Amended in Assembly April 23, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 506

Introduced by Assembly Member Maienschein

February 23, 2015

An act to amend begin delete Section 17706.03 end delete begin insert Sections 15902.01, 17701.02, 17701.10, 17701.12, 17701.13, 17704.01, 17704.04, 17704.07, 17704.08, 17704.09, 17704.10, 17705.02, 17706.03, 17707.01, 17707.03, 17707.09, 17708.07, 17710.03, 17710.06, 17710.12, 17713.04, and 17713.12 end insert of the Corporations Code, relating to business.

LEGISLATIVE COUNSEL’S DIGEST

AB 506, as amended, Maienschein. Limited liability companies.

Existing law, the California Revised Uniform Limited Liability Company Act, authorizes one or more persons to form a limited liability company by, among other things, signing and delivering articles of organization with the Secretary of State. The act authorizes a person, as defined, to dissociate as a member of a limited liability company at any time by withdrawing as a member by express will. The act deems a person to be dissociated from a limited liability company upon the occurrence of certain events, including, among others, an individual’s death. The act provides the effects when a person, including an individual, is dissociated from a limited liability company. begin insert Existing law limits the application of an operating agreement. end insert

This bill would specify that upon dissociation a person’s right to vote as a member in the management and conduct of the limited liability company’s activities terminates. The bill would authorize, if a member dies or a guardian or general conservator is appointed for the member, the member’s executor, administrator, guardian, conservator, or other legal representative to exercise all of the member’s rights for the purpose of settling the member’s estate or administering the member’s property, including any power the member had under the articles of organization or an operating agreement to give a transferee the right to become a member. begin insert This bill would also modify the definition of “electronic transmission by the limited liability company” and would expand the definition of “person” under the act. This bill would modify what an operating agreement may provide, as specified. This bill would provide that specified provisions of the Labor Code, relating to consideration for employment and employment contracts, shall not apply to membership interests issued by any limited liability company or foreign limited liability company, as specified. end insert

begin insert

Existing law requires that any distributions made by a limited liability company before its dissolution and winding up be among the members in accordance with the operating agreement.

end insert begin insert

This bill would further require that the profits and losses of a limited liability company be allocated among the members, and among classes of members, in the manner provided in the operating agreement, and would require that profits and losses be allocated in proportion to the value of the contributions from each member if the operating agreement does not otherwise provide.

end insert begin insert

Existing law requires the consent of all members of the limited liability company to approve a merger or conversion and to amend the operating agreement.

end insert begin insert

This bill would eliminate that requirement.

end insert begin insert

Existing law requires a limited liability company to reimburse for any payment made and indemnify for any debt, obligation, or other liability incurred by a member of a member-managed limited liability company or the manager of a manager-managed limited liability company in the course of the member’s or manager’s activities on behalf of the limited liability company, if, in making the payment or incurring the debt, obligation, or other liability, the member or manager complied with specified duties.

end insert begin insert

This bill would require the limited liability company to indemnify the agent of a limited liability company to the extent that the agent has been successful on the merits in defense or settlement of any claim, issue, or matter if the agent acted in good faith and in a manner that the agent reasonably believed to be in the best interests of the limited liability company and its members, as provided.

end insert begin insert

This bill would limit the applicability of the act to acts or transactions existing on or after January 1, 2014, or by members or managers of limited liability companies existing on or before that date, as provided.

end insert begin insert

Existing law provides that a limited partnership is formed when the Secretary of State files the certificate of limited partnership.

end insert begin insert

This bill would provide that a limited partnership is formed when the Secretary of State files the certificate of limited partnership and when the partners enter into a partnership agreement.

end insert

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 15902.01 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

15902.01.  

(a) In order for a limited partnership to be formed,
a certificate of limited partnership must be filed with and on a form
prescribed by the Secretary of State and, either before or after the
filing of a certificate of limited partnership, the partners shall have
entered into a partnership agreement. The certificate must state:

(1) the name of the limited partnership, which shall comply with
Section 15901.08;

(2) the street address of the initial designated office;

(3) the name and street address of the initial agent for service
of process in accordance with paragraph (1) of subdivision (d) of
Section 15901.16;

(4) the name and the address of each general partner; and

(5) the mailing address of the limited partnership, if different
from the address of the initial designated office.

(b) A certificate of limited partnership may also contain any
other matters but may not vary or otherwise affect the provisions
specified in subdivision (b) of Section 15901.10 in a manner
inconsistent with that section.

(c)  begin delete A end delete begin insert Subject to subdivision (c) of Section 15902.06, a end insert limited
partnership is formed when the Secretary of State files the
certificate of limited begin insert partnership and the partners enter into a
partnership agreement before or after the filing of a certificate of
limited end insert partnership.

(d) Subject to subdivision (b), if any provision of a partnership
agreement is inconsistent with the filed certificate of limited
partnership or with a filed certificate of dissociation, cancellation,
or amendment or filed certificate of conversion or merger:

(1) the partnership agreement prevails as to partners and
transferees; and

(2) the filed certificate of limited partnership, certificate of
dissociation, cancellation, or amendment or filed certificate of
conversion or merger prevails as to persons, other than partners
and transferees, that reasonably rely on the filed record to their
detriment.

(e) A limited partnership may record in the office of the county
recorder of any county in this state a certified copy of the certificate
of limited partnership, or any amendment thereto, which has been
filed by the Secretary of State. A foreign limited partnership may
record in the office of the county recorder of any county in the
state a certified copy of the application for registration to transact
business, together with the certificate of registration, referred to
in Section 15909.02, or any amendment thereto, which has been
filed by the Secretary of State. The recording shall create a
conclusive presumption in favor of any bona fide purchaser or
encumbrancer for value of the partnership real property located in
the county in which the certified copy has been recorded, that the
persons named as general partners therein are the general partners
of the partnership named and that they are all of the general
partners of the partnership.

(f) The Secretary of State may cancel the filing of certificates
of limited partnership if a check or other remittance accepted in
payment of the filing fee is not paid upon presentation. For partners
and transferees, the partnership agreement is paramount. Upon
receiving written notification that the item presented for payment
has not been honored for payment, the Secretary of State shall give
a first written notice of the applicability of this section to the agent
for service of process or to the person submitting the instrument.
Thereafter, if the amount has not been paid by cashier’s check or
equivalent, the Secretary of State shall give a second written notice
of cancellation and the cancellation shall thereupon be effective.
The second notice shall be given 20 days or more after the first
notice and 90 days or less after the original filing.

(g) The Secretary of State shall include with instructional
materials, provided in conjunction with the form for filing a
certificate of limited partnership under subdivision (a), a notice
that the filing of the certificate of limited partnership will obligate
the limited partnership to pay an annual tax for that taxable year
to the Franchise Tax Board pursuant to Section 17935 of the
Revenue and Taxation Code. That notice shall be updated annually
to specify the dollar amount of the annual tax.

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 17701.02 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

17701.02.  

In this title:

(a) “Acknowledged” means that an instrument is either of the
following:

(1) Formally acknowledged as provided in Article 3
(commencing with Section 1180) of Chapter 4 of Title 4 of Part
4 of Division 2 of the Civil Code.

(2) Executed to include substantially the following wording
preceding the signature:

“It is hereby declared that I am the person who executed this
instrument which execution is my act and deed.”

Any certificate of acknowledgment taken without this state
before a notary public or a judge or clerk of a court of record
having an official seal need not be further authenticated.

(b) “Articles of organization” means the articles required by
Section 17702.01. The term includes the articles of organization
as amended or restated.

(c) “Contribution” means any benefit provided by a person to
a limited liability company:

(1) In order to become a member upon formation of the limited
liability company and in accordance with an agreement between
or among the persons that have agreed to become the initial
members of the limited liability company.

(2) In order to become a member after formation of the limited
liability company and in accordance with an agreement between
the person and the limited liability company.

(3) In the person’s capacity as a member and in accordance with
the operating agreement or an agreement between the member and
the limited liability company.

(d) “Debtor in bankruptcy” means a person that is the subject
of either of the following:

(1) An order for relief under Title 11 of the United States Code
or a successor statute of general application.

(2) A comparable order under federal, state, or foreign law
governing bankruptcy or insolvency, an assignment for the benefit
of creditors, or an order appointing a trustee, receiver, or liquidator
of the person or of all or substantially all of the person’s property.

(e) “Designated office” means either of the following:

(1) The office that a limited liability company is required to
designate and maintain under Section 17701.13.

(2) The principal office of a foreign limited liability company.

(f) “Distribution,” except as otherwise provided in subdivision
(g) of Section 17704.05, means a transfer of money or other
property from a limited liability company to another person on
account of a transferable interest.

(g) “Domestic” means organized under the laws of this state
when used in relation to any limited liability company, other
business entity, or person other than a natural person.

(h) “Effective,” with respect to a record required or permitted
to be delivered to the Secretary of State for filing under this title,
means effective under subdivision (c) of Section 17702.05.

(i) (1) “Electronic transmission by the limited liability
company” means a communication delivered by any of the
following means:

(A) Facsimile telecommunication or electronic mail when
directed to the facsimile number or electronic mail address,
respectively, for that recipient on record with the limited liability
company.

(B) Posting on an electronic message board or network that the
limited liability company has designated for those communications,
together with a separate notice to the recipient of the posting, which
transmission shall be validly delivered upon the later of the posting
or delivery of the separate notice thereof.

(C) Other means of electronic communication to which both of
the following apply:

(i) The communication is delivered to a recipient who has
provided an unrevoked consent to the use of those means of
transmission.

(ii) The communication creates a record that is capable of
retention, retrieval, and review, and that may thereafter be rendered
into clearly legible tangible form. begin delete However, an electronic
transmission by a limited liability company to an individual
member is not authorized unless, in addition to satisfying the
requirements of this section, the transmission satisfies the
requirements applicable to consumer consent to electronic records
as set forth in the federal Electronic Signatures in Global and
National Commerce Act (15 U.S.C. Sec. 7001(c)(1)). end delete

(2) “Electronic transmission to the limited liability company”
means a communication delivered by any of the following means:

(A) Facsimile telecommunication or electronic mail when
directed to the facsimile number or electronic mail address,
respectively, that the limited liability company has provided from
time to time to members or managers for sending communications
to the limited liability company.

(B) Posting on an electronic message board or network that the
limited liability company has designated for those communications,
which transmission shall be validly delivered upon the posting.

