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| Arlen Gunner |
As a reminder to our clients, colleagues and friends, effective January 1, 2014, the existing Beverly-Killea Limited Liability Company Act (the "Old Law") will be repealed in its entirety. It will be replaced on that date by a new statute known as the California Revised Uniform Limited Liability Company Act (the "New Law") which can be found in new Title 2.6 of the Corporations Code beginning with Section 17701.01.
If you have an interest in limited liability company that will remain in effect as of the end of 2013, it would be prudent for each member and/or manager (depending on how the limited liability company is managed) to review the terms of the existing operating agreements and to compare them with similar provisions in the New Law to ascertain whether or not an appropriate amendment is needed to the existing operating agreement. The purpose of the amendment would be either to conform the operating agreement to the New Law without going through the necessity of having a default provision of the New Law apply to your operating agreement, or to redraft the operating agreement in specific terms so that you preserve the intended effect of the business deal that was originally negotiated under the Old Law.
It is possible that when comparing the New Law to the Old Law, the Old Law can easily be superseded by the limited liability company's operating agreement. But a problem may arise since the new default rules were not in effect or applicable at the time the existing operating agreements were drafted. Therefore, it would be prudent for a review of the existing operating agreements that clients have in place so that the appropriate default provisions of the New Law can be avoided if they would significantly alter the business deal that was originally agreed to and evidenced by the written operating agreement. Obviously, if there is only an oral agreement in place or an implied agreement, those particular exposures would have to be addressed on an item by item basis.
One provision which should be reviewed relates to the powers of a manager in a manager managed limited liability company. There are new default rules that can limit the ability of the manager to act if the default rules govern in light of the conflict with the original operating agreement. Additionally, members can lose their voting rights or other membership rights (except their economic interests) upon the occurrence of certain events specified in the New Law.
As a result, there are more than enough reasons to compare your existing limited liability company operating agreements with the New Law to make sure that you do not cause a default to the new statute which materially alters your intended relationship among the members.
It is impossible in this message to give a complete analysis of all of the different changes in the New Law versus the Old Law. As a result, we recommend that you contact your counsel if you have any concerns that the New Law will substantially modify the terms and conditions of your existing business arrangement under the Old Law.
Valensi Rose, PLC has a great deal of experience dealing with the operations of limited liability companies and we remain available for you to contact our office if you have any questions concerning any of your existing companies and their status under the New Law.
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Arlen Gunner is the managing partner of Valensi Rose, PLC and has been practicing for more than 40 years. His practice focuses on business, commercial and corporate law; mergers, acquisitions, and reorganizations; acquisitions and sales of assets and real and personal property; real estate development and finance; leases and leasehold financings of all types; and nonprofit law and board governance. He has acted and is available to act as an expert witness in matters involving non-profit entities and secured transactions.
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