BILL ANALYSIS Ó
SB 323
Page 1
Date of Hearing: July 3, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 323 (Vargas) - As Amended: January 13, 2012
SENATE VOTE : 37-0
SUBJECT : CALIFORNIA REVISED UNIFORM LIMITED LIABILITY COMPANY
ACT
KEY ISSUE : SHOULD CALIFORNIA ENACT THE REVISED UNIFORM LIMITED
LIABILITY COMPANY ACT WHICH RECASTS AND REORGANIZES THE EXISTING
Beverly-Killea Limited Liability Company Act?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This bill, sponsored by the Partnerships and Limited Liability
Companies Committee of the Business Law Section of the State
Bar, enacts the California Revised Uniform Limited Liability
Company Act in place of the Beverly-Killea Limited Liability
Company Act. A limited liability company (LLC) is a hybrid
between a corporation and a partnership. An LLC generally has
the characteristics of a partnership for operational and
taxation purposes, but its members enjoy the immunity provided
by a corporation to its shareholders for contract debts or tort
liability. Given the complexity of the issues involved on this
bill, including unresolved issues surrounding its
constitutionality, the author has agreed to continue to work
with Committee staff, bring this bill back to this Committee
upon its amendment, and not bring it up on the Assembly floor
for passage if remaining issues cannot be resolved this year.
SUMMARY : Enacts the California Revised Uniform Limited
Liability Company Act in place of the Beverly-Killea Limited
Liability Company Act. Specifically, this bill :
1)Repeals the Beverly-Killea Limited Liability Company Act and
enacts the California Revised Uniform Limited Liability
Company Act which recasts provisions governing the formation
and operation of limited liability companies. Authorizes an
operating agreement to be in a record or implied, in addition
to being in writing or oral, and authorizes a combination of
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those forms.
2)Distinguishes between a manager-managed limited liability
company and a member-managed limited liability company for
purposes of defining the scope of a member's agency and
limiting fiduciary duties of members who are not in control of
a limited liability company.
3)Authorizes the establishment of classes of members.
4)Authorizes the Secretary of State to issue a certificate of
registration with respect to a foreign limited liability
company. Provides for the filing of specified records and
provides that an individual who signs such a record affirms
under penalty of perjury that the information in the record is
accurate.
5)Allows a limited liability company to be subject to the
nonexclusive jurisdiction of courts in another state or the
exclusive jurisdiction of California courts. Allows a member
to consent to arbitration, as specified.
6)Specifies when a member may be dissociated from a limited
liability company and the effects of dissociation on the
member.
7)Revises and recasts provisions relating to capital
contribution standards and liability of members, and regulates
the allocation of profits and losses, distributions of money
and property, withdrawal of membership, assignment of
interests, and dissolution of limited liability companies.
8)Is effective January 1, 2014 for LLCs formed on or after that
date. Is effective January 1, 2016 for all LLCs existing
before January 1, 2014.
EXISTING LAW authorizes, under the Beverly-Killea Limited
Liability Company Act, the creation of, and governs the
activities of, limited liability companies having one or more
members. (Corporations Code Section 17000 et seq.)
COMMENTS : This bill, sponsored by the Partnerships and Limited
Liability Companies Committee of the Business Law Section of the
State Bar, repeals the Beverly-Killea Limited Liability Company
Act and, taking into account California's particular LLC
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protections, replaces it with a modified version of the Revised
Uniform Limited Liability Company, which recasts provisions
governing the formation and operations of limited liability
companies.
Short Background on LLCs : An LLC is a hybrid between a
corporation and a partnership. An LLC generally has the
beneficial characteristics of a partnership for operational and
taxation purposes, but its members enjoy the immunity provided
by a corporation to its shareholders for contract debts or tort
liability. The interest of a member in an LLC is an economic
interest, in the same manner that a partnership interest or a
corporate share is an economic interest, that may be transferred
under terms and conditions provided by the LLC agreement, the
partnership agreement, or the corporate structure.
California first recognized LLCs in 1994 with the enactment of
the Beverly-Killea Limited Liability Company Act, which provided
comprehensive provisions for the organization, management, and
dissolution of LLCs. (SB 469 (Beverly), Chap. 1200, Stats.
1994.) That same year, the National Conference of Commissioners
on Uniform State Laws approved the use of the Uniform Limited
Liability Company Act. In 2006, after reviewing the development
of LLC laws across the states, the National Conference of
Commissioners on Uniform State Laws adopted the Revised Uniform
Limited Liability Company Act, which has since been enacted in
five states (Idaho, Iowa, Nebraska, Utah, and Wyoming) and the
District of Colombia.
Bill Requires Additional Review and Analysis : While the bill
has been with this Committee since April, the sponsor was not
able to provide the Committee with requested information
necessary for a full analysis prior to the hearing. As a
result, full analysis of the bill could not be completed timely.
Understanding these difficulties, the author has acknowledged
that additional amendments may be necessary as the bill moves
forward and has agreed to bring this bill back to Committee upon
additional amendments and not bring it up on the Assembly floor
for passage if remaining issues cannot be resolved this year.
Bill Raises Constitutional Question : This bill seeks to change
state law not just for LLCs formed after the bill's effective
date, but also for LLCs that exist prior to that date. Thus,
this bill could very well impact the rights of LLC members who
formed LLCs under existing law and third parties who relied on
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those agreements. The Beverly-Killea LLC Act, unlike the state
law governing corporations, does not contain a clause reserving
power for the Legislature to amend the act. (See Corporations
Code Section 100(b).) As a result, this bill raises a
constitutional question as to whether the state has the power to
impair existing contract rights. (See Trustees of Dartmouth
College v. Woodward, 17 U.S. 518 (1819).) This question cannot
be fully analyzed in the time available and requires further
review and analysis. As discussed above, this review can occur
before the bill is considered by the full Assembly.
REGISTERED SUPPORT / OPPOSITION :
Support
Partnerships and Limited Liability Companies Committee of the
Business Law Section of the State Bar (sponsor)
Commission on Uniform State Laws
Opposition
None on file
Analysis Prepared by : Leora Gershenzon / JUD. / (916) 319-2334