Amended in Senate August 17, 2015

Amended in Senate July 15, 2015

Amended in Senate June 29, 2015

Amended in Senate June 10, 2015

Amended in Assembly April 23, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 506


Introduced by Assembly Member Maienschein

February 23, 2015


An act to amend Sections 17701.02, 17701.10, 17701.12, 17701.13, 17704.01, 17704.04, 17704.07, 17704.08, 17704.09, 17704.10, 17705.02, 17706.03, 17707.01, 17707.03, 17707.06, 17707.09, 17708.07, 17710.03, 17710.06, 17710.12, 17713.04, and 17713.12 of the Corporations Code, relating to business.

LEGISLATIVE COUNSEL’S DIGEST

AB 506, as amended, Maienschein. Limited liability companies.

Existing law, the California Revised Uniform Limited Liability Company Act, authorizes one or more persons to form a limited liability company by, among other things, signing and delivering articles of organization with the Secretary of State. The act authorizes a person, as defined, to dissociate as a member of a limited liability company at any time by withdrawing as a member by express will. The act deems a person to be dissociated from a limited liability company upon the occurrence of certain events, including, among others, an individual’s death. The act provides the effects when a person, including an individual, is dissociated from a limited liability company. Existing law limits the application of an operating agreement.

This bill would specify that upon dissociation a person’s right to vote as a member in the management and conduct of the limited liability company’s activities terminates. The bill would authorize, if a member dies, or a guardian or conservator of the estate is appointed for the member, or a member’s interest is being administered by an attorney-in-fact under a valid power of attorney, the member’s executor, administrator, guardian, conservator, attorney-in-fact, or other legal representative to exercise all of the member’s rights for the purpose of settling the member’s estate or administering the member’s property, including any power the member had under the articles of organization or an operating agreement to give a transferee the right to become a member. The bill would also modify the definition of “electronic transmission by the limited liability company” and would expand the definition of “person” under the act. The bill would modify what an operating agreement may provide, as specified. The bill would provide that specified provisions of the Labor Code, relating to consideration for employment and employment contracts, shall not apply to membership interests issued by any limited liability company or foreign limited liability company, as specified.

Existing law requires that any distributions made by a limited liability company before its dissolution and winding up be among the members in accordance with the operating agreement.

This bill would further require that the profits and losses of a limited liability company be allocated among the members, and among classes of members, in the manner provided in the operating agreement, and would require that profits and losses be allocated in proportion to the value of the contributions from each member if the operating agreement does not otherwise provide.

Existing law requires the consent of all members of the limited liability company to approve a merger or conversion and to amend the operating agreement.

This bill would eliminate that requirement.

Existing law requires a limited liability company to reimburse for any payment made and indemnify for any debt, obligation, or other liability incurred by a member of a member-managed limited liability company or the manager of a manager-managed limited liability company in the course of the member’s or manager’s activities on behalf of the limited liability company, if, in making the payment or incurring the debt, obligation, or other liability, the member or manager complied with specified duties.

This bill would require the limited liability company to indemnify the agent of a limited liability company to the extent that the agent has been successful on the merits in defense or settlement of any claim, issue, or matter if the agent acted in good faith and in a manner that the agent reasonably believed to be in the best interests of the limited liability company and its members, as provided.

Under existing law, the persons who filed the certificate of dissolution are required to sign and file with the Secretary of State a certificate of cancellation of articles of organization upon the completion of the winding up of the affairs of the limited liability company, except as specified. Existing law requires the certificate of cancellation of articles of organization to include, among other things, that upon the filing of the certificate of cancellation, the limited liability company is required to be canceled and its powers, rights, and privileges are required to cease. Under existing law, a limited liability company that is dissolved continues to exist for the purpose of, among other things, winding up its affairs and prosecuting and defending actions by or against it in order to collect and discharge obligations.

This bill would instead provide that a limited liability company that has filed a certificate of cancellation continues to exist for those purposes, as specified.

This bill would limit the applicability of the act to acts or transactions by a limited liability company or by the members or managers of the limited liability company occurring, or an operating agreement or other contracts entered into by the limited liability company or by the members or managers of the limited liability company, on or after January 1, 2014.

begin insert

This bill would incorporate additional changes to Section 17710.06 of the Corporations Code made by this bill and AB 1471 to take effect if both bills are chaptered and this bill is chaptered last.

end insert
begin insert

This bill would incorporate additional changes to Section 17713.12 of the Corporations Code made by this bill and AB 1517 to take effect if both bills are chaptered and this bill is chaptered last.

end insert

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

P4    1

SECTION 1.  

Section 17701.02 of the Corporations Code is
2amended to read:

3

17701.02.  

In this title:

4(a) “Acknowledged” means that an instrument is either of the
5following:

6(1) Formally acknowledged as provided in Article 3
7(commencing with Section 1180) of Chapter 4 of Title 4 of Part
84 of Division 2 of the Civil Code.

9(2) Executed to include substantially the following wording
10preceding the signature:


12“It is hereby declared that I am the person who executed this
13instrument which execution is my act and deed.”


15Any certificate of acknowledgment taken without this state
16 before a notary public or a judge or clerk of a court of record
17having an official seal need not be further authenticated.

18(b) “Articles of organization” means the articles required by
19Section 17702.01. The term includes the articles of organization
20as amended or restated.

21(c) “Contribution” means any benefit provided by a person to
22a limited liability company:

23(1) In order to become a member upon formation of the limited
24liability company and in accordance with an agreement between
25or among the persons that have agreed to become the initial
26members of the limited liability company.

27(2) In order to become a member after formation of the limited
28liability company and in accordance with an agreement between
29the person and the limited liability company.

30(3) In the person’s capacity as a member and in accordance with
31the operating agreement or an agreement between the member and
32the limited liability company.

33(d) “Debtor in bankruptcy” means a person that is the subject
34of either of the following:

35(1) An order for relief under Title 11 of the United States Code
36or a successor statute of general application.

37(2) A comparable order under federal, state, or foreign law
38governing bankruptcy or insolvency, an assignment for the benefit
P5    1of creditors, or an order appointing a trustee, receiver, or liquidator
2of the person or of all or substantially all of the person’s property.

3(e) “Designated office” means either of the following:

4(1) The office that a limited liability company is required to
5designate and maintain under Section 17701.13.

6(2) The principal office of a foreign limited liability company.

7(f) “Distribution,” except as otherwise provided in subdivision
8(g) of Section 17704.05, means a transfer of money or other
9property from a limited liability company to another person on
10account of a transferable interest.

11(g) “Domestic” means organized under the laws of this state
12when used in relation to any limited liability company, other
13business entity, or person other than a natural person.

14(h) “Effective,” with respect to a record required or permitted
15to be delivered to the Secretary of State for filing under this title,
16means effective under subdivision (c) of Section 17702.05.

17(i) (1) “Electronic transmission by the limited liability
18company” means a communication delivered by any of the
19following means:

20(A) Facsimile telecommunication or electronic mail when
21directed to the facsimile number or electronic mail address,
22respectively, for that recipient on record with the limited liability
23company.

24(B) Posting on an electronic message board or network that the
25limited liability company has designated for those communications,
26together with a separate notice to the recipient of the posting, which
27transmission shall be validly delivered upon the later of the posting
28or delivery of the separate notice thereof.

29(C) Other means of electronic communication to which both of
30the following apply:

31(i) The communication is delivered to a recipient who has
32provided an unrevoked consent to the use of those means of
33transmission.

34(ii) The communication creates a record that is capable of
35retention, retrieval, and review, and that may thereafter be rendered
36into clearly legible tangible form.

37(2) “Electronic transmission to the limited liability company”
38means a communication delivered by any of the following means:

39(A) Facsimile telecommunication or electronic mail when
40directed to the facsimile number or electronic mail address,
P6    1respectively, that the limited liability company has provided from
2time to time to members or managers for sending communications
3to the limited liability company.

4(B) Posting on an electronic message board or network that the
5limited liability company has designated for those communications,
6which transmission shall be validly delivered upon the posting.

7(C) Other means of electronic communication to which both of
8the following apply:

9(i) The limited liability company has placed in effect reasonable
10 measures to verify that the sender is the member or manager, in
11person or by proxy, purporting to send the transmission.

12(ii) The communication creates a record that is capable of
13retention, retrieval, and review, and that may thereafter be rendered
14into clearly legible tangible form.

15(j) “Foreign limited liability company” means an unincorporated
16entity formed under the law of a jurisdiction other than this state
17and denominated by that law as a limited liability company.

18(k) “Limited liability company,” except in the phrase “foreign
19limited liability company,” means a domestic entity formed under
20this title or an entity that becomes subject to this title pursuant to
21Article 13 (commencing with Section 17713.01).

22(l) “Majority of the managers” unless otherwise provided in the
23operating agreement, means more than 50 percent of the managers
24of the limited liability company.

25(m) “Majority of the members” unless otherwise provided in
26the operating agreement, means more than 50 percent of the
27membership interests of members in current profits of the limited
28liability company.

29(n) “Manager” means a person that under the operating
30agreement of a manager-managed limited liability company is
31responsible, alone or in concert with others, for performing the
32management functions stated in subdivision (c) of Section
3317704.07.

34(o) “Manager-managed limited liability company” means a
35 limited liability company that qualifies under subdivision (a) of
36Section 17704.07.

37(p) “Member” means a person that has become a member of a
38limited liability company under Section 17704.01 and has not
39dissociated under Section 17706.02.

P7    1(q) “Member-managed limited liability company” means a
2limited liability company that is not a manager-managed limited
3liability company.

