BILL ANALYSIS �
SB 323
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Date of Hearing: August 28, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
SB 323 (Vargas) - As Amended: August 23, 2012
PROPOSED CONSENT (As Proposed to be Amended)
SENATE VOTE : 37-0
SUBJECT : CALIFORNIA REVISED UNIFORM LIMITED LIABILITY COMPANY
ACT
KEY ISSUE : SHOULD CALIFORNIA ENACT THE REVISED UNIFORM LIMITED
LIABILITY COMPANY ACT WHICH RECASTS AND REORGANIZES THE EXISTING
Beverly-Killea Limited Liability Company Act?
FISCAL EFFECT : According to Assembly Appropriations Committee,
the Secretary of State will incur one-time special fund costs of
around $90,000 to revise forms and materials on its website and
for staff training regarding the revised provisions governing
limited liability companies (Business Fees Fund).
SYNOPSIS
This bill, sponsored by the Partnerships and Limited Liability
Companies Committee of the Business Law Section of the State
Bar, enacts the California Revised Uniform Limited Liability
Company Act (CRULLCA) in place of the Beverly-Killea Limited
Liability Company Act. A limited liability company (LLC) is a
hybrid between a corporation and a partnership. An LLC
generally has the 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. This bill replaces the
Beverly-Killea with a modified version of the Revised Uniform
Limited Liability Company, which recasts provisions governing
the formation and operations of LLCs.
The most recent amendments to the bill deleted a provision from
the Unemployment Insurance Code, which provided that an
"employee" does not include any member of an LLC that is treated
as a partnership for federal income tax purposes. CalTax and
others have raised concerns that the repeal of this provision
will create conformity issues between state and federal payroll
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tax requirements and will result in compliance difficulties for
LLCs. As a result, the author proposes to remove the
provision's repeal from this bill. There is no opposition to
the bill as proposed to be amended.
SUMMARY : Enacts, as of January 1, 2014, the CRULLCA.
Specifically, this bill :
1)Repeals, as of January 1, 2014, the Beverly-Killea Limited
Liability Company Act and enacts the CRULLCA which recasts
provisions governing the formation and operation of LLCs.
2)Distinguishes between a manager-managed limited liability
company and a member-managed limited liability company for
purposes of defining the scope of a member's agency and
limiting fiduciary duties of members who are not in control of
an LLC.
3)Authorizes the Secretary of State to issue a certificate of
registration with respect to a foreign limited liability
company. Provides for the filing of specified records and
provides that an individual who signs such a record affirms
under penalty of perjury that the information in the record is
accurate.
4)Allows an LLC to be subject to the nonexclusive jurisdiction
of courts in another state and California or the exclusive
jurisdiction of California courts. Allows a member to consent
to arbitration, as specified.
5)Specifies when a member may be dissociated from an LLC and the
effects of dissociation on the member.
6)Revises and recasts provisions relating to capital
contribution standards and liability of members, and regulates
the allocation of profits and losses, distributions of money
and property, withdrawal of membership, assignment of
interests, and dissolution of LLCs.
7)Provides that the CRULLCA applies to all foreign LLCs
registered with the Secretary of State whose registrations
have not been cancelled as of the January 1, 2014, to all
domestic LLCs existing on and after January 1, 2014, and to
all actions taken by the managers or members of such LLCs on
and after that date.
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8)Provides that except as otherwise expressly provided, any vote
or consent by the mangers or members of an LLC prior to
January 1, 2014 in accordance with the prior law shall be
effective in accordance with the prior law and if any
certificate or document is required to be filed in any public
office of this state relating to such action, it may be filed
after the January 1, 2014 in accordance with the prior law.
9)Provides that the CRULLCA 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, an LLC in existence on December 31, 2013, or a
foreign LLC registered to transact intrastate business in this
state prior to January 1, 2014.
10)Provides that the CRULLCA may, at any time, be amended or
repealed.
EXISTING LAW :
1)Authorizes, under, the Beverly-Killea Limited Liability
Company Act, the creation of, and governs the activities of,
(LLCs having one or more members. (Corporations Code Section
17000 et seq. Unless stated otherwise, all further statutory
references are to that code.)
