San Diego business lawyers at Gehres Law Group, P.C. provide advice to companies on rules and regulations governing different types of business entities. Limited Liability Companies, or LLCs, are a popular option because they can provide protection from liability but be simpler in terms of administrative and corporate documentation and related costs, as well as ongoing operational requirements than S-corporations or C-corporations. However, the rules for LLCs changed in 2014 with the passage of the Revised Uniform Limited Liability Company Act. Both existing LLCs and new organizations must maintain compliance with these new rules and requirements.
Key Rules from The California Revised Uniform Limited Liability Company Act
The Revised Uniform Limited Liability Company Act (RULLCA) establishes many default rules regarding the management of LLCs as well as the obligations of members of a member-managed LLC. For example:
- All members of a member-managed LLC owe a duty of care, a duty of loyalty, and a duty of good faith and fair dealing, while the manager of a manager-managed LLC owes the same duties. These obligations require managers and members to refrain from intentional misconduct, willful legal violations, or gross negligence, as well as requiring members and managers to deal honestly with each other and avoid the misappropriation of company assets or any conflicts of interest. However, if an LLC is a manager-managed LLC, the RULLCA makes clear that members of the LLC do not owe any fiduciary duties.
- If an LLC is member-managed, the LLC must indemnify members who have acted in accordance with their obligations and duties. Under a manager-managed LLC, the LLC must also indemnify managers who have complied with their obligations.
- When an LLC is manager-managed, the manager is not permitted to act outside of the ordinary course of business without first obtaining consent from the LLC members.
It is important to note that most of the rules established by the RULLCA simply establish the default rules that will apply if there is no LLC operating agreement that provides for different rules and requirements. This means that members of an LLC are permitted to negotiate an operating agreement and adopt rules that deviate from the defaults established by the Act. If the rules adopted in the LLC operating agreement differ from the default rules under the RULLCA, the rules in the operating agreement generally take precedence and govern how the LLC operates. This means organizations that want to opt out of the default are permitted to do so.
Getting Help from San Diego Business Lawyers
San Diego business lawyers at Gehres Law Group, P.C. will provide the personalized advice necessary to understand how LLCs work and to determine if a Limited Liability Company is the right type of business entity for your organization. Our legal team can also provide you with assistance creating an operating agreement to establish the rules that best suits your business needs, within the confines of RULLCA and other applicable laws.
To find out more about how our firm can assist with LLCs and other types of business structures, give us a call at 858-964-2314 or contact us online today for your complimentary consultation.