BILL ANALYSIS Ó SB 323 Page 1 SENATE THIRD READING SB 323 (Vargas) As Amended August 14, 2012 Majority vote SENATE VOTE :37-0 JUDICIARY 10-0 APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Feuer, Wagner, Atkins, |Ayes:|Fuentes, Harkey, | | |Dickinson, Gorell, Huber, | |Blumenfield, Bradford, | | |Jones, Monning, | |Charles Calderon, Campos, | | |Wieckowski, Bonnie | |Davis, Donnelly, Gatto, | | |Lowenthal | |Hall, Hill, Lara, | | | | |Mitchell, Nielsen, Norby, | | | | |Solorio, Wagner | |-----+--------------------------+-----+--------------------------| | | | | | ----------------------------------------------------------------- SUMMARY : Enacts, as of January 1, 2014, the California Revised Uniform Limited Liability Company Act (CRULLCA) in place of the Beverly-Killea Limited Liability Company Act. Specifically, this bill : 1)Repeals, as of January 1, 2014, the Beverly-Killea Limited Liability Company Act and enacts the CRULLCA which recasts provisions governing the formation and operation of limited liability companies (LLCs). 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 an LLC. 3)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. 4)Allows an LLC to be subject to the nonexclusive jurisdiction SB 323 Page 2 of courts in another state and California or the exclusive jurisdiction of California courts. Allows a member to consent to arbitration, as specified. 5)Specifies when a member may be dissociated from an LLC and the effects of dissociation on the member. 6)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 LLCs. 7)Provides that the CRULLCA applies to acts and transactions by an LLC occurring on or after January 1, 2014. Provides that the Beverly-Killea Limited Liability Company Act applies to acts or transactions occurring before that date. 8)Provides that the CRULLCA may, at any time, be amended or repealed. EXISTING LAW authorizes, under the Beverly-Killea Limited Liability Company Act, the creation of, and governs the activities of, LLCs having one or more members. FISCAL EFFECT : According to the Assembly Appropriations, the Secretary of State will incur one-time special fund costs of around $90,000 to revise forms and materials on its Web site and for staff training regarding the revised provisions governing LLCs (Business Fees Fund). 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 protections, replaces it with a modified version of the Revised Uniform Limited Liability Company, which recasts provisions governing the formation and operations of 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 SB 323 Page 3 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), Chapter 1200, Statutes of 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. This bill enacts a modified Revised Uniform Limited Liability Company Act, taking in account particular provisions and protections already existing in California law. Analysis Prepared by : Leora Gershenzon / JUD. / (916) 319-2334 FN: 0005242