(C) Other means of electronic communication to which both of
the following apply:

(i) The limited liability company has placed in effect reasonable
measures to verify that the sender is the member or manager, in
person or by proxy, purporting to send the transmission.

(ii) The communication creates a record that is capable of
retention, retrieval, and review, and that may thereafter be rendered
into clearly legible tangible form.

(j) “Foreign limited liability company” means an unincorporated
entity formed under the law of a jurisdiction other than this state
and denominated by that law as a limited liability company.

(k) “Limited liability company,” except in the phrase “foreign
limited liability company,” means begin delete an end delete begin insert a domestic end insert entity formed
under this title or an entity that becomes subject to this title
pursuant to Article 13 (commencing with Section 17713.01).

(l) “Majority of the managers” unless otherwise provided in the
operating agreement, means more than 50 percent of the managers
of the limited liability company.

(m) “Majority of the members” unless otherwise provided in
the operating agreement, means more than 50 percent of the
membership interests of members in current profits of the limited
liability company.

(n) “Manager” means a person that under the operating
agreement of a manager-managed limited liability company is
responsible, alone or in concert with others, for performing the
management functions stated in subdivision (c) of Section
17704.07.

(o) “Manager-managed limited liability company” means a
limited liability company that qualifies under subdivision (a) of
Section 17704.07.

(p) “Member” means a person that has become a member of a
limited liability company under Section 17704.01 and has not
dissociated under Section 17706.02.

(q) “Member-managed limited liability company” means a
limited liability company that is not a manager-managed limited
liability company.

(r) “Membership interest” means a member’s rights in the
limited liability company, including the member’s transferable
interest, any right to vote or participate in management, and any
right to information concerning the business and affairs of the
limited liability company provided by this title.

(s) “Operating agreement” means the agreement, whether or
not referred to as an operating agreement and whether oral, in a
record, implied, or in any combination thereof, of all the members
of a limited liability company, including a sole member, concerning
the matters described in subdivision (a) of Section 17701.10. The
term “operating agreement” may include, without more, an
agreement of all members to organize a limited liability company
pursuant to this title. An operating agreement of a limited liability
company having only one member shall not be unenforceable by
reason of there being only one person who is a party to the
operating agreement. The term includes the agreement as amended
or restated.

(t) “Organization” means, whether domestic or foreign, a
partnership whether general or limited, limited liability company,
association, corporation, professional corporation, professional
association, nonprofit corporation, business trust, or statutory
business trust having a governing statute.

(u) “Organizer” means a person that acts under Section 17702.01
to form a limited liability company.

(v) “Person” means an individual, partnership, limited
partnership, trust, begin insert a trustee of a trust, including, but not limited to,
a trust described under Division 9 (commencing with Section
15000) of the Probate Code, end insert estate, association, corporation,
limited liability company, or other entity, whether domestic or
foreign. Nothing in this subdivision shall be construed to confer
any rights under the California Constitution or the United States
Constitution.

(w) “Principal office” means the principal executive office of
a limited liability company or foreign limited liability company,
whether or not the office is located in this state.

(x) “Record” means information that is inscribed on a tangible
medium or that is stored in an electronic or other medium and is
retrievable in perceivable form.

(y) “State” means a state of the United States, the District of
Columbia, Puerto Rico, the United States Virgin Islands, or any
territory or insular possession subject to the jurisdiction of the
United States.

(z) “Transfer” includes an assignment, conveyance, deed, bill
of sale, lease, mortgage, security interest, encumbrance, gift, and
transfer by operation of law.

(aa) “Transferable interest” means the right, as originally
associated with a person’s capacity as a member, to receive
distributions from a limited liability company in accordance with
the operating agreement, whether or not the person remains a
member or continues to own any part of the right.

(ab) “Transferee” means a person to which all or part of a
transferable interest has been transferred, whether or not the
transferor is a member.

(ac) “Vote” includes authorization by written consent or consent
given by electronic transmission to the limited liability company.

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 17701.10 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

17701.10.  

(a) Except as otherwise provided in this section,
the operating agreement governs all of the following:

(1) Relations among the members as members and between the
members and the limited liability company.

(2) The rights and duties under this title of a person in the
capacity of manager.

(3) The activities of the limited liability company and the
conduct of those activities.

(4) The means and conditions for amending the operating
agreement.

(b) To the extent the operating agreement does not otherwise
provide for a matter described in subdivision (a), this title governs
the matter.

(c)  begin delete An end delete begin insert In addition to the matters specified in paragraphs (1) to
(4), inclusive, of subdivision (d), an end insert operating agreement shall not
do any of the following:

(1) Vary a limited liability company’s capacity under Section
17701.05 to sue and be sued in its own name.

(2) Vary the law applicable under Section 17701.06.

(3) Vary the power of the court under Section 17702.04.

(4) Subject to begin insert paragraphs (14) and (15) of this subdivision and end insert
subdivisions (d) to (g), inclusive, eliminate the duty of loyalty, the
duty of care, or any other fiduciary duty.

(5) Subject to subdivisions (d) to (g), inclusive, eliminate the
contractual obligation of good faith and fair dealing under
subdivision (d) of Section begin delete 17704.09. end delete begin insert 17704.09, but the operating
agreement may prescribe the standards by which the performance
of the obligation is to be measured, if the standards are not
manifestly unreasonable as determined at the time the standards
are prescribed. end insert

begin delete

(6) Unreasonably restrict the duties and rights stated in Section
17704.10.

end delete begin insert

(6) Vary the requirements of Section 17701.13 to 17701.16,
inclusive, or any provision under Article 8 (commencing with
Section 17708.01).

end insert

(7) Vary the power of a court to decree dissolution in the
circumstances specified in subdivision (a) of Section 17707.03 or
the provisions for avoidance of dissolution in subdivision (c) of
Section 17707.03.

(8) Except as begin delete stated herein, end delete begin insert provided therein, end insert vary the
requirements of begin delete Sections 17707.04 to 17707.08, inclusive. end delete begin insert Article
2 (commencing with Section 17702.01) or Article 7 (commencing
with Section 17707.01). end insert

(9) Unreasonably restrict the right of a member to maintain an
action under Article 9 (commencing with Section 17709.01).

(10) Restrict the right begin delete to approve a merger, conversion, or
domestication under Section 17710.14 to a member that will have
personal liability with respect to a surviving, converted, or
domesticated organization. end delete begin insert of a member that will have personal
liability with respect to a surviving or converted organization to
approve a merger or conversion under Article 10 (commencing
with Section 17710.01). end insert

(11) Except as otherwise provided in subdivision (b) of Section
17701.12, restrict the rights under this title of a person other than
a member or manager.

(12)  begin delete Vary end delete begin insert Except as provided therein, vary end insert any provision under
Article 10 (commencing with Section 17710.01).

(13) Vary any provision under begin insert Article 11 (commencing with
Section 17711.01), end insert Article 12 (commencing with Section
begin delete 17712.01). end delete begin insert 17712.01), or Article 13 (commencing with Section
17713.01). end insert

(14) Eliminate the duty of loyalty under subdivision (b) of
Section 17704.09, but the operating agreement may do any of the
following:

(A) Identify specific types or categories of activities that do not
violate the duty of loyalty, if not manifestly unreasonable.

(B) Specify the number or percentage of members that may
authorize or ratify, after full disclosure to all members of all
material facts, a specific act or transaction that otherwise would
violate the duty of loyalty.

(15) Unreasonably reduce the duty of care under subdivision
(c) of Section 17704.09.

begin delete

(16) Eliminate the obligation of good faith and fair dealing under
subdivision (d) of Section 17704.09, but the operating agreement
may prescribe the standards by which the performance of the
obligation is to be measured, if the standards are not manifestly
unreasonable.

end delete

(d) Except as provided in subdivision (c) and subdivisions (e)
to (g), inclusive, the effects of the provisions of this title may be
varied as among the members or as between the members and the
limited liability company by the operating agreement; provided,
however, that the provisions of Sections 17701.13, 17703.01,
begin delete 17704.07, end delete and 17704.08 begin insert and subdivisions (f) to (r), inclusive, and
(u) to (w), inclusive, of Section 17704.07 end insert shall only be varied by
a written operating agreement. Notwithstanding the first sentence
of this subdivision and in addition to the matters specified in
subdivision (c), the operating agreement shall not do begin delete either end delete begin insert any end insert of
the following:

(1) Vary the definitions of Section 17701.02, except as
specifically provided therein.

(2) Vary a member’s rights under begin delete Sections 17703.01 and end delete begin insert Section end insert
17704.10.

begin insert

(3) Vary any of the provisions of this section or Section
17701.12, except as provided therein.

end insert begin insert

(4) Vary any of the provisions of subdivisions (s) and (t) of
Section 17704.07.

end insert

(e) The fiduciary duties of a manager to begin delete the end delete begin insert a manager-managed end insert
limited liability company and to the members of the limited liability
company begin insert and of a member to a member-managed limited liability
company and to the members of such limited liability company end insert
shall only be modified in a written operating agreement with the
informed consent of the members. Assenting to the operating
agreement pursuant to subdivision (b) of Section 17701.11 shall
not constitute informed consent.

(f) To the extent the operating agreement of a member-managed
limited liability company expressly relieves a member of a
responsibility that the member would otherwise have under this
title and imposes the responsibility on one or more other members,
the operating agreement may, to the benefit of the member that
the operating agreement relieves of the responsibility, also
eliminate or limit any fiduciary duty that would have pertained to
the responsibility.

(g) The operating agreement may alter or eliminate the
indemnification for a member or manager provided by subdivision
(a) of Section 17704.08 and may eliminate or limit a member or
manager’s liability to the limited liability company and members
for money damages, except for the following:

(1) Breach of the duty of loyalty.

(2) A financial benefit received by the member or manager to
which the member or manager is not entitled.

(3) A member’s liability for excess distributions under Section
17704.06.

(4) Intentional infliction of harm on the limited liability company
or a member.

(5) An intentional violation of criminal law.

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 17701.12 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

17701.12.  

(a) An operating agreement may specify that its
amendment requires the approval of a person that is not a party to
the operating agreement or the satisfaction of a condition. An
amendment is ineffective if its adoption does not include the
required approval or satisfy the specified condition.