4(r) “Membership interest” means a member’s rights in the
5limited liability company, including the member’s transferable
6interest, any right to vote or participate in management, and any
7right to information concerning the business and affairs of the
8limited liability company provided by this title.

9(s) “Operating agreement” means the agreement, whether or
10not referred to as an operating agreement and whether oral, in a
11record, implied, or in any combination thereof, of all the members
12of a limited liability company, including a sole member, concerning
13the matters described in subdivision (a) of Section 17701.10. The
14term “operating agreement” may include, without more, an
15agreement of all members to organize a limited liability company
16pursuant to this title. An operating agreement of a limited liability
17company having only one member shall not be unenforceable by
18reason of there being only one person who is a party to the
19operating agreement. The term includes the agreement as amended
20or restated.

21(t) “Organization” means, whether domestic or foreign, a
22partnership whether general or limited, limited liability company,
23association, corporation, professional corporation, professional
24association, nonprofit corporation, business trust, or statutory
25business trust having a governing statute.

26(u) “Organizer” means a person that acts under Section 17702.01
27to form a limited liability company.

28(v) “Person” means an individual, partnership, limited
29partnership, trust, a trustee of a trust, including, but not limited to,
30a trust described under Division 9 (commencing with Section
3115000) of the Probate Code, estate, association, corporation, limited
32liability company, or other entity, whether domestic or foreign.
33Nothing in this subdivision shall be construed to confer any rights
34under the California Constitution or the United States Constitution.

35(w) “Principal office” means the principal executive office of
36a limited liability company or foreign limited liability company,
37whether or not the office is located in this state.

38(x) “Record” means information that is inscribed on a tangible
39medium or that is stored in an electronic or other medium and is
40retrievable in perceivable form.

P8    1(y) “State” means a state of the United States, the District of
2Columbia, Puerto Rico, the United States Virgin Islands, or any
3territory or insular possession subject to the jurisdiction of the
4United States.

5(z) “Transfer” includes an assignment, conveyance, deed, bill
6of sale, lease, mortgage, security interest, encumbrance, gift, and
7transfer by operation of law.

8(aa) “Transferable interest” means the right, as originally
9associated with a person’s capacity as a member, to receive
10distributions from a limited liability company in accordance with
11the operating agreement, whether or not the person remains a
12member or continues to own any part of the right.

13(ab) “Transferee” means a person to which all or part of a
14transferable interest has been transferred, whether or not the
15transferor is a member.

16(ac) “Vote” includes authorization by written consent or consent
17given by electronic transmission to the limited liability company.

18

SEC. 2.  

Section 17701.10 of the Corporations Code is amended
19to read:

20

17701.10.  

(a) Except as otherwise provided in this section,
21the operating agreement governs all of the following:

22(1) Relations among the members as members and between the
23members and the limited liability company.

24(2) The rights and duties under this title of a person in the
25capacity of manager.

26(3) The activities of the limited liability company and the
27conduct of those activities.

28(4) The means and conditions for amending the operating
29agreement.

30(b) To the extent the operating agreement does not otherwise
31 provide for a matter described in subdivision (a), this title governs
32the matter.

33(c) In addition to the matters specified in paragraphs (1) to (4),
34inclusive, of subdivision (d), an operating agreement shall not do
35any of the following:

36(1) Vary a limited liability company’s capacity under Section
3717701.05 to sue and be sued in its own name.

38(2) Vary the law applicable under Section 17701.06.

39(3) Vary the power of the court under Section 17702.04.

P9    1(4) Subject to paragraphs (14) and (15) of this subdivision and
2subdivisions (d) to (g), inclusive, eliminate the duty of loyalty, the
3duty of care, or any other fiduciary duty.

4(5) Subject to subdivisions (d) to (g), inclusive, eliminate the
5contractual obligation of good faith and fair dealing under
6subdivision (d) of Section 17704.09, but the operating agreement
7may prescribe the standards by which the performance of the
8obligation is to be measured, if the standards are not manifestly
9unreasonable as determined at the time the standards are prescribed.

10(6) Vary the requirements of Section 17701.13 to 17701.16,
11inclusive, or any provision under Article 8 (commencing with
12Section 17708.01).

13(7) Vary the power of a court to decree dissolution in the
14circumstances specified in subdivision (a) of Section 17707.03 or
15the provisions for avoidance of dissolution in subdivision (c) of
16Section 17707.03.

17(8) Except as provided therein, vary the requirements of Article
182 (commencing with Section 17702.01) or Article 7 (commencing
19with Section 17707.01).

20(9) Unreasonably restrict the right of a member to maintain an
21action under Article 9 (commencing with Section 17709.01).

22(10) Restrict the right of a member that will have personal
23liability with respect to a surviving or converted organization to
24approve a merger or conversion under Article 10 (commencing
25with Section 17710.01).

26(11) Except as otherwise provided in subdivision (b) of Section
2717701.12, restrict the rights under this title of a person other than
28a member or manager.

29(12) Except as provided therein, vary any provision under Article
3010 (commencing with Section 17710.01).

31(13) Vary any provision under Article 11 (commencing with
32Section 17711.01), Article 12 (commencing with Section
3317712.01), or Article 13 (commencing with Section 17713.01).

34(14) Eliminate the duty of loyalty under subdivision (b) of
35Section 17704.09, but the operating agreement may do any of the
36following:

37(A) Identify specific types or categories of activities that do not
38violate the duty of loyalty, if not manifestly unreasonable.

39(B) Specify the number or percentage of members that may
40authorize or ratify, after full disclosure to all members of all
P10   1material facts, a specific act or transaction that otherwise would
2violate the duty of loyalty.

3(15) Unreasonably reduce the duty of care under subdivision
4(c) of Section 17704.09.

5(d) Except as provided in subdivision (c) and subdivisions (e)
6to (g), inclusive, the effects of the provisions of this title may be
7varied as among the members or as between the members and the
8limited liability company by the operating agreement; provided,
9however, that the provisions of Sections 17701.13, 17703.01, and
1017704.08 and subdivisions (f) to (r), inclusive, and (u) to (w),
11inclusive, of Section 17704.07 shall only be varied by a written
12operating agreement. Notwithstanding the first sentence of this
13subdivision and in addition to the matters specified in subdivision
14(c), the operating agreement shall not do any of the following:

15(1) Vary the definitions of Section 17701.02, except as
16specifically provided therein.

17(2) Vary a member’s rights under Section 17704.10.

18(3) Vary any of the provisions of this section or Section
1917701.12, except as provided therein.

20(4) Vary any of the provisions of subdivisions (s) and (t) of
21Section 17704.07.

22(e) The fiduciary duties of a manager to a manager-managed
23limited liability company and to the members of the limited liability
24company and of a member to a member-managed limited liability
25company and to the members of such limited liability company
26shall only be modified in a written operating agreement with the
27informed consent of the members. Assenting to the operating
28agreement pursuant to subdivision (b) of Section 17701.11 shall
29not constitute informed consent.

30(f) To the extent the operating agreement of a member-managed
31limited liability company expressly relieves a member of a
32responsibility that the member would otherwise have under this
33title and imposes the responsibility on one or more other members,
34the operating agreement may, to the benefit of the member that
35the operating agreement relieves of the responsibility, also
36eliminate or limit any fiduciary duty that would have pertained to
37the responsibility.

38(g) The operating agreement may alter or eliminate the
39indemnification for a member or manager provided by subdivision
40(a) of Section 17704.08 and may eliminate or limit a member or
P11   1manager’s liability to the limited liability company and members
2for money damages, except for the following:

3(1) Breach of the duty of loyalty.

4(2) A financial benefit received by the member or manager to
5which the member or manager is not entitled.

6(3) A member’s liability for excess distributions under Section
717704.06.

8(4) Intentional infliction of harm on the limited liability company
9or a member.

10(5) An intentional violation of criminal law.

11

SEC. 3.  

Section 17701.12 of the Corporations Code is amended
12to read:

13

17701.12.  

(a) An operating agreement may specify that its
14amendment requires the approval of a person that is not a party to
15the operating agreement or the satisfaction of a condition. An
16amendment is ineffective if its adoption does not include the
17required approval or satisfy the specified condition.

18(b) The obligations of a limited liability company and its
19members to a person in the person’s capacity as a transferee or
20dissociated member are governed by the operating agreement.
21Subject only to any court order issued under paragraph (2) of
22subdivision (b) of Section 17705.03 to effectuate a charging order,
23an amendment to the operating agreement made after a person
24becomes a transferee or dissociated member is effective with regard
25to any debt, obligation, or other liability of the limited liability
26company or its members to the person in the person’s capacity as
27a transferee or dissociated member.

28(c) If a record that has been delivered by a limited liability
29company to the Secretary of State for filing and has become
30effective under this title contains a provision that would be
31ineffective under Section 17701.10 if contained in the operating
32agreement, the provision is likewise ineffective in the record.

33(d) Subject to subdivision (c), if a record that has been delivered
34by a limited liability company to the Secretary of State for filing
35and has become effective under this title conflicts with a provision
36of the operating agreement both of the following apply:

37(1) The operating agreement prevails as to members, dissociated
38members, transferees, and managers.

39(2) The record prevails as to other persons to the extent they
40reasonably rely on the record.

P12   1

SEC. 4.  

Section 17701.13 of the Corporations Code is amended
2to read:

3

17701.13.  

(a) A limited liability company shall designate and
4continuously maintain in this state both of the following:

5(1) An office, which need not be a place of its activity in this
6state.

