon the completion of the winding up of the affairs of the limited liability company pursuant to Section 17707.06".  Cal. Corp. Code § 17707.08(b)(1).

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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