(b) The obligations of a limited liability company and its
members to a person in the person’s capacity as a transferee or
dissociated member are governed by the operating agreement.
Subject only to any court order issued under paragraph (2) of
subdivision (b) of Section 17705.03 to effectuate a charging order,
an amendment to the operating agreement made after a person
becomes a transferee or dissociated member is effective with regard
to any debt, obligation, or other liability of the limited liability
company or its members to the person in the person’s capacity as
a transferee or dissociated member.

(c) If a record that has been delivered by a limited liability
company to the Secretary of State for filing and has become
effective under this title contains a provision that would be
ineffective under begin delete subdivision (c) of end delete Section 17701.10 if contained
in the operating agreement, the provision is likewise ineffective
in the record.

(d) Subject to subdivision (c), if a record that has been delivered
by a limited liability company to the Secretary of State for filing
and has become effective under this title conflicts with a provision
of the operating agreement both of the following apply:

(1) The operating agreement prevails as to members, dissociated
members, transferees, and managers.

(2) The record prevails as to other persons to the extent they
reasonably rely on the record.

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Section 17701.13 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

17701.13.  

(a) A limited liability company shall designate and
continuously maintain in this state both of the following:

(1) An office, which need not be a place of its activity in this
state.

(2) An agent for service of process.

(b) A foreign limited liability company that has a certificate of
registration under Section 17708.02 shall designate and
continuously maintain in this state an agent for service of process.

(c) An agent for service of process of a limited liability company
or foreign limited liability company shall be an individual who is
a resident of this state or a corporation that has complied with
Section 1505 and whose capacity to act as an agent has not
terminated. If a limited liability company or foreign limited liability
company designates a corporation as its agent for service of process
in an instrument filed with the Secretary of State, no address for
that agent for service of process shall be set forth in that instrument.

(d) Each limited liability company shall maintain in writing or
in any other form capable of being converted into clearly legible
tangible form at the office referred to in subdivision (a) all of the
following:

(1) A current list of the full name and last known business or
residence address of each member and of each begin delete holder of a
transferable interest in the limited liability company end delete begin insert transferee end insert set
forth in alphabetical order, together with the contribution and the
share in profits and losses of each member and begin delete holder of a
transferable interest. end delete begin insert transferee. end insert

(2) If the limited liability company is a manager-managed
limited liability company, a current list of the full name and
business or residence address of each manager.

(3) A copy of the articles of organization and all amendments
thereto, together with any powers of attorney pursuant to which
the articles of organization or any amendments thereto were
executed.

(4) Copies of the limited liability company’s federal, state, and
local income tax or information returns and reports, if any, for the
six most recent fiscal years.

(5) A copy of the limited liability company’s operating
agreement, if in writing, and any amendments thereto, together
with any powers of attorney pursuant to which any written
operating agreement or any amendments thereto were executed.

(6) Copies of the financial statement of the limited liability
company, if any, for the six most recent fiscal years.

(7) The books and records of the limited liability company as
they relate to the internal affairs of the limited liability company
for at least the current and past four fiscal years.

(e) Upon request of an assessor, a domestic or foreign limited
liability company owning, claiming, possessing, or controlling
property in this state subject to local assessment shall make
available at the limited liability company’s principal office in this
state or at the office required to be kept pursuant to subdivision
(a) or at a place mutually acceptable to the assessor and the limited
liability company a true copy of the business records relevant to
the amount, cost, and value of all property that the limited liability
company owns, claims, possesses, or controls within the county.

begin insert

begin insert SEC. 6. end insert   

end insert

begin insert Section 17704.01 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

17704.01.  

(a) If a limited liability company is to have only
one member upon formation, the person becomes a member as
agreed by that person and the organizer of the limited liability
company. That person and the organizer may be, but need not be,
different persons. If different, the organizer acts on behalf of the
initial member.

(b) If a limited liability company is to have more than one
member upon formation, those persons become members as agreed
by the persons before the formation of the limited liability
company. The organizer acts on behalf of the persons in forming
the limited liability company and may be, but need not be, one of
the persons.

(c) After formation of a limited liability company, a person
becomes a member as follows:

(1) As provided in the operating agreement.

(2) As the result of a transaction effective under Article 10
(commencing with Section 17710.01).

(3) With the consent of all the members.

(4) If, within 90 consecutive days after the limited liability
company ceases to have any members, the last person to have been
a member, or the legal representative of that person, designates a
person to become a member, and the designated person consents
to become a member.

(d) A person may become a member without acquiring a
transferable interest and without making or being obligated to
make a contribution to the limited liability company.

begin insert

(e) Sections 406 and 407 of the Labor Code shall not apply to
membership interests issued by any limited liability company or
foreign limited liability company to the following persons:

end insert begin insert

(1) Any employee of the limited liability company or foreign
limited liability company or of any parent or subsidiary of either,
pursuant to a membership interest purchase plan or agreement,
or a membership interest option plan or agreement.

end insert begin insert

(2) In any transaction in connection with securing employment,
a person who is or is about to become an officer or a manager (as
appointed or elected by the members) of the limited liability
company or the foreign limited liability company or of any parent
or subsidiary of either.

end insert

begin insert

begin insert SEC. 7. end insert   

end insert

begin insert Section 17704.04 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

17704.04.  

(a) Any distributions made by a limited liability
company before its dissolution and winding up shall be among the
members in accordance with the operating agreement. If the
operating agreement does not otherwise provide, distributions shall
be on the basis of the value, as stated in the required records when
the limited liability company decides to make the distribution, of
the contributions the limited liability company has received from
each member, except to the extent necessary to comply with any
transfer effective under Section 17705.02 and any charging order
in effect under Section 17705.03.

(b) A person has a right to a distribution before the dissolution
and winding up of a limited liability company only if the limited
liability company decides to make an interim distribution. Unless
the articles of organization or written operating agreement provides
otherwise, a person’s dissociation does not entitle the person to a
distribution, and, beginning on the date of dissociation, the
dissociated person shall have only the right of a transferee of a
transferable interest with respect to that person’s interest in the
limited liability company, and then only with respect to
distributions, if any, to which a transferee is entitled under the
operating agreement. If the dissociation is in violation of the
operating agreement, the limited liability company shall have the
right to offset any damages for the breach of the operating
agreement from the amounts, if any, otherwise distributable to the
dissociated person with respect to that person’s interest in the
limited liability company.

(c) A person does not have a right to demand or receive a
distribution from a limited liability company in any form other
than money. A limited liability company may distribute an asset
in kind if each part of the asset is fungible with each other part and
each person receives a percentage of the asset equal in value to
the person’s share of distributions.

(d) If a member or transferee becomes entitled to receive a
distribution, the member or transferee has the status of, and is
entitled to all remedies available to, a creditor of the limited
liability company with respect to the distribution.

begin insert

(e) The profits and losses of a limited liability company shall
be allocated among the members, and among classes of members,
in the manner provided in the operating agreement. If the operating
agreement does not otherwise provide, profits and losses shall be
allocated in proportion to the value, as stated in the required
records, of the contributions the limited liability company has
received from each member.

end insert

begin insert

begin insert SEC. 8. end insert   

end insert

begin insert Section 17704.07 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

17704.07.  

(a) A limited liability company is a
member-managed limited liability company unless the articles of
organization begin delete and the operating agreement do either of the
following: end delete begin insert contain the statement required by paragraph (5) of
subdivision (b) of Section 17702.01. end insert

begin delete

(1) Expressly provide that:

end delete begin delete

(A) The limited liability company is or will be
“manager-managed.”

end delete begin delete

(B) The limited liability company is or will be “managed by
managers.”

end delete begin delete

(C) Management of the limited liability company is or will be
“vested in managers.”

end delete begin delete

(2) Include words of similar import.

end delete

(b) In a member-managed limited liability company, the
following rules apply:

(1) The management and conduct of the limited liability
company are vested in the members.

(2) Except as provided in subdivision (r), each member has
equal rights in the management and conduct of the limited liability
company’s activities including equal voting rights.

(3) A difference arising among members as to a matter in the
ordinary course of the activities of the limited liability company
shall be decided by a majority of the begin delete members of the limited
liability company which the difference among the members has
arisen. end delete begin insert members. end insert

(4)  begin delete An end delete begin insert Except as otherwise provided in Article 10 (commencing
with Section 17710.01), an end insert act outside the ordinary course of the
activities of the limited liability company may be undertaken only
with the consent of all members.

(5) The operating agreement may be amended only with the
consent of all members.

(c) In a manager-managed limited liability company, the
following rules apply:

(1) Except as otherwise expressly provided in this title, any
matter relating to the activities of the limited liability company is
decided exclusively by the managers.

(2) Each manager has equal rights in the management and
conduct of the activities of the limited liability company.

(3) A difference arising among managers as to a matter in the
ordinary course of the activities of the limited liability company
may be decided by a majority of the managers of the limited
liability company.

(4) The consent of all members of the limited liability company
is required to do any of the following:

(A) Sell, lease, exchange, or otherwise dispose of all, or
substantially all, of the limited liability company’s property, with
or without the goodwill, outside the ordinary course of the limited
liability company’s activities.

begin delete

(B) Approve a merger or conversion under Article 10
(commencing with Section 17710.01).

end delete begin delete

(C) Undertake any other act outside the ordinary course of the
limited liability company’s activities.

end delete begin delete

(D) Amend the operating agreement.

end delete begin insert

(B) Except as otherwise provided in Article 10 (commencing
with Section 17710.01), any other act outside the ordinary course
of the limited liability company’s activities.

end insert

(5) A manager may be chosen at any time by the consent of a
majority of the members and remains a manager until a successor
has been chosen, unless the manager at an earlier time resigns, is
removed, or dies, or, in the case of a manager that is not an
individual, terminates. A manager may be removed at any time by
the consent of a majority of the members without begin delete notice or cause. end delete
begin insert cause, subject to the rights, if any, of the manager under any
service contract with the limited liability company. end insert

(6) A person need not be a member to be a manager, but the
dissociation of a member that is also a manager removes the person
as a manager. If a person that is both a manager and a member
ceases to be a manager, that cessation does not by itself dissociate
the person as a member.

(7) A person’s ceasing to be a manager does not discharge any
debt, obligation, or other liability to the limited liability company
or members which the person incurred while a manager.

(d) The dissolution of a limited liability company does not affect
the applicability of this section. However, a person that wrongfully
causes dissolution of the limited liability company loses the right
to participate in management as a member and a manager.

(e) This title does not entitle a member to remuneration for
services performed for a member-managed limited liability
company, except for reasonable compensation for services rendered
in winding up the activities of a limited liability company.