7(2) An agent for service of process.

8(b) A foreign limited liability company that has a certificate of
9registration under Section 17708.02 shall designate and
10continuously maintain in this state an agent for service of process.

11(c) An agent for service of process of a limited liability company
12or foreign limited liability company shall be an individual who is
13a resident of this state or a corporation that has complied with
14Section 1505 and whose capacity to act as an agent has not
15terminated. If a limited liability company or foreign limited liability
16company designates a corporation as its agent for service of process
17in an instrument filed with the Secretary of State, no address for
18that agent for service of process shall be set forth in that instrument.

19(d) Each limited liability company shall maintain in writing or
20in any other form capable of being converted into clearly legible
21tangible form at the office referred to in subdivision (a) all of the
22following:

23(1) A current list of the full name and last known business or
24residence address of each member and of each transferee set forth
25 in alphabetical order, together with the contribution and the share
26in profits and losses of each member and transferee.

27(2) If the limited liability company is a manager-managed
28limited liability company, a current list of the full name and
29business or residence address of each manager.

30(3) A copy of the articles of organization and all amendments
31thereto, together with any powers of attorney pursuant to which
32the articles of organization or any amendments thereto were
33 executed.

34(4) Copies of the limited liability company’s federal, state, and
35local income tax or information returns and reports, if any, for the
36six most recent fiscal years.

37(5) A copy of the limited liability company’s operating
38agreement, if in writing, and any amendments thereto, together
39with any powers of attorney pursuant to which any written
40operating agreement or any amendments thereto were executed.

P13   1(6) Copies of the financial statement of the limited liability
2company, if any, for the six most recent fiscal years.

3(7) The books and records of the limited liability company as
4they relate to the internal affairs of the limited liability company
5for at least the current and past four fiscal years.

6(e) Upon request of an assessor, a domestic or foreign limited
7liability company owning, claiming, possessing, or controlling
8property in this state subject to local assessment shall make
9available at the limited liability company’s principal office in this
10state or at the office required to be kept pursuant to subdivision
11(a) or at a place mutually acceptable to the assessor and the limited
12liability company a true copy of the business records relevant to
13the amount, cost, and value of all property that the limited liability
14company owns, claims, possesses, or controls within the county.

15

SEC. 5.  

Section 17704.01 of the Corporations Code is amended
16to read:

17

17704.01.  

(a) If a limited liability company is to have only
18one member upon formation, the person becomes a member as
19agreed by that person and the organizer of the limited liability
20company. That person and the organizer may be, but need not be,
21different persons. If different, the organizer acts on behalf of the
22initial member.

23(b) If a limited liability company is to have more than one
24member upon formation, those persons become members as agreed
25by the persons before the formation of the limited liability
26company. The organizer acts on behalf of the persons in forming
27the limited liability company and may be, but need not be, one of
28the persons.

29(c) After formation of a limited liability company, a person
30becomes a member as follows:

31(1) As provided in the operating agreement.

32(2) As the result of a transaction effective under Article 10
33(commencing with Section 17710.01).

34(3) With the consent of all the members.

35(4) If, within 90 consecutive days after the limited liability
36company ceases to have any members, the last person to have been
37a member, or the legal representative of that person, designates a
38person to become a member, and the designated person consents
39to become a member.

P14   1(d) A person may become a member without acquiring a
2transferable interest and without making or being obligated to
3make a contribution to the limited liability company.

4(e) Sections 406 and 407 of the Labor Code shall not apply to
5membership interests issued by any limited liability company or
6foreign limited liability company to the following persons:

7(1) Any employee of the limited liability company or foreign
8limited liability company or of any parent or subsidiary of either,
9pursuant to a membership interest purchase plan or agreement, or
10a membership interest option plan or agreement.

11(2) In any transaction in connection with securing employment,
12a person who is or is about to become an officer or a manager of
13 the limited liability company or the foreign limited liability
14company or of any parent or subsidiary of either.

15

SEC. 6.  

Section 17704.04 of the Corporations Code is amended
16to read:

17

17704.04.  

(a) Any distributions made by a limited liability
18company before its dissolution and winding up shall be among the
19members in accordance with the operating agreement. If the
20operating agreement does not otherwise provide, distributions shall
21be on the basis of the value, as stated in the required records when
22the limited liability company decides to make the distribution, of
23the contributions the limited liability company has received from
24each member, except to the extent necessary to comply with any
25transfer effective under Section 17705.02 and any charging order
26in effect under Section 17705.03.

27(b) A person has a right to a distribution before the dissolution
28and winding up of a limited liability company only if the limited
29liability company decides to make an interim distribution. Unless
30the articles of organization or written operating agreement provides
31otherwise, a person’s dissociation does not entitle the person to a
32distribution, and, beginning on the date of dissociation, the
33dissociated person shall have only the right of a transferee of a
34transferable interest with respect to that person’s interest in the
35limited liability company, and then only with respect to
36distributions, if any, to which a transferee is entitled under the
37operating agreement. If the dissociation is in violation of the
38operating agreement, the limited liability company shall have the
39right to offset any damages for the breach of the operating
40agreement from the amounts, if any, otherwise distributable to the
P15   1dissociated person with respect to that person’s interest in the
2limited liability company.

3(c) A person does not have a right to demand or receive a
4distribution from a limited liability company in any form other
5than money. A limited liability company may distribute an asset
6in kind if each part of the asset is fungible with each other part and
7each person receives a percentage of the asset equal in value to
8the person’s share of distributions.

9(d) If a member or transferee becomes entitled to receive a
10distribution, the member or transferee has the status of, and is
11entitled to all remedies available to, a creditor of the limited
12liability company with respect to the distribution.

13(e) The profits and losses of a limited liability company shall
14be allocated among the members, and among classes of members,
15in the manner provided in the operating agreement. If the operating
16agreement does not otherwise provide, profits and losses shall be
17allocated in proportion to the value, as stated in the required
18 records, of the contributions the limited liability company has
19received from each member.

20

SEC. 7.  

Section 17704.07 of the Corporations Code is amended
21to read:

22

17704.07.  

(a) A limited liability company is a
23member-managed limited liability company unless the articles of
24organization contain the statement required by paragraph (5) of
25subdivision (b) of Section 17702.01.

26(b) In a member-managed limited liability company, the
27following rules apply:

28(1) The management and conduct of the limited liability
29company are vested in the members.

30(2) Except as provided in subdivision (r), each member has
31equal rights in the management and conduct of the limited liability
32company’s activities including equal voting rights.

33(3) A difference arising among members as to a matter in the
34ordinary course of the activities of the limited liability company
35shall be decided by a majority of the members.

36(4) Except as otherwise provided in Article 10 (commencing
37with Section 17710.01), an act outside the ordinary course of the
38activities of the limited liability company may be undertaken only
39with the consent of all members.

P16   1(5) The operating agreement may be amended only with the
2consent of all members.

3(c) In a manager-managed limited liability company, the
4following rules apply:

5(1) Except as otherwise expressly provided in this title, any
6matter relating to the activities of the limited liability company is
7 decided exclusively by the managers.

8(2) Each manager has equal rights in the management and
9conduct of the activities of the limited liability company.

10(3) A difference arising among managers as to a matter in the
11ordinary course of the activities of the limited liability company
12may be decided by a majority of the managers of the limited
13liability company.

14(4) The consent of all members of the limited liability company
15is required to do any of the following:

16(A) Sell, lease, exchange, or otherwise dispose of all, or
17substantially all, of the limited liability company’s property, with
18or without the goodwill, outside the ordinary course of the limited
19liability company’s activities.

20(B) Except as otherwise provided in Article 10 (commencing
21with Section 17710.01), any other act outside the ordinary course
22of the limited liability company’s activities.

23(5) A manager may be chosen at any time by the consent of a
24majority of the members and remains a manager until a successor
25has been chosen, unless the manager at an earlier time resigns, is
26removed, or dies, or, in the case of a manager that is not an
27individual, terminates. A manager may be removed at any time by
28the consent of a majority of the members without cause, subject
29to the rights, if any, of the manager under any service contract with
30the limited liability company.

31(6) A person need not be a member to be a manager, but the
32dissociation of a member that is also a manager removes the person
33as a manager. If a person that is both a manager and a member
34ceases to be a manager, that cessation does not by itself dissociate
35the person as a member.

36(7) A person’s ceasing to be a manager does not discharge any
37debt, obligation, or other liability to the limited liability company
38or members which the person incurred while a manager.

39(d) Except for such orders as may be made by a court of
40competent jurisdiction over a dissolution under Section 17707.03,
P17   1the dissolution of a limited liability company does not affect the
2applicability of this section. However, a person that wrongfully
3causes dissolution of the limited liability company loses the right
4to participate in management as a member and a manager.

5(e) This title does not entitle a member to remuneration for
6services performed for a member-managed limited liability
7company, except for reasonable compensation for services rendered
8in winding up the activities of a limited liability company.

9(f) Meetings of members may be held at any place, by electronic
10video screen communication or by electronic transmission by and
11to the limited liability company pursuant to paragraphs (1) and (2)
12of subdivision (i) of Section 17701.02, either within or without
13this state, selected by the person or persons calling the meeting or
14as may be stated in or fixed in accordance with the articles of
15organization or a written operating agreement. If no other place is
16stated or so fixed, all meetings shall be held at the principal office
17of the limited liability company. Unless prohibited by the articles
18of organization of the limited liability company, if authorized by
19the operating agreement, members not physically present in person
20or by proxy at a meeting of members may, by electronic
21transmission by and to the limited liability company pursuant to
22paragraphs (1) and (2) of subdivision (i) of Section 17701.02 or
23by electronic video screen communication, participate in a meeting
24of members, be deemed present in person or by proxy, and vote
25at a meeting of members whether that meeting is to be held at a
26designated place or in whole or in part by means of electronic
27transmission by and to the limited liability company or by
28electronic video screen communication, in accordance with
29subdivision (l).

