Changes in the Law Affect California Businesses

Beginning January 1, 2014, the state will implement changes to California corporate and LLC laws. In order to prevent operations from being disrupted, companies should be advised that they may need to update their governing documents.

The biggest change replaces the existing Beverly-Killea Limited Liability Company Act. The new law, called the Revised Uniform Limited Liability Company Act, includes a number of improvements to the old act. However, LLCs may experience unintentional restructuring of their existing operational arrangements due to large changes in default rules under the new law.

Under the new rules, manager-managed LLCs may find themselves more limited where certain types of transactions are concerned. The manager’s authority to act without a vote or consent of all members will be, in some cases, more limited than it was under the old law. Obviously, this can have a significant impact upon a company’s standard operational procedures.

Other new rules concern members’ voting and other rights in certain situations. For example, some dissociation events can impact member involvement, such as bankruptcy or termination of a trust. These new rules must also be considered when updating governing documents.

A company’s Operating Agreement does, in many cases, supersede the default provisions set forth by state law. However, the new default rules taking effect in 2014 did not exist when company documents were drafted, so the documents will probably need to be updated so that the language included in them expresses a clear intent to supersede the default rules.

Those who have formed a LLC under California law should seek counsel with an attorney as soon as possible. The company’s operating agreements should be reviewed for inconsistencies, so that the proper steps can be taken to avoid any problems.

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