(f) Meetings of members may be held at any place, by electronic
video screen communication or by electronic transmission by and
to the limited liability company pursuant to paragraphs (1) and (2)
of subdivision (i) of Section 17701.02, either within or without
this state, selected by the person or persons calling the meeting or
as may be stated in or fixed in accordance with the articles of
organization or a written operating agreement. If no other place is
stated or so fixed, all meetings shall be held at the principal office
of the limited liability company. Unless prohibited by the articles
of organization of the limited liability company, if authorized by
the operating agreement, members not physically present in person
or by proxy at a meeting of members may, by electronic
transmission by and to the limited liability company pursuant to
paragraphs (1) and (2) of subdivision (i) of Section 17701.02 or
by electronic video screen communication, participate in a meeting
of members, be deemed present in person or by proxy, and vote
at a meeting of members whether that meeting is to be held at a
designated place or in whole or in part by means of electronic
transmission by and to the limited liability company or by
electronic video screen communication, in accordance with
subdivision (l).

(g) A meeting of the members may be called by any manager
or by any member or members representing more than 10 percent
of the interests in current profits of members for the purpose of
addressing any matters on which the members may vote.

(h) (1) Whenever members are required or permitted to take
any action at a meeting, a written notice of the meeting shall be
given not less than 10 days nor more than 60 days before the date
of the meeting to each member entitled to vote at the meeting. The
notice shall state the place, date, and hour of the meeting, the means
of electronic transmission by and to the limited liability company
or electronic video screen communication, if any, and the general
nature of the business to be transacted. No other business may be
transacted at that meeting.

(2) Any report or any notice of a members’ meeting shall be
given personally, by electronic transmission by the limited liability
company, or by mail or other means of written communication,
addressed to the member at the address of the member appearing
on the books of the limited liability company or given by the
member to the limited liability company for the purpose of notice,
or, if no address appears or is given, at the place where the principal
office of the limited liability company is located or by publication
at least once in a newspaper of general circulation in the county
in which the principal office is located. The notice or report shall
be deemed to have been given at the time when delivered
personally, delivered by electronic transmission by the limited
liability company, deposited in the mail, or sent by other means
of written communication. An affidavit of mailing or delivered by
electronic transmission by the limited liability company of any
notice or report in accordance with this article, executed by a
manager, shall be prima facie evidence of the giving of the notice
or report.

(3) If any notice or report addressed to the member at the address
of the member appearing on the books of the limited liability
company is returned to the limited liability company by the United
States Postal Service marked to indicate that the United States
Postal Service is unable to deliver the notice or report to the
member at the address, all future notices or reports shall be deemed
to have been duly given without further mailing if they are
available for the member at the principal office of the limited
liability company for a period of one year from the date of the
giving of the notice or report to all other members.

(4) Notice given by electronic transmission by the limited
liability company under this subdivision shall be valid only if it
complies with paragraph (1) of subdivision (i) of Section 17701.02.

Notwithstanding this condition, notice shall not be given by
electronic transmission by the limited liability company under this
subdivision after either of the following has occurred:

(A) The limited liability company is unable to deliver two
consecutive notices to the member by that means.

(B) The inability to so deliver the notices to the member
becomes known to the secretary, any assistant secretary, the transfer
agent, or any other person responsible for the giving of the notice.

(5) Upon written request to a manager by any person entitled
to call a meeting of members, the manager shall immediately cause
notice to be given to the members entitled to vote that a meeting
will be held at a time requested by the person calling the meeting,
not less than 10 days nor more than 60 days after the receipt of the
request. If the notice is not given within 20 days after receipt of
the request, the person entitled to call the meeting may give the
notice or, upon the application of that person, the superior court
of the county in which the principal office of the limited liability
company is located, or if the principal office is not in this state,
the county in which the limited liability company’s address in this
state is located, shall summarily order the giving of the notice,
after notice to the limited liability company affording it an
opportunity to be heard. The procedure provided in subdivision
(c) of Section 305 shall apply to the application. The court may
issue any order as may be appropriate, including, without
limitation, an order designating the time and place of the meeting,
the record date for determination of members entitled to vote, and
the form of notice.

(i) When a members’ meeting is adjourned to another time or
place, unless the articles of organization or a written operating
agreement otherwise require and except as provided in this
subdivision, notice need not be given of the adjourned meeting if
the time and place thereof or the means of electronic transmission
by and to the limited liability company or electronic video screen
communication, if any, are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the limited liability
company may transact any business that may have been transacted
at the original meeting. If the adjournment is for more than 45
days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be
given to each member of record entitled to vote at the meeting.

(j) The actions taken at any meeting of members, however called
and noticed, and wherever held, have the same validity as if taken
at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after
the meeting, each of the members entitled to vote, not present in
person or by proxy, provides a waiver of notice or consents to the
holding of the meeting or approves the minutes of the meeting in
writing. All waivers, consents, and approvals shall be filed with
the limited liability company records or made a part of the minutes
of the meeting after conversion to the form in which those records
or minutes are kept. Attendance of a person at a meeting shall
constitute a waiver of notice of the meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
Attendance at a meeting is not a waiver of any right to object to
the consideration of matters required by this title to be included
in the notice but not so included, if the objection is expressly made
at the meeting. Neither the business to be transacted nor the purpose
of any meeting of members need be specified in any written waiver
of notice, unless otherwise provided in the articles of organization
or operating agreement, except as provided in subdivision (l).

(k) Members may participate in a meeting of the limited liability
company through the use of conference telephones or electronic
video screen communication, as long as all members participating
in the meeting can hear one another, or by electronic transmission
by and to the limited liability company pursuant to paragraphs (1)
and (2) of subdivision (i) of Section 17701.02. Participation in a
meeting pursuant to this provision constitutes presence in person
at that meeting.

(l) Any action approved at a meeting, other than by unanimous
approval of those entitled to vote, shall be valid only if the general
nature of the proposal so approved was stated in the notice of
meeting or in any written waiver of notice.

(m) (1) A majority of the members represented in person or by
proxy shall constitute a quorum at a meeting of members.

(2) The members present at a duly called or held meeting at
which a quorum is present may continue to transact business until
adjournment, notwithstanding the loss of a quorum, if any action
taken after loss of a quorum, other than adjournment, is approved
by the requisite percentage of interests of members specified in
this title or in the articles of organization or a written operating
agreement.

(3) In the absence of a quorum, any meeting of members may
be adjourned from time to time by the vote of a majority of the
interests represented either in person or by proxy, but no other
business may be transacted, except as provided in paragraph (2).

(n) (1) Any action that may be taken at any meeting of the
members may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed and delivered to the
limited liability company within 60 days of the record date for that
action by members having not less than the minimum number of
votes that would be necessary to authorize or take that action at a
meeting at which all members entitled to vote thereon were present
and voted.

(2) Unless the consents of all members entitled to vote have
been solicited in writing, (A) notice of any member approval of
an amendment to the articles of organization or operating
agreement, a dissolution of the limited liability company as
provided in Section 17707.01, or a merger of the limited liability
company as provided in Section 17710.10, without a meeting by
less than unanimous written consent shall be given at least 10 days
before the consummation of the action authorized by the approval,
and (B) prompt notice shall be given of the taking of any other
action approved by members without a meeting by less than
unanimous written consent, to those members entitled to vote who
have not consented in writing.

(3) Any member giving a written consent, or the member’s
proxyholder, may revoke the consent personally or by proxy by a
writing received by the limited liability company prior to the time
that written consents of members having the minimum number of
votes that would be required to authorize the proposed action have
been filed with the limited liability company, but may not do so
thereafter. This revocation is effective upon its receipt at the office
of the limited liability company required to be maintained pursuant
to Section 17701.13.

(o) The use of proxies in connection with this section shall be
governed in the same manner as in the case of corporations formed
under the General Corporation Law, Division 1 (commencing with
Section 100) of Title 1.

(p) In order that the limited liability company may determine
the members of record entitled to notices of any meeting or to vote,
or entitled to receive any distribution or to exercise any rights in
respect of any other lawful action, a manager, or members
representing more than 10 percent of the interests of members,
may fix, in advance, a record date, that is not more than 60 days
nor less than 10 days prior to the date of the meeting and not more
than 60 days prior to any other action. If no record date is fixed
the following shall apply:

(1) The record date for determining members entitled to notice
of or to vote at a meeting of members shall be at the close of
business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is
held.

(2) The record date for determining members entitled to give
consent to limited liability company action in writing without a
meeting shall be the day on which the first written consent is given.

(3) The record date for determining members for any other
purpose shall be at the close of business on the day on which the
managers adopt the resolution relating thereto, or the 60th day
prior to the date of the other action, whichever is later.

(4) The determination of members of record entitled to notice
of or to vote at a meeting of members shall apply to any
adjournment of the meeting unless a manager or the members who
called the meeting fix a new record date for the adjourned meeting,
but the manager or the members who called the meeting shall fix
a new record date if the meeting is adjourned for more than 45
days from the date set for the original meeting.

(q) A meeting of the members may be conducted, in whole or
in part, by electronic transmission by and to the limited liability
company or by electronic video screen communication if both of
the following requirements are met:

(1) The limited liability company implements reasonable
measures to provide members, in person or by proxy, a reasonable
opportunity to participate in the meeting and to vote on matters
submitted to the members, including an opportunity to read or hear
the proceedings of the meeting substantially concurrently with
those proceedings.

(2) When any member votes or takes other action at the meeting
by means of electronic transmission to the limited liability company
or electronic video screen communication, a record of that vote or
action shall be maintained by the limited liability company.

(r) The articles of organization or a written operating agreement
may provide to all or certain identified members of a specified
class or group of members the right to vote separately or with all
or any class or group of members on any matter. Voting by
members may be on a per capita, number, financial interest, class,
group, or any other basis. If no voting provision is contained in
the articles of organization or written operating agreement, each
of the following shall apply:

(1) The members of a limited liability company shall vote in
proportion to their interests in current profits of the limited liability
company or, in the case of a member who has assigned the
member’s entire transferable interest in the limited liability
company to a person who has not been admitted as a member, in
proportion to the interest in current profits that the assigning
member would have, had the assignment not been made.

(2) Any amendment to the articles of organization or operating
agreement shall require the unanimous vote of all members.

(3) In all other matters in which a vote is required, except as
otherwise provided in this section, a vote of a majority of the
members shall be sufficient.