30(g) A meeting of the members may be called by any manager
31or by any member or members representing more than 10 percent
32of the interests in current profits of members for the purpose of
33addressing any matters on which the members may vote.

34(h) (1) Whenever members are required or permitted to take
35any action at a meeting, a written notice of the meeting shall be
36given not less than 10 days nor more than 60 days before the date
37of the meeting to each member entitled to vote at the meeting. The
38notice shall state the place, date, and hour of the meeting, the means
39of electronic transmission by and to the limited liability company
40or electronic video screen communication, if any, and the general
P18   1nature of the business to be transacted. No other business may be
2transacted at that meeting.

3(2) Any report or any notice of a members’ meeting shall be
4given personally, by electronic transmission by the limited liability
5company, or by mail or other means of written communication,
6addressed to the member at the address of the member appearing
7on the books of the limited liability company or given by the
8member to the limited liability company for the purpose of notice,
9or, if no address appears or is given, at the place where the principal
10office of the limited liability company is located or by publication
11at least once in a newspaper of general circulation in the county
12in which the principal office is located. The notice or report shall
13be deemed to have been given at the time when delivered
14personally, delivered by electronic transmission by the limited
15liability company, deposited in the mail, or sent by other means
16of written communication. An affidavit of mailing or delivered by
17electronic transmission by the limited liability company of any
18notice or report in accordance with this article, executed by a
19manager, shall be prima facie evidence of the giving of the notice
20or report.

21(3) If any notice or report addressed to the member at the address
22of the member appearing on the books of the limited liability
23company is returned to the limited liability company by the United
24States Postal Service marked to indicate that the United States
25Postal Service is unable to deliver the notice or report to the
26member at the address, all future notices or reports shall be deemed
27to have been duly given without further mailing if they are
28available for the member at the principal office of the limited
29liability company for a period of one year from the date of the
30giving of the notice or report to all other members.

31(4) Notice given by electronic transmission by the limited
32liability company under this subdivision shall be valid only if it
33complies with paragraph (1) of subdivision (i) of Section 17701.02.

34Notwithstanding this condition, notice shall not be given by
35electronic transmission by the limited liability company under this
36subdivision after either of the following has occurred:

37(A) The limited liability company is unable to deliver two
38consecutive notices to the member by that means.

P19   1(B) The inability to so deliver the notices to the member
2becomes known to the secretary, any assistant secretary, the transfer
3agent, or any other person responsible for the giving of the notice.

4(5) Upon written request to a manager by any person entitled
5to call a meeting of members, the manager shall immediately cause
6notice to be given to the members entitled to vote that a meeting
7will be held at a time requested by the person calling the meeting,
8not less than 10 days nor more than 60 days after the receipt of the
9request. If the notice is not given within 20 days after receipt of
10the request, the person entitled to call the meeting may give the
11notice or, upon the application of that person, the superior court
12of the county in which the principal office of the limited liability
13company is located, or if the principal office is not in this state,
14the county in which the limited liability company’s address in this
15state is located, shall summarily order the giving of the notice,
16after notice to the limited liability company affording it an
17opportunity to be heard. The procedure provided in subdivision
18(c) of Section 305 shall apply to the application. The court may
19issue any order as may be appropriate, including, without
20limitation, an order designating the time and place of the meeting,
21the record date for determination of members entitled to vote, and
22the form of notice.

23(i) When a members’ meeting is adjourned to another time or
24place, unless the articles of organization or a written operating
25agreement otherwise require and except as provided in this
26subdivision, notice need not be given of the adjourned meeting if
27the time and place thereof or the means of electronic transmission
28by and to the limited liability company or electronic video screen
29communication, if any, are announced at the meeting at which the
30adjournment is taken. At the adjourned meeting, the limited liability
31company may transact any business that may have been transacted
32at the original meeting. If the adjournment is for more than 45
33days, or if after the adjournment a new record date is fixed for the
34adjourned meeting, a notice of the adjourned meeting shall be
35given to each member of record entitled to vote at the meeting.

36(j) The actions taken at any meeting of members, however called
37and noticed, and wherever held, have the same validity as if taken
38at a meeting duly held after regular call and notice, if a quorum is
39present either in person or by proxy, and if, either before or after
40the meeting, each of the members entitled to vote, not present in
P20   1person or by proxy, provides a waiver of notice or consents to the
2holding of the meeting or approves the minutes of the meeting in
3writing. All waivers, consents, and approvals shall be filed with
4the limited liability company records or made a part of the minutes
5of the meeting after conversion to the form in which those records
6or minutes are kept. Attendance of a person at a meeting shall
7constitute a waiver of notice of the meeting, except when the person
8objects, at the beginning of the meeting, to the transaction of any
9business because the meeting is not lawfully called or convened.
10Attendance at a meeting is not a waiver of any right to object to
11the consideration of matters required by this title to be included
12in the notice but not so included, if the objection is expressly made
13at the meeting. Neither the business to be transacted nor the purpose
14of any meeting of members need be specified in any written waiver
15of notice, unless otherwise provided in the articles of organization
16or operating agreement, except as provided in subdivision (l).

17(k) Members may participate in a meeting of the limited liability
18company through the use of conference telephones or electronic
19video screen communication, as long as all members participating
20in the meeting can hear one another, or by electronic transmission
21by and to the limited liability company pursuant to paragraphs (1)
22and (2) of subdivision (i) of Section 17701.02. Participation in a
23meeting pursuant to this provision constitutes presence in person
24at that meeting.

25(l) Any action approved at a meeting, other than by unanimous
26approval of those entitled to vote, shall be valid only if the general
27nature of the proposal so approved was stated in the notice of
28meeting or in any written waiver of notice.

29(m) (1) A majority of the members represented in person or by
30proxy shall constitute a quorum at a meeting of members.

31(2) The members present at a duly called or held meeting at
32which a quorum is present may continue to transact business until
33adjournment, notwithstanding the loss of a quorum, if any action
34taken after loss of a quorum, other than adjournment, is approved
35by the requisite percentage of interests of members specified in
36this title or in the articles of organization or a written operating
37agreement.

38(3) In the absence of a quorum, any meeting of members may
39be adjourned from time to time by the vote of a majority of the
P21   1interests represented either in person or by proxy, but no other
2 business may be transacted, except as provided in paragraph (2).

3(n) (1) Any action that may be taken at any meeting of the
4members may be taken without a meeting if a consent in writing,
5setting forth the action so taken, is signed and delivered to the
6limited liability company within 60 days of the record date for that
7action by members having not less than the minimum number of
8votes that would be necessary to authorize or take that action at a
9meeting at which all members entitled to vote thereon were present
10and voted.

11(2) Unless the consents of all members entitled to vote have
12been solicited in writing, (A) notice of any member approval of
13an amendment to the articles of organization or operating
14agreement, a dissolution of the limited liability company as
15 provided in Section 17707.01, or a merger of the limited liability
16company as provided in Section 17710.10, without a meeting by
17less than unanimous written consent shall be given at least 10 days
18before the consummation of the action authorized by the approval,
19and (B) prompt notice shall be given of the taking of any other
20 action approved by members without a meeting by less than
21unanimous written consent, to those members entitled to vote who
22have not consented in writing.

23(3) Any member giving a written consent, or the member’s
24proxyholder, may revoke the consent personally or by proxy by a
25writing received by the limited liability company prior to the time
26that written consents of members having the minimum number of
27votes that would be required to authorize the proposed action have
28been filed with the limited liability company, but may not do so
29thereafter. This revocation is effective upon its receipt at the office
30of the limited liability company required to be maintained pursuant
31to Section 17701.13.

32(o) The use of proxies in connection with this section shall be
33governed in the same manner as in the case of corporations formed
34under the General Corporation Law, Division 1 (commencing with
35 Section 100) of Title 1.

36(p) In order that the limited liability company may determine
37the members of record entitled to notices of any meeting or to vote,
38or entitled to receive any distribution or to exercise any rights in
39respect of any other lawful action, a manager, or members
40representing more than 10 percent of the interests of members,
P22   1may fix, in advance, a record date, that is not more than 60 days
2nor less than 10 days prior to the date of the meeting and not more
3than 60 days prior to any other action. If no record date is fixed
4the following shall apply:

5(1) The record date for determining members entitled to notice
6of or to vote at a meeting of members shall be at the close of
7business on the business day next preceding the day on which
8notice is given or, if notice is waived, at the close of business on
9the business day next preceding the day on which the meeting is
10 held.

11(2) The record date for determining members entitled to give
12consent to limited liability company action in writing without a
13meeting shall be the day on which the first written consent is given.

14(3) The record date for determining members for any other
15purpose shall be at the close of business on the day on which the
16managers adopt the resolution relating thereto, or the 60th day
17prior to the date of the other action, whichever is later.

18(4) The determination of members of record entitled to notice
19of or to vote at a meeting of members shall apply to any
20adjournment of the meeting unless a manager or the members who
21called the meeting fix a new record date for the adjourned meeting,
22but the manager or the members who called the meeting shall fix
23a new record date if the meeting is adjourned for more than 45
24 days from the date set for the original meeting.

