The Beverly-Killea Limited Liability Company Act (LLC Act), which set forth the rules for operating agreements for California Limited Liability Companies (LLCs) since 1994, was superseded by the California Revised Uniform Limited Liability Company Act (RULLCA). RULLCA is a modified version of the Revised Uniform Limited Liability Act and applies to the governance of all existing and future LLCs in the state of California.

RULLCA presents a more comprehensive body of regulation than its predecessor by specifying default rules in areas that may not be covered by standard operating agreements. Some of the more significant revisions and additions under RULLCA include:

LLC management. RULLCA provides that all LLCs will be member-managed unless expressly stated otherwise. Manager-managed LLCs must be explicitly provided for in both the operating agreement and the articles of organization. The prior LLC Act only required a manager-managed structure to be specified in the articles or organization.

Indemnification. The default rule under RULLCA mandates the indemnification of members or managers of an LLC. Under the previous LLC Act, indemnification of these individuals was not required; rather, the members had the option to incorporate this provision if they chose to do so. To prevent the inclusion of an indemnification provision under the new rules, the operating agreement must expressly supersede the default rule.

Dissociation of members. While the LLC Act did not address the circumstances of a member’s dissociation, RULLCA provides specific rules in the event a member withdraws from the LLC either voluntarily or by consent of the other members. Similarly, RULLCA stipulates circumstances under which a member is automatically dissociated from the LLC, including an order providing that a member cannot execute his duties or the death of a member. Similar to the indemnification provision, an LLC must explicitly prohibit automatic dissociation rules in its operating agreement.

Fiduciary duties. RULLCA states that certain duties owed by members cannot be precluded, including the duty of loyalty, the duty of care and the duty of good faith. RULLCA also provides more extensive detail regarding the scope and nature of fiduciary duties owed by LLC members or managers.

As RULLCA provisions apply to all current LLC operating agreements, it is important for LLC members or managers to review their existing agreements to ensure compliance and proper attention to the new default provisions under these rules. Contact Shane Coons at 949-333-0900 or visit his website, www.ShaneCoonsLaw.com, to learn more about his practice or schedule a consultation.