(s) Notwithstanding any provision to the contrary in the articles
of organization or operating agreement, in no event shall the
articles of organization be amended by a vote of less than a
majority of the members.

(t) Notwithstanding any provision to the contrary in the articles
of organization or operating agreement, members shall have the
right to vote on a dissolution of the limited liability company as
provided in subdivision (b) of Section begin delete 17707.0 end delete begin insert 17707.01, on a
conversion to another business entity as provided in subdivision
(b) of Section 17710.03, end insert and on a merger of the limited liability
company as provided in Section 17710.12.

(u) A written operating agreement may provide for the
appointment of officers, including, but not limited to, a chairperson
or a president, or both a chairperson and a president, a secretary,
a chief financial officer, and any other officers with the titles,
powers, and duties as shall be specified in the articles of
organization or operating agreement or as determined by the
managers or members. An officer may, but does not need to, be a
member or manager of the limited liability company, and any
number of offices may be held by the same person.

(v) Officers, if any, shall be appointed in accordance with the
written operating agreement or, if no such provision is made in
the operating agreement, any officers shall be appointed by the
managers and shall serve at the pleasure of the managers, subject
to the rights, if any, of an officer under any contract of
employment. Any officer may resign at any time upon written
notice to the limited liability company without prejudice to the
rights, if any, of the limited liability under any contract to which
the officer is a party.

(w) Subject to the provisions of the articles of organization, any
note, mortgage, evidence of indebtedness, contract, certificate,
statement, conveyance, or other instrument in writing, and any
assignment or endorsement thereof, executed or entered into
between any limited liability company and any other person, when
signed by the chairperson of the board, the president, or any vice
president and any secretary, any assistant secretary, the chief
financial officer, or any assistant treasurer of the limited liability
company, is not invalidated as to the limited liability company by
any lack of authority of the signing officers in the absence of actual
knowledge on the part of the other person that the signing officers
had no authority to execute the same.

begin insert

begin insert SEC. 9. end insert   

end insert

begin insert Section 17704.08 of the end insert begin insert Corporations Code end insert begin insert is amended
to read: end insert

17704.08.  

(a) A limited liability company shall reimburse for
any payment made and indemnify for any debt, obligation, or other
liability incurred by a member of a member-managed limited
liability company or the manager of a manager-managed limited
liability company in the course of the member’s or manager’s
activities on behalf of the limited liability company, if, in making
the payment or incurring the debt, obligation, or other liability,
the member or manager complied with the duties stated in Section
17704.09.

begin insert

(b) Except as provided in subdivision (g) of Section 17701.10,
a limited liability company may reimburse for any payment made
and may indemnify for any debt, obligation, or other liability
incurred by a person not identified in subdivision (a), including
without limitation, any officer, employee, or agent of the limited
liability company, in the course of that person’s activities on behalf
of the limited liability company.

end insert begin delete

(b)

end delete

begin insert (c) end insert  A limited liability company may purchase and maintain
insurance on behalf of begin delete a member or manager of the limited liability
company end delete begin insert any person end insert against liability asserted against or incurred
by begin delete the member or manager in that capacity or arising from that
status end delete begin insert that person end insert even if, under subdivision (g) of Section
17701.10, the operating agreement could not eliminate or limit the
person’s liability to the limited liability company for the conduct
giving rise to the liability.

begin insert

(d) (1) Without limiting subdivision (a), to the extent that an
agent of a limited liability company has been successful on the
merits in defense or settlement of any claim, issue, or matter in
any proceeding in which the agent was or is a party or is
threatened to be made a party by reason of the fact that the person
is or was an agent of the limited liability company, if the agent
acted in good faith and in a manner that the agent reasonably
believed to be in the best interests of the limited liability company
and its members, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection
therewith.

end insert begin insert

(2) For purposes of this subdivision, the following terms have
the following meanings:

end insert begin insert

(A) “Agent” means any person who is or was a member of a
member-managed limited liability company, manager of a
manager-managed limited liability company, employee, or other
agent of the limited liability company, or is or was serving at the
request of the limited liability company as a manager, director,
officer, employee or agent of another foreign or domestic
corporation, limited liability company or foreign limited liability
company, partnership, joint venture, trust or other enterprise, or
was a manager, director, officer, employee or agent of a foreign
or domestic limited liability company, partnership, joint venture,
trust, or other enterprise that was a predecessor of the limited
liability company or of another enterprise at the request of the
predecessor entity corporation or other enterprise.

end insert begin insert

(B) “Expenses” include, without limitation, the attorney’s fees
and any expenses of establishing a right to indemnification under
this subdivision.

end insert begin insert

(C) “Proceeding” means any threatened, pending, or completed
action or proceeding, whether civil, criminal, administrative, or
investigative.

end insert

begin insert

begin insert SEC. 10. end insert   

end insert

begin insert Section 17704.09 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17704.09.  

(a) The fiduciary duties that a member owes to a
member-managed limited liability company and the other members
of the limited liability company are the duties of loyalty and care
under subdivisions (b) and (c).

(b) A member’s duty of loyalty to begin delete a end delete begin insert the end insert limited liability company
and the other members is limited to the following:

(1) To account to begin delete a end delete begin insert the end insert limited liability company and hold as
trustee for it any property, profit, or benefit derived by the member
in the conduct and winding up of the activities of a limited liability
company or derived from a use by the member of a limited liability
company property, including the appropriation of a limited liability
company opportunity.

(2) To refrain from dealing with begin delete a end delete begin insert the end insert limited liability company
in the conduct or winding up of the activities of begin delete a end delete begin insert the end insert limited
liability company as or on behalf of a begin delete party end delete begin insert person end insert having an
interest adverse to begin delete a end delete begin insert the end insert limited liability company.

(3) To refrain from competing with begin delete a end delete begin insert the end insert limited liability
company in the conduct or winding up of the activities of the
limited liability company.

(c) A member’s duty of care to a limited liability company and
the other members in the conduct and winding up of the activities
of the limited liability company is limited to refraining from
engaging in grossly negligent or reckless conduct, intentional
misconduct, or a knowing violation of law.

(d) A member shall discharge the duties to a limited liability
company and the other members under this title or under the
operating agreement and exercise any rights consistent with the
obligation of good faith and fair dealing.

(e) A member does not violate a duty or obligation under this
article or under the operating agreement merely because the
member’s conduct furthers the member’s own interest.

(f) In a manager-managed limited liability company, all of the
following rules apply:

(1) Subdivisions (a), (b), (c), and (e) apply to the manager or
managers and not the members.

(2) Subdivision (d) applies to the members and managers.

(3) Except as otherwise provided, a member does not have any
fiduciary duty to the limited liability company or to any other
member solely by reason of being a member.

begin insert

begin insert SEC. 11. end insert   

end insert

begin insert Section 17704.10 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17704.10.  

(a) Upon the request of a member or begin delete holder of a
transferable interest, end delete begin insert transferee, end insert for purposes reasonably related
to the interest of that person as a member or a begin delete holder of a
transferable interest, end delete begin insert transferee, end insert a manager or, if the limited liability
company is member-managed, a member in possession of the
requested information, shall promptly deliver, in writing, to the
member or begin delete holder of a transferable interest, end delete begin insert transferee, end insert at the
expense of the limited liability company, a copy of the information
required to be maintained by paragraphs (1), (2), and (4) of
subdivision (d) of Section 17701.13, and any written operating
agreement of the limited liability company.

(b) Each member, manager, and begin delete holder of a transferable interest end delete
begin insert transferee end insert has the right, upon reasonable request, for purposes
reasonably related to the interest of that person as a member,
manager, or begin delete holder of a transferable interest, end delete begin insert transferee, end insert to each
of the following:

(1) To inspect and copy during normal business hours any of
the records required to be maintained pursuant to Section 17701.13.

(2) To obtain in writing from the limited liability company,
promptly after becoming available, a copy of the limited liability
company’s federal, state, and local income tax returns for each
year.

(c) In the case of a limited liability company with more than 35
members, each of the following shall apply:

(1) A manager shall cause an annual report to be sent to each
of the members not later than 120 days after the close of the fiscal
year. The report, which may be sent by electronic transmission by
the limited liability company (paragraph (1) of subdivision (i) of
Section 17701.02) shall contain a balance sheet as of the end of
the fiscal year and an income statement and a statement of
cashflows for the fiscal year.

(2) Members representing at least 5 percent of the voting
interests of members, or three or more members, may make a
written request to a manager for an income statement of the limited
liability company for the initial three-month, six-month, or
nine-month period of the current fiscal year ending more than 30
days prior to the date of the request, and a balance sheet of the
limited liability company as of the end of that period. The statement
shall be delivered or mailed to the members within 30 days
thereafter.

(3) The financial statements referred to in this section shall be
accompanied by the report thereon, if any, of the independent
accountants engaged by the limited liability company or, if there
is no report, the certificate of the manager of the limited liability
company that the financial statements were prepared without audit
from the books and records of the limited liability company.

(d) A manager shall promptly furnish to a member a copy of
any amendment to the articles of organization or operating
agreement executed by a manager pursuant to a power of attorney
from the member. The articles of organization or operating
agreement may be sent by electronic transmission by the limited
liability company.

(e) The limited liability company shall send or cause information
to be sent in writing to each member or holder of a transferable
interest within 90 days after the end of each taxable year the
information necessary to complete federal and state income tax or
information returns and, in the case of a limited liability company
with 35 or fewer members, a copy of the limited liability
company’s federal, state, and local income tax or information
returns for the year.

(f) In addition to the remedies provided in Sections 17713.06
and 17713.07 and any other remedies, a court of competent
jurisdiction may enforce the duty of making and mailing or
delivering the information and financial statements required by
this section and, for good cause shown, extend the time therefor.

(g) In any action under this section or under Section 17713.07,
if the court finds the failure of the limited liability company to
comply with the requirements of this section is without
justification, the court may award an amount sufficient to reimburse
the person bringing the action for the reasonable expenses incurred
by that person, including attorney’s fees, in connection with the
action or proceeding.

(h) Any waiver of the rights provided in this section shall be
unenforceable.

(i) Any request, inspection, or copying by a member or holder
of a transferable interest may be made by that person or by that
person’s agent or attorney.