25(q) A meeting of the members may be conducted, in whole or
26in part, by electronic transmission by and to the limited liability
27company or by electronic video screen communication if both of
28the following requirements are met:

29(1) The limited liability company implements reasonable
30measures to provide members, in person or by proxy, a reasonable
31opportunity to participate in the meeting and to vote on matters
32submitted to the members, including an opportunity to read or hear
33the proceedings of the meeting substantially concurrently with
34those proceedings.

35(2) When any member votes or takes other action at the meeting
36by means of electronic transmission to the limited liability company
37or electronic video screen communication, a record of that vote or
38action shall be maintained by the limited liability company.

39(r) The articles of organization or a written operating agreement
40may provide to all or certain identified members of a specified
P23   1class or group of members the right to vote separately or with all
2or any class or group of members on any matter. Voting by
3members may be on a per capita, number, financial interest, class,
4group, or any other basis. If no voting provision is contained in
5the articles of organization or written operating agreement, each
6of the following shall apply:

7(1) The members of a limited liability company shall vote in
8proportion to their interests in current profits of the limited liability
9company or, in the case of a member who has assigned the
10member’s entire transferable interest in the limited liability
11company to a person who has not been admitted as a member, in
12proportion to the interest in current profits that the assigning
13member would have, had the assignment not been made.

14(2) Any amendment to the articles of organization or operating
15agreement shall require the unanimous vote of all members.

16(3) In all other matters in which a vote is required, except as
17otherwise provided in this section, a vote of a majority of the
18members shall be sufficient.

19(s) Notwithstanding any provision to the contrary in the articles
20of organization or operating agreement, in no event shall the
21articles of organization be amended by a vote of less than a
22majority of the members.

23(t) Notwithstanding any provision to the contrary in the articles
24of organization or operating agreement, members shall have the
25right to vote on a dissolution of the limited liability company as
26 provided in subdivision (b) of Section 17707.01, on a conversion
27to another business entity as provided in subdivision (b) of Section
2817710.03, and on a merger of the limited liability company as
29provided in Section 17710.12.

30(u) A written operating agreement may provide for the
31appointment of officers, including, but not limited to, a chairperson
32or a president, or both a chairperson and a president, a secretary,
33a chief financial officer, and any other officers with the titles,
34powers, and duties as shall be specified in the articles of
35organization or operating agreement or as determined by the
36managers or members. An officer may, but does not need to, be a
37member or manager of the limited liability company, and any
38number of offices may be held by the same person.

39(v) Officers, if any, shall be appointed in accordance with the
40written operating agreement or, if no such provision is made in
P24   1the operating agreement, any officers shall be appointed by the
2managers and shall serve at the pleasure of the managers, subject
3to the rights, if any, of an officer under any contract of
4employment. Any officer may resign at any time upon written
5notice to the limited liability company without prejudice to the
6rights, if any, of the limited liability under any contract to which
7the officer is a party.

8(w) Subject to the provisions of the articles of organization, any
9note, mortgage, evidence of indebtedness, contract, certificate,
10statement, conveyance, or other instrument in writing, and any
11assignment or endorsement thereof, executed or entered into
12between any limited liability company and any other person, when
13signed by the chairperson of the board, the president, or any vice
14president and any secretary, any assistant secretary, the chief
15financial officer, or any assistant treasurer of the limited liability
16company, is not invalidated as to the limited liability company by
17any lack of authority of the signing officers in the absence of actual
18knowledge on the part of the other person that the signing officers
19had no authority to execute the same.

20

SEC. 8.  

Section 17704.08 of the Corporations Code is amended
21to read:

22

17704.08.  

(a) A limited liability company shall reimburse for
23any payment made and indemnify for any debt, obligation, or other
24liability incurred by a member of a member-managed limited
25liability company or the manager of a manager-managed limited
26liability company in the course of the member’s or manager’s
27activities on behalf of the limited liability company, if, in making
28the payment or incurring the debt, obligation, or other liability,
29the member or manager complied with the duties stated in Section
3017704.09.

31(b) Except as provided in subdivision (g) of Section 17701.10,
32a limited liability company may reimburse for any payment made
33and may indemnify for any debt, obligation, or other liability
34incurred by a person not identified in subdivision (a), including,
35without limitation, any officer, employee, or agent of the limited
36liability company, in the course of that person’s activities on behalf
37of the limited liability company.

38(c) A limited liability company may purchase and maintain
39insurance on behalf of any person against liability asserted against
40or incurred by that person even if, under subdivision (g) of Section
P25   117701.10, the operating agreement could not eliminate or limit the
2person’s liability to the limited liability company for the conduct
3giving rise to the liability.

4(d) (1) Without limiting subdivision (a), to the extent that an
5agent of a limited liability company has been successful on the
6merits in defense or settlement of any claim, issue, or matter in
7any proceeding in which the agent was or is a party or is threatened
8to be made a party by reason of the fact that the person is or was
9an agent of the limited liability company, if the agent acted in good
10faith and in a manner that the agent reasonably believed to be in
11the best interests of the limited liability company and its members,
12the agent shall be indemnified against expenses actually and
13 reasonably incurred by the agent in connection therewith.

14(2) For purposes of this subdivision, the following terms have
15the following meanings:

16(A) “Agent” means any person who is or was a member of a
17member-managed limited liability company, manager of a
18manager-managed limited liability company, officer, employee,
19or other agent of the limited liability company, or is or was serving
20at the request of the limited liability company as a manager,
21director, officer, employee, or agent of another foreign or domestic
22corporation, limited liability company or foreign limited liability
23company, partnership, joint venture, trust, or other enterprise, or
24was a manager, director, officer, employee, or agent of a foreign
25or domestic limited liability company, partnership, joint venture,
26trust, or other enterprise that was a predecessor of the limited
27liability company or of another enterprise at the request of the
28predecessor entity or other enterprise.

29(B) “Expenses” include, without limitation, the attorney’s fees
30and any expenses of establishing a right to indemnification under
31this subdivision.

32(C) “Proceeding” means any threatened, pending, or completed
33action or proceeding, whether civil, criminal, administrative, or
34investigative.

35

SEC. 9.  

Section 17704.09 of the Corporations Code is amended
36to read:

37

17704.09.  

(a) The fiduciary duties that a member owes to a
38member-managed limited liability company and the other members
39of the limited liability company are the duties of loyalty and care
40under subdivisions (b) and (c).

P26   1(b) A member’s duty of loyalty to the limited liability company
2and the other members is limited to the following:

3(1) To account to the limited liability company and hold as
4trustee for it any property, profit, or benefit derived by the member
5in the conduct and winding up of the activities of a limited liability
6company or derived from a use by the member of a limited liability
7company property, including the appropriation of a limited liability
8company opportunity.

9(2) To refrain from dealing with the limited liability company
10in the conduct or winding up of the activities of the limited liability
11company as or on behalf of a person having an interest adverse to
12the limited liability company.

13(3) To refrain from competing with the limited liability company
14in the conduct or winding up of the activities of the limited liability
15company.

16(c) A member’s duty of care to a limited liability company and
17the other members in the conduct and winding up of the activities
18of the limited liability company is limited to refraining from
19engaging in grossly negligent or reckless conduct, intentional
20misconduct, or a knowing violation of law.

21(d) A member shall discharge the duties to a limited liability
22company and the other members under this title or under the
23operating agreement and exercise any rights consistent with the
24obligation of good faith and fair dealing.

25(e) A member does not violate a duty or obligation under this
26article or under the operating agreement merely because the
27member’s conduct furthers the member’s own interest.

28(f) In a manager-managed limited liability company, all of the
29following rules apply:

30(1) Subdivisions (a), (b), (c), and (e) apply to the manager or
31managers and not the members.

32(2) Subdivision (d) applies to the members and managers.

33(3) Except as otherwise provided, a member does not have any
34fiduciary duty to the limited liability company or to any other
35member solely by reason of being a member.

36

SEC. 10.  

Section 17704.10 of the Corporations Code is
37amended to read:

38

17704.10.  

(a) Upon the request of a member or transferee, for
39purposes reasonably related to the interest of that person as a
40member or a transferee, a manager or, if the limited liability
P27   1company is member-managed, a member in possession of the
2requested information, shall promptly deliver, in writing, to the
3member or transferee, at the expense of the limited liability
4company, a copy of the information required to be maintained by
5paragraphs (1), (2), and (4) of subdivision (d) of Section 17701.13,
6and any written operating agreement of the limited liability
7company.

8(b) Each member, manager, and transferee has the right, upon
9reasonable request, for purposes reasonably related to the interest
10of that person as a member, manager, or transferee, to each of the
11following:

12(1) To inspect and copy during normal business hours any of
13the records required to be maintained pursuant to Section 17701.13.

14(2) To obtain in writing from the limited liability company,
15promptly after becoming available, a copy of the limited liability
16company’s federal, state, and local income tax returns for each
17year.

18(c) In the case of a limited liability company with more than 35
19members, each of the following shall apply:

20(1) A manager shall cause an annual report to be sent to each
21of the members not later than 120 days after the close of the fiscal
22 year. The report, which may be sent by electronic transmission by
23the limited liability company (paragraph (1) of subdivision (i) of
24Section 17701.02) shall contain a balance sheet as of the end of
25the fiscal year and an income statement and a statement of
26cashflows for the fiscal year.

27(2) Members representing at least 5 percent of the voting
28interests of members, or three or more members, may make a
29written request to a manager for an income statement of the limited
30liability company for the initial three-month, six-month, or
31nine-month period of the current fiscal year ending more than 30
32days prior to the date of the request, and a balance sheet of the
33limited liability company as of the end of that period. The statement
34shall be delivered or mailed to the members within 30 days
35thereafter.

