BILL ANALYSIS Ó
AB 1722
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Date of Hearing: March 14, 2016
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
AB 1722
(Wagner) - As Amended February 29, 2016
SUBJECT: Limited liability companies: dissolution:
cancellation of articles of organization
SUMMARY: Makes changes to California's Revised Uniform Limited
Liability Company Act (RULLCA). Specifically, this bill:
1)Allows a limited liability company (LLC) to dissolve by a vote
of 50 percent or more of the voting interests of the members.
2)Allows a domestic LLC to cancel the articles of organization
with 50 percent or more of the voting interests of the members
or managers or 50 percent or more of the persons signing the
articles of incorporation.
EXISTING LAW:
1)Requires a majority of members of a LLC to vote to dissolve or
cancel the articles of organization. [Corporations Code,
Sections 17707.01 & 17707.02]
AB 1722
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2)Provides that any corporation may elect voluntarily to wind up
and dissolve by the vote of shareholders holding shares
representing 50 percent or more of the voting power.
[Corporations Code, Section 1900]
FISCAL EFFECT: Unknown.
COMMENTS:
Need for bill:
According to the Author this bill is needed:
"To avoid unnecessary and costly litigation currently
required to effect dissolution of two-member and other
small LLCs where acrimony between members stands in the
way. It also will eliminate the prospect of understandable
surprise to those seeking dissolution of a small LLC to
realize that, unlike other business organizations,
dissolving the LLC will require -absent going to court -
an absolute majority vote, even if the LLC consists of
only two members. Many small businesses are organizing
without the aid of legal counsel (i.e., using the online
self-help websites) and do not realize the ramification of
forming an LLC with equal ownership. This will change the
default rule to 50% or more and avoid the costly
litigation that these small companies often cannot
afford."
Background:
AB 1722
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AB 1722 amends the RULLCA to permit 50 percent or more of the
voting interests of the members of an LLC to dissolve the
entity, unless a greater percentage is specified in the articles
of organization or a written operating agreement.
Under current law, to dissolve, a LLC requires a majority of
the voting powers of the LLC members in order to initiate
voluntary dissolution proceedings. The RULLCA is used for many
small businesses in California, many of which are owned by 2
members with equal voting power. When one wants to dissolve the
LLC and the other does not, that leaves the LLC in a stalemate
and often results in litigation that these small businesses
cannot afford for a decree of a judicial dissolution.
AB 1722 eliminates the majority requirement and places in
statute provisions similar to California's corporate voluntary
dissolution statute, to only require 50 percent or more of the
voting power to initiate voluntary dissolution.
REGISTERED SUPPORT / OPPOSITION:
Support
AB 1722
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Conference of California Bar Associations (CCBA) - Sponsor
Opposition
None on file.
Analysis Prepared by:Kathleen O'Malley / B. & F. / (916)
319-3081