(j) Upon complaint that a limited liability company is failing to
comply with the provisions of this section, or to afford to the
members rights given to them in the articles of organization or
operating agreement, the Attorney General may, in the name of
the people of the State of California, send to the office required to
be maintained pursuant to Section 17701.13, notice of the
complaint.

(k) If the answer of the limited liability company is not received
within 30 days of the date the notice was transmitted, or if the
answer is not satisfactory, and if the enforcement of the rights of
the aggrieved persons by private civil action, by class action, or
otherwise, would be so burdensome or expensive as to be
impracticable, the Attorney General may institute, maintain, or
intervene in any court of competent jurisdiction or before any
administrative agency for relief by way of injunction, the
dissolution of entities, the appointment of receivers, or any other
temporary, preliminary, provisional, or final remedies as may be
appropriate to protect the rights of members or to restore the
position of the members for the failure to comply with the
requirements of Section 17701.13 or the articles of organization
or the operating agreement. In any action, suit, or proceeding, there
may be joined as parties all persons and entities responsible for or
affected by the activity.

begin insert

begin insert SEC. 12. end insert   

end insert

begin insert Section 17705.02 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17705.02.  

(a) With respect to a transfer, in whole or in part,
of a transferable interest, all of the following apply:

(1) A transfer is permissible.

(2) A transfer does not by itself cause a member’s dissociation
or a dissolution and winding up of the activities of a limited liability
company.

(3) Subject to Section 17705.04, a transfer does not entitle the
transferee to do any of the following:

(A)  begin delete Participate end delete begin insert Vote or otherwise participate end insert in the management
or conduct of the activities of a limited liability company.

(B) Except as otherwise provided in subdivision begin delete (c), end delete begin insert (c) and
Section 17704.10, end insert have access to records or other information
concerning the activities of a limited liability company.

(b) A transferee has the right to receive, in accordance with the
transfer, distributions to which the transferor would otherwise be
entitled; provided, however, that the pledge or granting of a security
interest, lien, or other encumbrance in or against any or all of the
transferable interest of a transferor shall not cause the transferor
to cease to be a member or grant to the transferee or to anyone else
the power to exercise any rights or powers of a member, including,
without limitation, the right to receive distributions to which the
member is entitled.

(c) In a dissolution and winding up of a limited liability
company, a transferee is entitled to an account of the limited
liability company’s transactions only from the date of dissolution.

(d) A transferable interest may be evidenced by a certificate of
the interest issued by the limited liability company in a record,
and, subject to this article, the interest represented by the certificate
may be transferred by a transfer of the certificate.

(e) A limited liability company need not give effect to a
transferee’s rights under this section until the limited liability
company has notice of the transfer.

(f) A transfer of a transferable interest in violation of a restriction
on transfer contained in the operating agreement is ineffective as
to a person having notice of the restriction at the time of transfer.

(g) Except as otherwise provided in subdivision (b) of this
section and paragraph (2) of subdivision (d) of Section 17706.02,
when a member transfers a transferable interest, the transferor
retains the rights of a member, other than the interest in
distributions transferred, and retains all duties and obligations of
a member.

(h) When a member transfers a transferable interest to a person
that becomes a member with respect to the transferred interest, the
transferee is liable for the member’s obligations under Section
17704.03 and subdivision (c) of Section 17704.06 known to the
transferee when the transferee becomes a member.

begin delete SECTION 1. end delete
begin insert SEC. 13. end insert   

Section 17706.03 of the Corporations Code is
amended to read:

17706.03.  

(a) When a person is dissociated as a member of a
limited liability company all of the following apply:

(1) The person’s right to vote or participate as a member in the
management and conduct of the limited liability company’s
activities terminates.

(2) If the limited liability company is member-managed, the
person’ s fiduciary duties as a member end with regard to matters
arising and events occurring after the person’s dissociation.

(3) Subject to Section 17705.04 and Article 10 (commencing
with Section 17710.01), any transferable interest owned by the
person immediately before dissociation in the person’s capacity
as a member is owned by the person solely as a transferee.

(b) A person’s dissociation as a member of a limited liability
company does not of itself discharge the person from any debt,
obligation, or other liability to the limited liability company or the
other members that the person incurred while a member.

(c) If a member dies or a guardian or general conservator is
appointed for the member, the member’s executor, administrator,
guardian, conservator, or other legal representative may exercise
all of the member’s rights for the purpose of settling the member’s
estate or administering the member’s property, including any power
the member had under the articles of organization or an operating
agreement to give a transferee the right to become a member.

begin insert

begin insert SEC. 14. end insert   

end insert

begin insert Section 17707.01 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17707.01.  

A limited liability company is dissolved, and its
activities shall be wound up, upon the happening of the first to
occur of the following:

(a) On the happening of an event set forth in a written operating
agreement or the articles of organization.

(b) By the vote of a majority of the members of the limited
liability company or a greater percentage of the voting interests
of members as may be specified in the articles of organization, or
a written operating agreement.

(c) The passage of 90 consecutive days during which the limited
liability company has no members, except begin insert that, end insert on the death of a
natural person who is the sole member of a limited liability
company, the status of the member, including a membership
interest, may pass to begin delete the end delete begin insert one or more end insert heirs, successors, and assigns
of the member by will or applicable law. begin delete The end delete begin insert An end insert heir, successor,
or assign of the member’s interest becomes a substituted member
pursuant to begin insert paragraph (4) of end insert subdivision begin delete (d) end delete begin insert (c) end insert of Section
17704.01, subject to administration as provided by applicable law,
without the permission or consent of the heirs, successors, or
assigns or, those administering the estate of the deceased member.

(d) Entry of a decree of judicial dissolution pursuant to Section
17707.03.

begin insert

begin insert SEC. 15. end insert   

end insert

begin insert Section 17707.03 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17707.03.  

(a) Pursuant to an action filed by any manager or
by any member or members of a limited liability company, a court
of competent jurisdiction may decree the dissolution of a limited
liability company whenever any of the events specified in
subdivision (b) occurs.

(b) (1) It is not reasonably practicable to carry on the business
in conformity with the articles of organization or operating
agreement.

(2) Dissolution is reasonably necessary for the protection of the
rights or interests of the complaining members.

(3) The business of the limited liability company has been
abandoned.

(4) The management of the limited liability company is
deadlocked or subject to internal dissention.

(5) Those in control of the limited liability company have been
guilty of, or have knowingly countenanced persistent and pervasive
fraud, mismanagement, or abuse of authority.

(c) (1) In any suit for judicial dissolution, the other members
may avoid the dissolution of the limited liability company by
purchasing for cash the membership interests owned by the
members so initiating the proceeding, the “moving parties,” at
their fair market value. In fixing the value, the amount of any
damages resulting if the initiation of the dissolution is a breach by
any moving party or parties of an agreement with the purchasing
party or parties, including, without limitation, the operating
agreement, may be deducted from the amount payable to the
moving party or parties; provided, that no member who sues for
dissolution on the grounds set forth in paragraph (3), (4), or (5) of
subdivision begin delete (a) end delete begin insert (b) end insert shall be liable for damages for breach of contract
in bringing that action.

(2) If the purchasing parties elect to purchase the membership
interests owned by the moving parties, are unable to agree with
the moving parties upon the fair market value of the membership
interests, and give bond with sufficient security to pay the estimated
reasonable expenses, including attorney’s fees, of the moving
parties if the expenses are recoverable under paragraph (3), the
court, upon application of the purchasing parties, either in the
pending action or in a proceeding initiated in the superior court of
the proper county by the purchasing parties, shall stay the winding
up and dissolution proceeding and shall proceed to ascertain and
fix the fair market value of the membership interests owned by
the moving parties.

(3) The court shall appoint three disinterested appraisers to
appraise the fair market value of the membership interests owned
by the moving parties, and shall make an order referring the matter
to the appraisers so appointed for the purpose of ascertaining that
value. The order shall prescribe the time and manner of producing
evidence, if evidence is required. The award of the appraisers or
a majority of them, when confirmed by the court, shall be final
and conclusive upon all parties. The court shall enter a decree that
shall provide in the alternative for winding up and dissolution of
the limited liability company, unless payment is made for the
membership interests within the time specified by the decree. If
the purchasing parties do not make payment for the membership
interests within the time specified, judgment shall be entered
against them and the surety or sureties on the bond for the amount
of the expenses, including attorney’s fees, of the moving parties.
Any member aggrieved by the action of the court may appeal
therefrom.

(4) If the purchasing parties desire to prevent the winding up
and dissolution of the limited liability company, they shall pay to
the moving parties the value of their membership interests
ascertained and decreed within the time specified pursuant to this
section, or, in the case of an appeal, as fixed on appeal. On
receiving that payment or the tender of payment, the moving parties
shall transfer their membership interests to the purchasing parties.

(5) For the purposes of this section, the valuation date shall be
the date upon which the action for judicial dissolution was
commenced. However, the court may, upon the hearing of a motion
by any party, and for good cause shown, designate some other date
as the valuation date.

(6) A dismissal of any suit for judicial dissolution by a manager,
member, or members shall not affect the other members’ rights to
avoid dissolution pursuant to this section.

begin insert

begin insert SEC. 16. end insert   

end insert

begin insert Section 17707.09 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17707.09.  

(a) Notwithstanding the filing of a certificate of
dissolution, a majority begin delete in interest end delete of the members may cause to be
filed, in the office of, and on a form prescribed by, the Secretary
of State, a certificate of continuation, in any of the following
circumstances:

(1) The business of the limited liability company is to be
continued pursuant to a unanimous vote of the remaining members.

(2) The dissolution of the limited liability company was by vote
of the members pursuant to subdivision (b) of Section 17707.01
and each member who consented to the dissolution has agreed in
writing to revoke his or her vote in favor of or consent to the
dissolution.

(3) The limited liability company was not, in fact, dissolved.

(b) The certificate of continuation shall set forth all of the
following:

(1) The name of the limited liability company and the Secretary
of State’s file number.

(2) The grounds provided by subdivision (a) that are the basis
for filing the certificate of continuation.

(c) Upon the filing of a certificate of continuation, the certificate
of dissolution shall be of no effect from the time of the filing of
the certificate of dissolution.

begin insert

begin insert SEC. 17. end insert   

end insert

begin insert Section 17708.07 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17708.07.  

(a) A foreign limited liability company transacting
intrastate business in this state shall not maintain an action or
proceeding in this state unless it has a certificate of registration to
transact intrastate business in this state.