2)Requires an LLC to provide modifications to the operating
agreement, voting rights, meeting requirements, the election
or removal of managers, appointment of officers, and
indemnification in either the articles of incorporation or a
written operating agreement. (Section 17005(b).)
3)Provides that a manager's fiduciary duties may only be
modified in a written operating agreement with the informed
consent of the members. (Section 17005(d).)
4)Provides that all managers are agents of the LLC, and, unless
a manager has been designated, all members are agents of the
LLC, and managers and members acting on behalf of the LLC bind
the LLC, as specified. (Section 17157.)
5)Provides that an LLC has enumerated powers, subject to any
limitations contained in the articles of organization.
(Section 17003.)
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6)Provides penalties for the failure of a member to make
contributions to the LLC, and protects the rights of
third-party creditors of LLCs to seek equitable remedies and
maintains their rights under the Uniform Fraudulent Transfer
Act. (Section 17201.)
7)Provides that if the members of a foreign limited liability
company residing in California represent 25 percent or more of
the voting interests of members of an LLC, those members are
entitled to all information and inspection rights provided to
members of domestic LLCs. (Section 17453.)
COMMENTS : This bill, sponsored by the Partnerships and Limited
Liability Companies Committee of the Business Law Section of the
State Bar, repeals the Beverly-Killea Limited Liability Company
Act and, taking into account California's particular LLC
protections, replaces it with a modified version of the Revised
Uniform Limited Liability Company, which recasts provisions
governing the formation and operations of LLCs.
An LLC is a hybrid between a corporation and a partnership. An
LLC generally has the beneficial characteristics of a
partnership for operational and taxation purposes, but its
members enjoy the immunity provided by a corporation to its
shareholders for contract debts or tort liability. The interest
of a member in an LLC is an economic interest, in the same
manner that a partnership interest or a corporate share is an
economic interest, that may be transferred under terms and
conditions provided by the LLC agreement, the partnership
agreement, or the corporate structure.
California first recognized LLCs in 1994 with the enactment of
the Beverly-Killea Limited Liability Company Act, which provided
comprehensive provisions for the organization, management, and
dissolution of LLCs. (SB 469 (Beverly), Chap. 1200, Stats.
1994.) That same year, the National Conference of Commissioners
on Uniform State Laws approved the use of the Uniform Limited
Liability Company Act. In 2006, after reviewing the development
of LLC laws across the states, the National Conference of
Commissioners on Uniform State Laws adopted the Revised Uniform
Limited Liability Company Act, which has since been enacted in
five states (Idaho, Iowa, Nebraska, Utah, and Wyoming) and the
District of Colombia. This bill enacts a modified Revised
Uniform Limited Liability Company Act, taking in account
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particular provisions and protections already in California law.
Author's Amendments : The most recent version of the bill
deleted a provision from the Unemployment Insurance Code, which
provided that an "employee" does not include any member of an
LLC that is treated as a partnership for federal income tax
purposes. This provision had been added by SB 1244 (Walters),
Chap. 522, Stats. 2009, and sought to conform state and federal
payroll tax requirements with respect to LLCs. According to
Cal-Tax, changing the definition of who is considered an
employee of an LLC in this context will mean that California
will no longer be in conformity with the federal check-the-box
entity classification rules for payroll tax purpose, "will wreak
havoc on LLCs and cause a whirlwind of compliance issues" for
LLCs as between the Employment Development Department and the
federal government.
As a result, the author proposes to delete the repeal of that
Unemployment Insurance Code provision. This is accomplished by
the following amendment:
On page 163, delete lines 38-39. Renumber remaining
sections of the bill.
REGISTERED SUPPORT / OPPOSITION :
Support
Partnerships and Limited Liability Companies Committee of the
Business Law Section of the
State Bar (sponsor)
Commission on Uniform State Laws
Opposition (as proposed to be amended)
None on file
Analysis Prepared by : Leora Gershenzon / JUD. / (916) 319-2334
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