The California Revised Uniform Limited Liability Company Act (RULLCA) provides three ways to dissolve a California LLC:
- A triggering event requiring dissolution as set forth in a written operating agreement or in articles of organization;
- When Ninety consecutive days has passed during which the limited liability company has no members; or
- When a majority of the members vote to dissolve the LLC.
The California Corporations Code defines a “majority of the members” to mean “more than 50 percent of the membership interests of members in current profits of the limited liability company.”
Based on these statutes it appears what the articles of organization and operating agreement have to say about voting rights of members is irrelevant if the question is dissolution. This should not be of little moment if voting rights in the articles of organization or operating agreement are tied to a member’s interest in current profits. However, under new proposed legislation confusion on what is needed to dissolve will be pervasive if voting rights are not tied to current profits.
The newly proposed legislation, AB 1722, seeks to change the required vote to dissolve to “the vote of 50 percent of the voting interests”. However, this bill could further muddy the waters. It requires a vote of 50 percent” of the voting interests, not more than 50 percent. Also, the RULLCA does not define “voting interests.” Rather, it provides voting by members may be on a per capita, number, financial interest, class, group, or any other basis. Thus, if the articles of
organization or operating agreement do not provide for voting, then the default rule is that members vote in proportion to their interests in current profits.
We suggest you keep an eye on this new legislation. If it passes many LLCs will need to restate their articles of organization or amend their operating agreements to assure a vote of more than 50% of the those entitled to vote vote for voluntary dissolution of the California LLC.
In addition, where voting rights are not coextensive with the interests in current profits the language of the operating agreement will likely need to be revamped to assure an effective basis for voting rights that is not based on interests in current profits.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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