36(3) The financial statements referred to in this section shall be
37accompanied by the report thereon, if any, of the independent
38accountants engaged by the limited liability company or, if there
39is no report, the certificate of the manager of the limited liability
P28   1company that the financial statements were prepared without audit
2from the books and records of the limited liability company.

3(d) A manager shall promptly furnish to a member a copy of
4any amendment to the articles of organization or operating
5agreement executed by a manager pursuant to a power of attorney
6from the member. The articles of organization or operating
7agreement may be sent by electronic transmission by the limited
8liability company.

9(e) The limited liability company shall send or cause information
10to be sent in writing to each member or holder of a transferable
11interest within 90 days after the end of each taxable year the
12information necessary to complete federal and state income tax or
13information returns and, in the case of a limited liability company
14with 35 or fewer members, a copy of the limited liability
15company’s federal, state, and local income tax or information
16returns for the year.

17(f) In addition to the remedies provided in Sections 17713.06
18and 17713.07 and any other remedies, a court of competent
19jurisdiction may enforce the duty of making and mailing or
20delivering the information and financial statements required by
21this section and, for good cause shown, extend the time therefor.

22(g) In any action under this section or under Section 17713.07,
23if the court finds the failure of the limited liability company to
24comply with the requirements of this section is without
25justification, the court may award an amount sufficient to reimburse
26the person bringing the action for the reasonable expenses incurred
27by that person, including attorney’s fees, in connection with the
28action or proceeding.

29(h) Any waiver of the rights provided in this section shall be
30unenforceable.

31(i) Any request, inspection, or copying by a member or holder
32of a transferable interest may be made by that person or by that
33person’s agent or attorney.

34(j) Upon complaint that a limited liability company is failing to
35comply with the provisions of this section, or to afford to the
36members rights given to them in the articles of organization or
37operating agreement, the Attorney General may, in the name of
38the people of the State of California, send to the office required to
39be maintained pursuant to Section 17701.13, notice of the
40complaint.

P29   1(k) If the answer of the limited liability company is not received
2within 30 days of the date the notice was transmitted, or if the
3answer is not satisfactory, and if the enforcement of the rights of
4the aggrieved persons by private civil action, by class action, or
5otherwise, would be so burdensome or expensive as to be
6impracticable, the Attorney General may institute, maintain, or
7intervene in any court of competent jurisdiction or before any
8administrative agency for relief by way of injunction, the
9dissolution of entities, the appointment of receivers, or any other
10temporary, preliminary, provisional, or final remedies as may be
11appropriate to protect the rights of members or to restore the
12position of the members for the failure to comply with the
13requirements of Section 17701.13 or the articles of organization
14or the operating agreement. In any action, suit, or proceeding, there
15may be joined as parties all persons and entities responsible for or
16affected by the activity.

17

SEC. 11.  

Section 17705.02 of the Corporations Code is
18amended to read:

19

17705.02.  

(a) With respect to a transfer, in whole or in part,
20of a transferable interest, all of the following apply:

21(1) A transfer is permissible.

22(2) A transfer does not by itself cause a member’s dissociation
23or a dissolution and winding up of the activities of a limited liability
24company.

25(3) Subject to Section 17705.04, a transfer does not entitle the
26transferee to do any of the following:

27(A) Vote or otherwise participate in the management or conduct
28of the activities of a limited liability company.

29(B) Except as otherwise provided in subdivision (c) and Section
3017704.10, have access to records or other information concerning
31the activities of a limited liability company.

32(b) A transferee has the right to receive, in accordance with the
33transfer, distributions to which the transferor would otherwise be
34entitled; provided, however, that the pledge or granting of a security
35interest, lien, or other encumbrance in or against any or all of the
36transferable interest of a transferor shall not cause the transferor
37to cease to be a member or grant to the transferee or to anyone else
38the power to exercise any rights or powers of a member, including,
39without limitation, the right to receive distributions to which the
40member is entitled.

P30   1(c) In a dissolution and winding up of a limited liability
2company, a transferee is entitled to an account of the limited
3liability company’s transactions only from the date of dissolution.

4(d) A transferable interest may be evidenced by a certificate of
5the interest issued by the limited liability company in a record,
6and, subject to this article, the interest represented by the certificate
7may be transferred by a transfer of the certificate.

8(e) A limited liability company need not give effect to a
9transferee’s rights under this section until the limited liability
10company has notice of the transfer.

11(f) A transfer of a transferable interest in violation of a restriction
12on transfer contained in the operating agreement is ineffective as
13to a person having notice of the restriction at the time of transfer.

14(g) Except as otherwise provided in subdivision (b) of this
15section and paragraph (2) of subdivision (d) of Section 17706.02,
16when a member transfers a transferable interest, the transferor
17retains the rights of a member, other than the interest in
18distributions transferred, and retains all duties and obligations of
19a member.

20(h) When a member transfers a transferable interest to a person
21that becomes a member with respect to the transferred interest, the
22transferee is liable for the member’s obligations under Section
2317704.03 and subdivision (c) of Section 17704.06 known to the
24transferee when the transferee becomes a member.

25

SEC. 12.  

Section 17706.03 of the Corporations Code is
26amended to read:

27

17706.03.  

(a) When a person is dissociated as a member of a
28limited liability company all of the following apply:

29(1) The person’s right to vote or participate as a member in the
30management and conduct of the limited liability company’s
31activities terminates.

32(2) If the limited liability company is member-managed, the
33person’ s fiduciary duties as a member end with regard to matters
34arising and events occurring after the person’s dissociation.

35(3) Subject to Section 17705.04 and Article 10 (commencing
36with Section 17710.01), any transferable interest owned by the
37person immediately before dissociation in the person’s capacity
38as a member is owned by the person solely as a transferee.

39(b) A person’s dissociation as a member of a limited liability
40company does not of itself discharge the person from any debt,
P31   1obligation, or other liability to the limited liability company or the
2other members that the person incurred while a member.

3(c) If a member dies, or a guardian or conservator of the estate
4is appointed for the member, or a member’s interest is being
5administered by an attorney-in-fact under a valid power of attorney,
6the member’s executor, administrator, guardian, conservator,
7attorney-in-fact, or other legal representative may exercise all of
8the member’s rights for the purpose of settling the member’s estate
9or administering the member’s property, including any power the
10member had under the articles of organization or an operating
11agreement to give a transferee the right to become a member.

12

SEC. 13.  

Section 17707.01 of the Corporations Code is
13amended to read:

14

17707.01.  

A limited liability company is dissolved, and its
15activities shall be wound up, upon the happening of the first to
16occur of the following:

17(a) On the happening of an event set forth in a written operating
18agreement or the articles of organization.

19(b) By the vote of a majority of the members of the limited
20liability company or a greater percentage of the voting interests
21of members as may be specified in the articles of organization, or
22a written operating agreement.

23(c) The passage of 90 consecutive days during which the limited
24liability company has no members, except that, on the death of a
25natural person who is the sole member of a limited liability
26company, the status of the member, including a membership
27interest, may pass to one or more heirs, successors, and assigns of
28the member by will or applicable law. An heir, successor, or assign
29of the member’s interest becomes a substituted member pursuant
30to paragraph (4) of subdivision (c) of Section 17704.01, subject
31to administration as provided by applicable law, without the
32permission or consent of the heirs, successors, or assigns or those
33administering the estate of the deceased member.

34(d) Entry of a decree of judicial dissolution pursuant to Section
3517707.03.

36

SEC. 14.  

Section 17707.03 of the Corporations Code is
37amended to read:

38

17707.03.  

(a) Pursuant to an action filed by any manager or
39by any member or members of a limited liability company, a court
40of competent jurisdiction may decree the dissolution of a limited
P32   1liability company whenever any of the events specified in
2subdivision (b) occurs.

3(b) (1) It is not reasonably practicable to carry on the business
4in conformity with the articles of organization or operating
5agreement.

6(2) Dissolution is reasonably necessary for the protection of the
7rights or interests of the complaining members.

8(3) The business of the limited liability company has been
9abandoned.

10(4) The management of the limited liability company is
11deadlocked or subject to internalbegin delete dissention.end deletebegin insert dissension.end insert

12(5) Those in control of the limited liability company have been
13guilty of, or have knowingly countenanced, persistent and pervasive
14fraud, mismanagement, or abuse of authority.

15(c) (1) In any suit for judicial dissolution, the other members
16may avoid the dissolution of the limited liability company by
17purchasing for cash the membership interests owned by the
18members so initiating the proceeding, the “moving parties,” at
19their fair market value. In fixing the value, the amount of any
20damages resulting if the initiation of the dissolution is a breach by
21any moving party or parties of an agreement with the purchasing
22party or parties, including, without limitation, the operating
23agreement, may be deducted from the amount payable to the
24moving party or parties; provided, that no member who sues for
25dissolution on the grounds set forth in paragraph (3), (4), or (5) of
26subdivision (b) shall be liable for damages for breach of contract
27in bringing that action.

28(2) If the purchasing parties elect to purchase the membership
29interests owned by the moving parties, are unable to agree with
30the moving parties upon the fair market value of the membership
31interests, and give bond with sufficient security to pay the estimated
32reasonable expenses, including attorney’s fees, of the moving
33parties if the expenses are recoverable under paragraph (3), the
34court, upon application of the purchasing parties, either in the
35pending action or in a proceeding initiated in the superior court of
36the proper county by the purchasing parties, shall stay the winding
37up and dissolution proceeding and shall proceed to ascertain and
38fix the fair market value of the membership interests owned by
39the moving parties.

