CaliforniaOn January 1, 2014, a new law will take effect which will apply to all California limited liability companies ("LLCs"). The new law is called the California Revised Uniform Limited Liability Act ("RULLCA") and will replace the existing California act governing LLCs.

How will the new RULLCA affect existing California LLCs? This is somewhat unclear since one provision of RULLCA states that it will apply to all California LLCs existing on January 1, 2014, and all actions of managers or members after that date.

Another provision states that the new law will apply only to contracts entered into after January 1, 2014. But what if an existing contract, such as an existing LLC operating agreement, is amended? Will only the amendment be subject to RULLCA or will the amendment pull the entire operating agreement under RULLCA? We will have to see how the answers to these issues develop.

In any event, what are the differences between RULLCA and the old act? One of the most important differences is that RULLCA authorizes an operating agreement to be in a record, or implied (presumably, by conduct), in addition to being in writing or oral, and authorizes a combination of those forms.

contract-copyWEBAlthough the current law allows an operating agreement to be written or oral, it does not contemplate a combination of methods and does not state that an operating agreement may be implied. We recommend written operating agreements which are drafted to minimize claims that they may be amended or supplemented in any way other than by writing. In general, contracts which are subject to interpretation by implication or orally are open to ambiguity and potential disputes.

RULLCA also adds more detail regarding which provisions may be overridden by the operating agreement. It clarifies the extent to which the operating agreement can alter certain aspects of fiduciary duty and authorizes the operating agreement to relieve members and managers from liability for money damages arising from breach of duty, subject to certain limitations.

RULLCA also more explicitly defines the consequences of an LLC member who chooses to disassociate (withdraw) from the LLC.

Many of the provisions in RULLCA are similar to the provisions in the existing act. For example, the provisions governing how a LLC is formed are retained as well as the restriction that a California LLC may not perform professional services that require a license, certification or registration under the California Business and Professions Code.  In addition, RULLCA continues to provide that a LLC will not be able to completely eliminate the duty of loyalty.

Regardless of RULLCA, we recommend periodic review of all operating agreements to ensure they properly document the intent of the members and the operations of the LLC.  The review should encompass all provisions, including those dealing with departure of a member from the LLC, valuation of a departing member's interest and methods in which the operating agreement may be amended.

Does the operating agreement require the members to agree upon a valuation of the LLC and set it down periodically in writing? Is this up-to-date?  Or, is there a better way to value a member's interest? Are there other provisions of the operating agreement which no longer fit the LLC and its members which should be amended?

cindy-h-headshot-web-nameFeel free to contact the author with any questions:  

Partner - Orange
Cindy R. Hughes at
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Or any WFBM attorney with whom you are working.