(b) The failure of a foreign limited liability company to have a
certificate of registration to transact intrastate business in this state
does not begin delete impair the validity of a contract or act of the foreign
limited liability company or end delete prevent the foreign limited liability
company from defending an action or proceeding in this state.

(c) A member or manager of a foreign limited liability company
is not liable for the debts, obligations, or other liabilities of the
foreign limited liability company solely because the foreign limited
liability company transacted intrastate business in this state without
a certificate of registration.

(d) If a foreign limited liability company transacts intrastate
business in this state without a certificate of registration or cancels
its certificate of registration, it shall be deemed to have appointed
the Secretary of State as its agent for service of process for rights
of action arising out of the transaction of intrastate business in this
state.

begin insert

begin insert SEC. 18. end insert   

end insert

begin insert Section 17710.03 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17710.03.  

(a) A limited liability company that desires to
convert to an other business entity or a foreign other business entity
or a foreign limited liability company shall approve a plan of
conversion.

The plan of conversion shall state all of the following:

(1) The terms and conditions of the conversion.

(2) The place of the organization of the converted entity and of
the converting limited liability company and the name of the
converted entity after conversion.

(3) The manner of converting the membership interests of each
of the members into shares of, securities of, or interests in, the
converted entity.

(4) The provisions of the governing documents for the converted
entity, including the limited liability company articles of
organization and operating agreement, or articles or certificate of
incorporation if the converted entity is a corporation, to which the
holders of interests in the converted entity are to be bound.

(5) Any other details or provisions that are required by the laws
under which the converted entity is organized, or that are desired
by the parties.

(b) (1) The plan of conversion shall be approved by all
managers and a majority begin delete in interest end delete begin insert of the members end insert of each class
of membership interest or if there are no managers, a majority begin delete in
interest end delete begin insert of the members end insert of each class of membership of the
converting limited liability company, unless a greater begin delete or lesser end delete
approval is required by the operating agreement of the converting
limited liability company.

(2) However, if the members of the limited liability company
would become personally liable for any obligations of the
converted entity as a result of the conversion, the plan of
conversion shall be approved by all of the begin delete limited end delete members of the
converting limited liability company, unless the plan of conversion
provides that all members will have dissenters’ rights as provided
in Article 11 (commencing with Section 17711.01).

(c) Upon the effectiveness of the conversion, all members of
the converting limited liability company, except those that exercise
dissenters’ rights as provided in Article 11 (commencing with
Section 17711.01), shall be deemed parties to any governing
documents for the converted entity adopted as part of the plan of
conversion, regardless of whether or not the member has executed
the plan of conversion or the governing documents for the
converted entity. Any adoption of governing documents made
pursuant to the conversion shall be effective at the effective time
or date of the conversion.

(d) Notwithstanding its prior approval, a plan of conversion
may be amended before the conversion takes effect if the
amendment is approved by all managers and a majority of the
members or if there are no managers, a majority of the members
of the converting limited liability company and, if the amendment
changes any of the principal terms of the plan of conversion, the
amendment is approved by the managers and members of the
converting limited liability company in the same manner and to
the same extent as required for the approval of the original plan
of conversion.

(e) The managers by unanimous approval and the members of
a converting limited liability company may, by majority approval
at any time before the conversion is effective, in their discretion,
abandon a conversion, without further approval by the managers
or members, subject to the contractual rights of third parties other
than managers or members.

(f) The converted entity shall keep the plan of conversion at the
principal place of business of the converted entity if the converted
entity is a domestic limited liability company or foreign other
business entity, at the principal office of, or registrar or transfer
agent of, the converted entity, if the converted entity is a domestic
corporation, or at the office where records are to be kept pursuant
to Section 17701.13 if the converted entity is a domestic limited
liability company. Upon the request of a member of a converting
limited liability company, the authorized person on behalf of the
converted entity shall promptly deliver to the member or the holder
of shares, interests, or other securities, at the expense of the
converted entity, a copy of the plan of conversion. A waiver by a
member of the rights provided in this subdivision shall be
unenforceable.

begin insert

begin insert SEC. 19. end insert   

end insert

begin insert Section 17710.06 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17710.06.  

(a) Upon conversion of a limited liability company,
one of the following applies:

(1) If the limited liability company is converting into a domestic
limited partnership, a statement of conversion shall be completed
on a certificate of limited partnership for the converted entity and
shall be filed with the Secretary of State.

(2) If the limited liability company is converting into a domestic
partnership, a statement of conversion shall be completed on the
statement of partnership authority for the converted entity. If no
statement of partnership authority is filed, a certificate of
conversion shall be filed separately with the Secretary of State.

(3) If the limited liability company is converting into a domestic
corporation, a statement of conversion shall be completed on the
articles of incorporation for the converted entity and shall be filed
with the Secretary of State.

(4) If the limited liability company is converting to a foreign
limited liability company or foreign other business entity, a
certificate of conversion shall be filed with the Secretary of State.

(b) Any certificate or statement of conversion shall be executed
and acknowledged by all begin delete members, end delete begin insert members of a member-managed
limited liability company or all managers of a manger-managed
limited liability company, end insert unless a lesser number is provided in
the articles of organization or operating agreement, and shall set
forth all of the following:

(1) The name of the converting limited liability company and
the Secretary of State’s file number of the converting limited
liability company.

(2) A statement that the principal terms of the plan of conversion
were approved by a vote of the members, that equaled or exceeded
the vote required under Section 17710.03, specifying each class
entitled to vote and the percentage vote required of each class.

(c) A certificate of conversion shall set forth all of the following:

(1) The name, form, and jurisdiction of organization of the
converted entity.

(2) The name, street, and mailing address of the converted
entity’s agent for service of process.

(3) The street address of the converted entity’s chief executive
office.

(d) The filing with the Secretary of State of a certificate of
conversion, a certificate of limited partnership, a statement of
partnership authority, or articles of incorporation containing a
statement of conversion as set forth in subdivision (a) shall have
the effect of the filing of a certificate of cancellation by the
converting limited liability company, and no converting limited
liability company that has made the filing is required to take any
action under Article 7 (commencing with Section 17707.01) as a
result of that conversion.

(e) For the purposes of this title, the certificate of conversion
shall be on a form prescribed by the Secretary of State.

begin insert

begin insert SEC. 20. end insert   

end insert

begin insert Section 17710.12 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17710.12.  

(a) Each limited liability company and other
business entity that desires to merge shall approve an agreement
of merger.

The agreement of merger shall be approved by all managers and
a majority begin delete in interest end delete begin insert of the members end insert of each class of membership
interests of each constituent limited liability company, unless a
greater approval is required by the operating agreement of the
constituent limited liability company. Notwithstanding the previous
sentence, if the members of any constituent limited liability
company become personally liable for any obligations of a
constituent limited liability company or constituent other business
entity as a result of the merger, the principal terms of the agreement
of merger shall be approved by all of the members of the
constituent limited liability company, unless the agreement of
merger provides that all members shall have the dissenters’ rights
provided in Article 11 (commencing with Section 17711.01). The
agreement of merger shall be approved on behalf of each
constituent other business entity by those persons required to
approve the merger by the laws under which it is organized. Other
persons, including a parent of a constituent limited liability
company, may be parties to the agreement of merger. The
agreement of merger shall state all of the following:

(1) The terms and conditions of the merger.

(2) The name and place of the organization of the surviving
limited liability company or surviving other business entity, and
of each disappearing limited liability company and disappearing
other business entity, and the agreement of merger may change
the name of the surviving limited liability company, the new name
may be the same as or similar to the name of a disappearing
domestic or foreign limited liability company, subject to Section
17701.08.

(3) The manner of converting the membership interests of each
of the constituent limited liability companies into interests, shares,
or other securities of the surviving limited liability company or
surviving other business entity, and if limited liability company
interests of any of the constituent limited liability companies are
not to be converted solely into interests, shares, or other securities
of the surviving limited liability company or surviving other
business entity, the cash, property, rights, interests, or securities
that the holders of the limited liability company interests are to
receive in exchange for the membership interests, the cash,
property, rights, interests, or securities that may be in addition to
or in lieu of interests, shares, or other securities of the surviving
limited liability company or surviving other business entity, or
that the limited liability company interests are canceled without
consideration.

(4) The amendments to the articles of organization of the
surviving limited liability company, if applicable, to be effected
by the merger, if any.

(5) Any other details or provisions that are required by the laws
under which any constituent other business entity is organized,
including, if a domestic corporation is a party to the merger, as
provided in subdivision (b) of Section 1113.

(6) Any other details or provisions that are desired, including,
without limitation, a provision for the treatment of fractional
membership interests.

(b) (1) Each membership interest of the same class of any
constituent limited liability company, other than a membership
interest in another constituent limited liability company that is
being canceled and that is held by a constituent limited liability
company or its parent or a limited liability company of which the
constituent limited liability company is a parent shall, unless all
members of the class consent, be treated equally with respect to
any distribution of cash, property, rights, interests, or securities.

(2)  begin delete Notwithstanding end delete begin insert Unless otherwise provided in a written
operating agreement, notwithstanding end insert paragraph (1), except in a
merger of a limited liability company with a limited liability
company that controls at least 90 percent of the membership
interests entitled to vote with respect to the merger, the
unredeemable membership interests of a constituent limited liability
company may be converted only into unredeemable interests or
securities of the surviving limited liability company or other
business entity, or a parent if a constituent limited liability company
or a constituent other business entity or its parent owns, directly
or indirectly, prior to the merger, membership interests of another
constituent limited liability company or interests or securities of
a constituent other business entity representing more than 50
percent of the interests or securities entitled to vote with respect
to the merger of the other constituent limited liability company or
constituent other business entity or more than 50 percent of the
voting power, as defined in Section 194.5, of a constituent other
business entity that is a domestic corporation, unless all of the
members of the class consent.

(3) The provisions of this subdivision do not apply to any
transaction if the commissioner has approved the terms and
conditions of the transaction and the fairness of those terms
pursuant to Section 25142.

(c) Notwithstanding its prior approval, an agreement of merger
may be amended prior to the filing of the certificate of merger or
the agreement of merger, as provided in Section 17710.14, if the
amendment is approved by the managers and members of each
constituent limited liability company in the same manner as
required for approval of the original agreement of merger and, if
the amendment changes any of the principal terms of the agreement
of merger, the amendment is approved by the managers and
members of each constituent limited liability company in the same
manner and to the same extent as required for the approval of the
original agreement of merger, and by each of the constituent other
business entities.