P33   1(3) The court shall appoint three disinterested appraisers to
2appraise the fair market value of the membership interests owned
3by the moving parties, and shall make an order referring the matter
4to the appraisers so appointed for the purpose of ascertaining that
5value. The order shall prescribe the time and manner of producing
6evidence, if evidence is required. The award of the appraisers or
7a majority of them, when confirmed by the court, shall be final
8and conclusive upon all parties. The court shall enter a decree that
9shall provide in the alternative for winding up and dissolution of
10the limited liability company, unless payment is made for the
11membership interests within the time specified by the decree. If
12the purchasing parties do not make payment for the membership
13interests within the time specified, judgment shall be entered
14against them and the surety or sureties on the bond for the amount
15of the expenses, including attorney’s fees, of the moving parties.
16Any member aggrieved by the action of the court may appeal
17 therefrom.

18(4) If the purchasing parties desire to prevent the winding up
19and dissolution of the limited liability company, they shall pay to
20the moving parties the value of their membership interests
21ascertained and decreed within the time specified pursuant to this
22section, or, in the case of an appeal, as fixed on appeal. On
23receiving that payment or the tender of payment, the moving parties
24shall transfer their membership interests to the purchasing parties.

25(5) For the purposes of this section, the valuation date shall be
26the date upon which the action for judicial dissolution was
27commenced. However, the court may, upon the hearing of a motion
28by any party, and for good cause shown, designate some other date
29as the valuation date.

30(6) A dismissal of any suit for judicial dissolution by a manager,
31member, or members shall not affect the other members’ rights to
32avoid dissolution pursuant to this section.

33(d) Nothing in this section shall be construed to limit the
34remedies otherwise available to a court of competent jurisdiction
35over the dissolution.

36

SEC. 15.  

Section 17707.06 of the Corporations Code is
37amended to read:

38

17707.06.  

(a) A limited liability company that has filed a
39certificate of cancellation nevertheless continues to exist for the
40purpose of winding up its affairs, prosecuting and defending actions
P34   1by or against it in order to collect and discharge obligations,
2disposing of and conveying its property, and collecting and dividing
3its assets. A limited liability company shall not continue business
4except so far as necessary for its winding up.

5(b) No action or proceeding to which a limited liability company
6is a party abates by the filing of a certificate of cancellation for
7the limited liability company or by reason of proceedings for its
8winding up and dissolution.

9(c) Any assets inadvertently or otherwise omitted from the
10winding up continue in the canceled limited liability company for
11the benefit of the persons entitled to those assets upon cancellation
12and on realization shall be distributed accordingly.

13(d) After cancellation of the limited liability company, the
14limited liability company is bound by both of the following:

15(1) The act of a person authorized to wind up the affairs of the
16limited liability company, if the act is appropriate for winding up
17the activities of the limited liability company.

18(2) The act of a person authorized to act on behalf of the limited
19liability company, if the act would have bound the limited liability
20company before cancellation, if the other party to the transaction
21did not have notice of the cancellation.

22

SEC. 16.  

Section 17707.09 of the Corporations Code is
23amended to read:

24

17707.09.  

(a) Notwithstanding the filing of a certificate of
25dissolution, a majority of the members may cause to be filed, in
26the office of, and on a form prescribed by, the Secretary of State,
27a certificate of continuation, in any of the following circumstances:

28(1) The business of the limited liability company is to be
29continued pursuant to a unanimous vote of the remaining members.

30(2) The dissolution of the limited liability company was by vote
31of the members pursuant to subdivision (b) of Section 17707.01
32and each member who consented to the dissolution has agreed in
33writing to revoke his or her vote in favor of or consent to the
34 dissolution.

35(3) The limited liability company was not, in fact, dissolved.

36(b) The certificate of continuation shall set forth all of the
37following:

38(1) The name of the limited liability company and the Secretary
39of State’s file number.

P35   1(2) The grounds provided by subdivision (a) that are the basis
2for filing the certificate of continuation.

3(c) Upon the filing of a certificate of continuation, the certificate
4of dissolution shall be of no effect from the time of the filing of
5the certificate of dissolution.

6

SEC. 17.  

Section 17708.07 of the Corporations Code is
7amended to read:

8

17708.07.  

(a) A foreign limited liability company transacting
9intrastate business in this state shall not maintain an action or
10proceeding in this state unless it has a certificate of registration to
11transact intrastate business in this state.

12(b) The failure of a foreign limited liability company to have a
13certificate of registration to transact intrastate business in this state
14does not prevent the foreign limited liability company from
15defending an action or proceeding in this state.

16(c) A member or manager of a foreign limited liability company
17is not liable for the debts, obligations, or other liabilities of the
18foreign limited liability company solely because the foreign limited
19liability company transacted intrastate business in this state without
20a certificate of registration.

21(d) If a foreign limited liability company transacts intrastate
22business in this state without a certificate of registration or cancels
23its certificate of registration, it shall be deemed to have appointed
24the Secretary of State as its agent for service of process for rights
25of action arising out of the transaction of intrastate business in this
26state.

27

SEC. 18.  

Section 17710.03 of the Corporations Code is
28amended to read:

29

17710.03.  

(a) A limited liability company that desires to
30convert to an other business entity or a foreign other business entity
31or a foreign limited liability company shall approve a plan of
32conversion.

33The plan of conversion shall state all of the following:

34(1) The terms and conditions of the conversion.

35(2) The place of the organization of the converted entity and of
36the converting limited liability company and the name of the
37converted entity after conversion.

38(3) The manner of converting the membership interests of each
39of the members into shares of, securities of, or interests in, the
40 converted entity.

P36   1(4) The provisions of the governing documents for the converted
2entity, including the limited liability company articles of
3organization and operating agreement, or articles or certificate of
4incorporation if the converted entity is a corporation, to which the
5holders of interests in the converted entity are to be bound.

6(5) Any other details or provisions that are required by the laws
7under which the converted entity is organized, or that are desired
8by the parties.

9(b) (1) The plan of conversion shall be approved by all
10managers and a majority of the members of each class of
11membership interest or if there are no managers, a majority of the
12members of each class of membership of the converting limited
13liability company, unless a greater approval is required by the
14operating agreement of the converting limited liability company.

15(2) However, if the members of the limited liability company
16would become personally liable for any obligations of the
17converted entity as a result of the conversion, the plan of
18conversion shall be approved by all of the members of the
19converting limited liability company, unless the plan of conversion
20 provides that all members will have dissenters’ rights as provided
21in Article 11 (commencing with Section 17711.01).

22(c) Upon the effectiveness of the conversion, all members of
23the converting limited liability company, except those that exercise
24dissenters’ rights as provided in Article 11 (commencing with
25Section 17711.01), shall be deemed parties to any governing
26documents for the converted entity adopted as part of the plan of
27conversion, regardless of whether or not the member has executed
28the plan of conversion or the governing documents for the
29converted entity. Any adoption of governing documents made
30pursuant to the conversion shall be effective at the effective time
31or date of the conversion.

32(d) Notwithstanding its prior approval, a plan of conversion
33may be amended before the conversion takes effect if the
34amendment is approved by all managers and a majority of the
35 members or if there are no managers, a majority of the members
36of the converting limited liability company and, if the amendment
37changes any of the principal terms of the plan of conversion, the
38amendment is approved by the managers and members of the
39converting limited liability company in the same manner and to
P37   1the same extent as required for the approval of the original plan
2of conversion.

3(e) The managers by unanimous approval and the members of
4a converting limited liability company may, by majority approval
5at any time before the conversion is effective, in their discretion,
6abandon a conversion, without further approval by the managers
7or members, subject to the contractual rights of third parties other
8than managers or members.

9(f) The converted entity shall keep the plan of conversion at the
10principal place of business of the converted entity if the converted
11entity is a domestic limited liability company or foreign other
12business entity, at the principal office of, or registrar or transfer
13agent of, the converted entity, if the converted entity is a domestic
14corporation, or at the office where records are to be kept pursuant
15to Section 17701.13 if the converted entity is a domestic limited
16liability company. Upon the request of a member of a converting
17limited liability company, the authorized person on behalf of the
18converted entity shall promptly deliver to the member or the holder
19of shares, interests, or other securities, at the expense of the
20converted entity, a copy of the plan of conversion. A waiver by a
21member of the rights provided in this subdivision shall be
22unenforceable.

23

SEC. 19.  

Section 17710.06 of the Corporations Code is
24amended to read:

25

17710.06.  

(a) Upon conversion of a limited liability company,
26one of the following applies:

27(1) If the limited liability company is converting into a domestic
28limited partnership, a statement of conversion shall be completed
29on a certificate of limited partnership for the converted entity and
30shall be filed with the Secretary of State.

31(2) If the limited liability company is converting into a domestic
32partnership, a statement of conversion shall be completed on the
33statement of partnership authority for the converted entity. If no
34statement of partnership authority is filed, a certificate of
35conversion shall be filed separately with the Secretary of State.

36(3) If the limited liability company is converting into a domestic
37corporation, a statement of conversion shall be completed on the
38articles of incorporation for the converted entity and shall be filed
39with the Secretary of State.

P38   1(4) If the limited liability company is converting to a foreign
2limited liability company or foreign other business entity, a
3certificate of conversion shall be filed with the Secretary of State.

