The New Year brought a new set of laws into play for California limited liability companies (LLC). There is no immediate action required to comply, but there could be serious complications with the application of operating agreements drafted prior to January 2014. Every LLC is different, so it’s important to have qualified legal counsel such as Cypress analyze your current operating agreement.  

We will be able to determine whether your operating agreement has provisions that might be adversely affected by the new laws, which is an important preventive action that you should consider taking immediately.  For example, consider the following changes and their serious potential consequences for your LLC:

1. Acts Outside the Ordinary Course of Business: Under the new laws, managers are prevented from acting outside of the normal course of business without unanimous written consent of the members. In some cases, this would override LLC structures that originally intended for a manager to have authority to act outside of the normal or “ordinary course of business,” with respect to many LLC activities. Manager action seen as out of the “norm” could be thwarted by any member.

2. Eliminating Fiduciary Duties: The new law prohibits California LLCs from eliminating member and manager fiduciary duties. If your current operating agreement allows for the elimination of these duties, it could be deemed ineffective under the new law, and the full fiduciary duties could apply. California LLCs should employ modifications to their operating agreement’s fiduciary duties in adherence with the specifications of the new law to avoid problems.

Losing Membership Status: Events that would not have been a problem in the past could now cause a member to lose their membership status. LLCs should verify that their operating agreements take into account the new dissociation rules so members can retain their management rights as intended.