(d) The managers and members of a constituent limited liability
company may, in their discretion, abandon a merger, subject to
the contractual rights, if any, of third parties, including other
constituent limited liability companies and constituent other
business entities, without further approval by the membership
interests, at any time before the merger is effective.

(e) An agreement of merger approved in accordance with
subdivision (a) may do the following:

(1) Effect any amendment to the operating agreement of any
constituent limited liability company.

(2) Effect the adoption of a new operating agreement for a
constituent limited liability company if it is the surviving limited
liability company in the merger. Any amendment to an operating
agreement or adoption of a new operating agreement made pursuant
to the foregoing sentence shall be effective at the effective time
or date of the merger. Notwithstanding the above provisions of
this subdivision, if a greater number of members is required to
approve an amendment to the operating agreement of a constituent
limited liability company than is required to approve the agreement
of merger pursuant to subdivision (a), and the number of members
that approve the agreement of merger is less than the number of
members required to approve an amendment to the operating
agreement of the constituent limited liability company, any
amendment to the operating agreement or adoption of a new
operating agreement of that constituent limited liability company
made pursuant to the first sentence of this subdivision shall be
effective only if the agreement of merger provides that all of the
members shall have the dissenters’ rights provided in Article 11
(commencing with Section 17711.01).

(f) The surviving limited liability company or surviving other
business entity shall keep the agreement of merger at its designated
office or at the business address specified in paragraph (5) of
subdivision (a) of Section 17710.14, as applicable, and, upon the
request of a member of a constituent limited liability company or
a holder of shares, interests, or other securities of a constituent
other business entity, the managers or members of the surviving
limited liability company or the authorized person of the surviving
other business entity shall promptly deliver to the member or the
holder of shares, interests, or other securities, at the expense of the
surviving limited liability company or surviving other business
entity, a copy of the agreement of merger. A waiver by a member
or holder of shares, interests, or other securities of the rights
provided in this subdivision shall be unenforceable.

begin insert

begin insert SEC. 21. end insert   

end insert

begin insert Section 17713.04 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17713.04.  

(a) Except as otherwise begin delete specified in this title, end delete
begin insert provided in subdivisions (b) and (c), end insert this title shall apply to all
domestic limited liability companies existing on or after January
1, 2014, to all foreign limited liability companies registered with
the Secretary of State prior to January 1, 2014, whose registrations
have not been canceled as of January 1, 2014, to all foreign limited
liability companies registered with the Secretary of State on or
after January 1, 2014, and to all actions taken by the managers or
members of a limited liability company on or after that date.

(b) Except as otherwise specified in this title, this title applies
only to the acts or transactions by a limited liability company
begin insert existing on or before January 1, 2014, end insert or by the members or
managers of the limited liability company begin insert existing on or before
January 1, 2014, end insert occurring, or begin insert an operating agreement or other end insert
contracts entered into by the limited liability company or by the
members or managers of the limited liability company, on or after
January 1, 2014. begin insert An amendment, including the acts necessary and
in respect to the negotiation, adoption, ratification, or approval,
to an operating agreement or other contracts entered into by a
limited liability company existing before January 1, 2014, or by
the members or managers of a limited liability company existing
before January 1, 2014, shall be governed by prior law unless
expressly provided in such amendment or other contract. end insert The prior
law governs all acts or transactions by a limited liability company
begin insert existing on or before January 1, 2014, end insert or by the members or
managers of the limited liability company occurring, begin insert and any
operating agreement or other end insert or contracts entered into by the
limited liability company or by the members or managers of the
limited liability company, prior to begin delete that date. end delete begin insert January 1, 2014. end insert

(c)  begin delete Except as otherwise specified in this title, any end delete begin insert Any end insert vote or
consent by the managers or members of a limited liability company
prior to January 1, 2014, shall be governed by prior law. If a
certificate or document is required to be filed in a public office of
this state relating to a vote or consent by the managers or members
of the limited liability company prior to January 1, 2014, it may
be filed after that date pursuant to the filing requirements of this
title, even though the vote or consent is governed by prior law.

(d) This title does not cancel or otherwise affect the status of,
or create a new filing requirement with the Secretary of State or
any other agency, board, commission, or department for, any
domestic limited liability company in existence on December 31,
2013, or any foreign limited liability company registered to transact
intrastate business in this state prior to January 1, 2014.

(e) For the purposes of this section, “prior law” means Title 2.5
(commencing with Section 17000) as it read on December 31,
2013.

begin insert

begin insert SEC. 22. end insert   

end insert

begin insert Section 17713.12 of the end insert begin insert Corporations Code end insert begin insert is
amended to read: end insert

17713.12.  

(a) A limited liability company is liable for a civil
penalty in an amount not exceeding one million dollars
($1,000,000) if the limited liability company does both of the
following:

(1) Has actual knowledge that a member, officer, manager, or
agent of the limited liability company does any of the following:

(A) Makes, publishes, or posts, or has made, published, or
posted, either generally or privately to the begin delete shareholders end delete begin insert members end insert
or other persons, either of the following:

(i) An oral, written, or electronically transmitted report, exhibit,
notice, or statement of its affairs or pecuniary condition that
contains a material statement or omission that is false and intended
to give membership shares in the limited liability company a
materially greater or a materially less apparent market value than
they really possess.

(ii) An oral, written, or electronically transmitted report,
prospectus, account, or statement of operations, values, business,
profits, or expenditures that includes a material false statement or
omission intended to give membership shares in the limited liability
company a materially greater or a materially less apparent market
value than they really possess.

(B) Refuses or has refused to make any book entry or post any
notice required by law in the manner required by law.

(C) Misstates or conceals or has misstated or concealed from a
regulatory body a material fact in order to deceive a regulatory
body to avoid a statutory or regulatory duty, or to avoid a statutory
or regulatory limit or prohibition.

(2) Within 30 days after actual knowledge is acquired of the
actions described in paragraph (1), the limited liability company
knowingly fails to do both of the following:

(A) Notify the Attorney General or appropriate government
agency in writing, unless the limited liability company has actual
knowledge that the Attorney General or appropriate government
agency has been notified.

(B) Notify its members and investors in writing, unless the
limited liability company has actual knowledge that the members
and investors have been notified.

(b) The requirement for notification under this section is not
applicable if the action taken or about to be taken by the limited
liability company, or by a member, officer, manager, or agent of
the limited liability company under paragraph (1) of subdivision
(a), is abated within the time prescribed for reporting, unless the
appropriate government agency requires disclosure by regulation.

(c) If the action reported to the Attorney General pursuant to
this section implicates the government authority of an agency other
than the Attorney General, the Attorney General shall promptly
forward the written notice to that agency.

(d) If the Attorney General was not notified pursuant to
subparagraph (A) of paragraph (2) of subdivision (a), but the
limited liability company reasonably and in good faith believed
that it had complied with the notification requirements of this
section by notifying a government agency listed in paragraph (5)
of subdivision (e), no penalties shall apply.

(e) For purposes of this section:

(1) “Manager” means a person defined by subdivision (m) of
Section 17701.01 having both of the following:

(A) Management authority over the limited liability company.

(B) Significant responsibility for an aspect of the limited liability
company that includes actual authority for the financial operations
or financial transactions of the limited liability company.

(2) “Agent” means a person or entity authorized by the limited
liability company to make representations to the public about the
limited liability company’s financial condition and who is acting
within the scope of the agency when the representations are made.

(3) “Member” means a person as defined by subdivision (o) of
Section 17701.01 that is a member of the limited liability company
at the time the disclosure is required pursuant to subparagraph (B)
of paragraph (2) of subdivision (a).

(4) “Notify its members” means to give sufficient description
of an action taken or about to be taken that would constitute acts
or omissions as described in paragraph (1) of subdivision (a). A
notice or report filed by a limited liability company with the United
States Securities and Exchange Commission that relates to the
facts and circumstances giving rise to an obligation under
paragraph (1) of subdivision (a) shall satisfy all notice requirements
arising under paragraph (2) of subdivision (a) but shall not be the
exclusive means of satisfying the notice requirements, provided
that the Attorney General or appropriate agency is informed in
writing that the filing has been made together with a copy of the
filing or an electronic link where it is available online without
charge.

(5) “Appropriate government agency” means an agency on the
following list that has regulatory authority with respect to the
financial operations of a limited liability company:

(A) Department of Corporations.

(B) Department of Insurance.

(C) Department of Financial Institutions.

(D) Department of Managed Health Care.

(E) United States Securities and Exchange Commission.

(6) “Actual knowledge of the limited liability company” means
the knowledge a member, officer, or manager of a limited liability
company actually possesses or does not consciously avoid
possessing, based on an evaluation of information provided
pursuant to the limited liability company’s disclosure controls and
procedures.

(7) “Refuse to make a book entry” means the intentional decision
not to record an accounting transaction when all of the following
conditions are satisfied:

(A) The independent auditors required recordation of an
accounting transaction during the course of an audit.

(B) The audit committee of the limited liability company has
not approved the independent auditor’s recommendation.

(C) The decision is made for the primary purpose of rendering
the financial statements materially false or misleading.

(8) “Refuse to post any notice required by law” means an
intentional decision not to post a notice required by law when all
of the following conditions exist:

(A) The decision not to post the notice has not been approved
by the limited liability company’s audit committee.

(B) The decision is intended to give the membership shares in
the limited liability company a materially greater or a materially
less apparent market value than they really possess.

(9) “Misstate or conceal material facts from a regulatory body”
means an intentional decision not to disclose material facts when
all of the following conditions exist:

(A) The decision not to disclose material facts has not been
approved by the limited liability company’s audit committee.

(B) The decision is intended to give the membership shares in
the limited liability company a materially greater or a materially
less apparent market value than they really possess.

(10) “Material false statement or omission” means an untrue
statement of material fact or an omission to state a material fact
necessary in order to make the statements made under the
circumstances under which they were made not misleading.

(11) “Officer” means a person appointed pursuant to Section
17703.02, except an officer of a specified subsidiary limited
liability company who is not also an officer of the parent limited
liability company.

(f) This section only applies to limited liability companies that
are issuers, as defined in Section 2 of the federal Sarbanes-Oxley
Act of 2002 (15 U.S.C. Sec. 7201 et seq.).

(g) An action to enforce this section may only be brought by
the Attorney General or a district attorney or city attorney in the
name of the people of the State of California.