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]










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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








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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