BILL ANALYSIS Ó
AB 506
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CONCURRENCE IN SENATE AMENDMENTS
AB
506 (Maienschein)
As Amended August 17, 2015
Majority vote
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|ASSEMBLY: |76-0 |(May 7, 2015) |SENATE: |40-0 |(August 27, |
| | | | | |2015) |
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Original Committee Reference: B. & F.
SUMMARY: Makes changes to the California Revised Uniform
Limited Liability Company Act (RULLCA). Specifically, this
bill:
1)Specifies that a limited partnership is formed when the
partners enter into a partnership agreement before or after
the filing of a certificate of a limited partnership.
2)Expands the definition of "person" to include a trustee of a
trust including, but not limited to, a trust described under
Probate Code Division 9.
3)Amends the definition of "electronic transmission by the
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limited liability company."
4)Requires a limited liability company (LLC) to indemnify the
agent of a LLC 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 LLC and its members.
5)Limits the RULLCA to acts or transactions existing on or after
January 1, 2014, or by members or managers of the LLCs
existing on or before that date.
6)Eliminates the requirement requiring the consent of all
members of the LLC to approve a merger or conversion, as well
as, to amend the operating agreement.
7)Requires profits and losses of a LLC 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 the proportion to the value of the
contributions from each member if the operating agreement does
not otherwise provide.
8)Modifies what an operating agreement may provide.
9)Specifies that upon dissociation, a person's right to vote as
a member in the management and conduct of the LLCs activities
terminates.
10)Authorizes, 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
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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.
11)Provides that specified provisions of the Labor Code,
relating to consideration for employment and employment
contracts, shall not apply to membership interests issued by
any LLC or foreign LLC.
12)Changes LLC "certificate of dissolution" to "certificate of
cancellation."
13)Makes other technical and clarifying changes.
The Senate amendments delete changes to the Uniform Limited
Partnership Act of 2008. Change reference from "certificate of
dissolution" to "certificate of cancellation." Make several
technical changes and include chaptering out and double joining
language.
EXISTING LAW:
1)Establishes the California RULLCA which governs all California
LLCs. (Corporations Code Sections 17701.01 to 17713.13).
2)Establishes the RULPA, modeled after the national Uniform
Limited Partnership Act which governs California business
partnerships. (Corporations Code Sections 15900 to 15912.07)
FISCAL EFFECT: None
COMMENTS: An LLC is a hybrid between a corporation and a
partnership. An LLC generally has the beneficial
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characteristics of a partnership for operational and taxation
purposes, but its members enjoy the immunity provided by a
corporation to its shareholders for contract debts or tort
liability. The interest of a member in an LLC is an economic
interest, in the same manner that a partnership interest or a
corporate share is an economic interest, that may be transferred
under terms and conditions provided by the LLC agreement, the
partnership agreement, or the corporate structure.
Background:
On January 1, 2014, the Beverly-Killea Limited Liability Company
Act (BKLLCA) (the law in California governing LLCs prior to
January 1, 2014) was repealed and replaced by the RULLCA.
Existing LLCs and those formed after January 1, 2014, are
subject to the RULLCA. The RULLCA imposes significant changes
in the way California LLCs are to be governed and inserts
default provisions in LLC operating agreements if certain
matters are not specifically addressed. The RULLCA applies to
all LLCs, foreign and based in California that register with the
Secretary of State (SOS). The RULLCA is based on the RULLCA
adopted by the National Conference of Commissioners on Uniform
State Laws (NCCUSL), with modifications to include certain
aspects of existing California law.
The purpose of the RULLCA is to clarify the issues that existed
under the BKLLCA. The RULLCA provides a wider breadth of default
rules that applies to all LLCs in situations where an operating
agreement is silent as to a particular issue. The intended
benefit of enacting the RULLCA was to coordinate California's
LLC laws with the LLC laws of other states, thereby making it
easier for businesses to operate across state lines.
This bill amends the California RULLCA and the California RULPA.
RULLCA was enacted in in 2012 through SB 323 (Vargas), Chapter
419, Statutes of 2012. SB 323 did not replicate word-for-word
the RULLCA as promulgated by the NCCUSL. RULLCA as enacted in
California incorporates numerous provisions from the BKLLCA
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(Corporations Code Sections 17000 to 17656) which were carried
over to RULLCA for the purpose of improving the NCCUSL version.
The carried-over provisions include: important topics (e.g.,
meetings, officers, voting rights, and mergers and conversions)
that were not covered in the NCCUSL version; particular
requirements of the Business Programs Division of the SOS (e.g.,
the requirement for filing biennial statements of information);
certain investor protections (e.g., member information rights
and certain restrictions on operating agreement amendments); and
other provisions (e.g., for limited liability company (LLC)
dissolutions)
Since the enactment of SB 323, a number of inconsistencies and
conflicts have been found through the Corporations Code. SB 323
faced challenges in carrying over provisions from BKLLCA because
the statutory numbering convention was different, the
organizational structure was different, and various defined
terms in BKLLCA differed from the corresponding terms in the
NCCUSL version of RULLCA which this bill is addressing.
Previous Legislation:
SB 323 enacted the RULLC which recasts and reorganizes the
existing BKLLCA.
Analysis Prepared by:
Mark Farouk / B. & F. / (916) 319-3081 FN:
0001607
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