4(b) Any certificate or statement of conversion shall be executed
5and acknowledged by all members of a member-managed limited
6liability company or all managers of a manager-managed limited
7liability company, unless a lesser number is provided in the articles
8of organization or operating agreement, and shall set forth all of
9the following:

10(1) The name of the converting limited liability company and
11the Secretary of State’s file number of the converting limited
12liability company.

13(2) A statement that the principal terms of the plan of conversion
14were approved by a vote of the members, that equaled or exceeded
15the vote required under Section 17710.03, specifying each class
16entitled to vote and the percentage vote required of each class.

17(c) A certificate of conversion shall set forth all of the following:

18(1) The name, form, and jurisdiction of organization of the
19converted entity.

20(2) The name, street, and mailing address of the converted
21entity’s agent for service of process.

22(3) The street address of the converted entity’s chief executive
23office.

24(d) The filing with the Secretary of State of a certificate of
25conversion, a certificate of limited partnership, a statement of
26partnership authority, or articles of incorporation containing a
27statement of conversion as set forth in subdivision (a) shall have
28the effect of the filing of a certificate of cancellation by the
29converting limited liability company, and no converting limited
30liability company that has made the filing is required to take any
31action under Article 7 (commencing with Section 17707.01) as a
32result of that conversion.

33(e) For the purposes of this title, the certificate of conversion
34shall be on a form prescribed by the Secretary of State.

35begin insert

begin insertSEC. 19.5.end insert  

end insert

begin insertSection 17710.06 of the end insertbegin insertCorporations Codeend insertbegin insert is
36amended to read:end insert

37

17710.06.  

(a) Upon conversion of a limited liability company,
38one of the following applies:

39(1) If the limited liability company is converting into a domestic
40limited partnership, a statement of conversion shall be completed
P39   1on a certificate of limited partnership for the converted entity and
2shall be filed with the Secretary of State.

3(2) If the limited liability company is converting into a domestic
4partnership, a statement of conversion shall be completed on the
5statement of partnership authority for the converted entity. If no
6statement of partnership authority is filed, a certificate of
7conversion shall be filed separately with the Secretary of State.

8(3) If the limited liability company is converting into a domestic
9corporation, a statement of conversion shall be completed on the
10articles of incorporation for the converted entity and shall be filed
11with the Secretary of State.

12(4) If the limited liability company is converting to a foreign
13limited liability company or foreign other business entity, a
14certificate of conversion shall be filed with the Secretary of State.

15(b) Any certificate or statement of conversion shall be executed
16and acknowledged by allbegin delete members,end deletebegin insert members of a member-managed
17limited liability company or all managers of a manager-managed
18limited liability company,end insert
unless a lesser number is provided in
19the articles of organization or operating agreement, and shall set
20forth all of the following:

21(1) The name of the converting limited liability company and
22the Secretary of State’s file number of the converting limited
23liability company.

24(2) A statement that the principal terms of the plan of conversion
25were approved by a vote of the members, that equaled or exceeded
26the vote required under Section 17710.03, specifying each class
27entitled to vote and the percentage vote required of each class.

28(c) A certificate of conversion shall set forth all of the following:

29(1) The name, form, and jurisdiction of organization of the
30converted entity.

31(2) The name,begin delete street,end deletebegin insert street address,end insert and mailing address of the
32converted entity’s agent for service of process.begin insert If a corporation
33qualified under Section 1505 is designated as the agent, no address
34for it shall be set forth.end insert

35(3) The street address of the converted entity’s chief executive
36office.

37(d) The filing with the Secretary of State of a certificate of
38conversion, a certificate of limited partnership, a statement of
39partnership authority, or articles of incorporation containing a
40statement of conversion as set forth in subdivision (a) shall have
P40   1the effect of the filing of a certificate of cancellation by the
2converting limited liability company, and no converting limited
3liability company that has made the filing is required to take any
4action under Article 7 (commencing with Section 17707.01) as a
5result of that conversion.

6(e) For the purposes of this title, the certificate of conversion
7shall be on a form prescribed by the Secretary of State.

8

SEC. 20.  

Section 17710.12 of the Corporations Code is
9amended to read:

10

17710.12.  

(a) Each limited liability company and other
11business entity that desires to merge shall approve an agreement
12of merger.

13The agreement of merger shall be approved by all managers and
14a majority of the members of each class of membership interests
15of each constituent limited liability company, unless a greater
16approval is required by the operating agreement of the constituent
17limited liability company. Notwithstanding the previous sentence,
18if the members of any constituent limited liability company become
19personally liable for any obligations of a constituent limited
20liability company or constituent other business entity as a result
21of the merger, the principal terms of the agreement of merger shall
22be approved by all of the members of the constituent limited
23liability company, unless the agreement of merger provides that
24all members shall have the dissenters’ rights provided in Article
2511 (commencing with Section 17711.01). The agreement of merger
26shall be approved on behalf of each constituent other business
27entity by those persons required to approve the merger by the laws
28under which it is organized. Other persons, including a parent of
29a constituent limited liability company, may be parties to the
30agreement of merger. The agreement of merger shall state all of
31the following:

32(1) The terms and conditions of the merger.

33(2) The name and place of the organization of the surviving
34limited liability company or surviving other business entity, and
35of each disappearing limited liability company and disappearing
36other business entity, and the agreement of merger may change
37the name of the surviving limited liability company, the new name
38may be the same as or similar to the name of a disappearing
39domestic or foreign limited liability company, subject to Section
4017701.08.

P41   1(3) The manner of converting the membership interests of each
2of the constituent limited liability companies into interests, shares,
3or other securities of the surviving limited liability company or
4surviving other business entity, and if limited liability company
5interests of any of the constituent limited liability companies are
6not to be converted solely into interests, shares, or other securities
7of the surviving limited liability company or surviving other
8business entity, the cash, property, rights, interests, or securities
9that the holders of the limited liability company interests are to
10receive in exchange for the membership interests, the cash,
11property, rights, interests, or securities that may be in addition to
12or in lieu of interests, shares, or other securities of the surviving
13limited liability company or surviving other business entity, or
14that the limited liability company interests are canceled without
15consideration.

16(4) The amendments to the articles of organization of the
17surviving limited liability company, if applicable, to be effected
18by the merger, if any.

19(5) Any other details or provisions that are required by the laws
20under which any constituent other business entity is organized,
21including, if a domestic corporation is a party to the merger, as
22provided in subdivision (b) of Section 1113.

23(6) Any other details or provisions that are desired, including,
24without limitation, a provision for the treatment of fractional
25membership interests.

26(b) (1) Each membership interest of the same class of any
27constituent limited liability company, other than a membership
28interest in another constituent limited liability company that is
29being canceled and that is held by a constituent limited liability
30company or its parent or a limited liability company of which the
31constituent limited liability company is a parent shall, unless all
32members of the class consent, be treated equally with respect to
33any distribution of cash, property, rights, interests, or securities.

34(2) Notwithstanding paragraph (1), except in a merger of a
35limited liability company with a limited liability company that
36controls at least 90 percent of the membership interests entitled to
37vote with respect to the merger, the unredeemable membership
38interests of a constituent limited liability company may be
39converted only into unredeemable interests or securities of the
40surviving limited liability company or other business entity, or a
P42   1parent if a constituent limited liability company or a constituent
2other business entity or its parent owns, directly or indirectly, prior
3to the merger, membership interests of another constituent limited
4 liability company or interests or securities of a constituent other
5business entity representing more than 50 percent of the interests
6or securities entitled to vote with respect to the merger of the other
7constituent limited liability company or constituent other business
8entity or more than 50 percent of the voting power, as defined in
9Section 194.5, of a constituent other business entity that is a
10domestic corporation, unless all of the members of the class
11consent.

12(3) The provisions of this subdivision do not apply to any
13transaction if the commissioner has approved the terms and
14conditions of the transaction and the fairness of those terms
15pursuant to Section 25142.

16(c) Notwithstanding its prior approval, an agreement of merger
17may be amended prior to the filing of the certificate of merger or
18the agreement of merger, as provided in Section 17710.14, if the
19amendment is approved by the managers and members of each
20constituent limited liability company in the same manner as
21required for approval of the original agreement of merger and, if
22the amendment changes any of the principal terms of the agreement
23of merger, the amendment is approved by the managers and
24members of each constituent limited liability company in the same
25manner and to the same extent as required for the approval of the
26original agreement of merger, and by each of the constituent other
27business entities.

28(d) The managers and members of a constituent limited liability
29company may, in their discretion, abandon a merger, subject to
30the contractual rights, if any, of third parties, including other
31constituent limited liability companies and constituent other
32business entities, without further approval by the membership
33interests, at any time before the merger is effective.

34(e) An agreement of merger approved in accordance with
35subdivision (a) may do the following:

36(1) Effect any amendment to the operating agreement of any
37constituent limited liability company.

38(2) Effect the adoption of a new operating agreement for a
39constituent limited liability company if it is the surviving limited
40liability company in the merger. Any amendment to an operating
P43   1agreement or adoption of a new operating agreement made pursuant
2to the foregoing sentence shall be effective at the effective time
3or date of the merger. Notwithstanding the above provisions of
4this subdivision, if a greater number of members is required to
5approve an amendment to the operating agreement of a constituent
6limited liability company than is required to approve the agreement
7of merger pursuant to subdivision (a), and the number of members
8that approve the agreement of merger is less than the number of
9members required to approve an amendment to the operating
10agreement of the constituent limited liability company, any
11amendment to the operating agreement or adoption of a new
12operating agreement of that constituent limited liability company
13made pursuant to the first sentence of this subdivision shall be
14effective only if the agreement of merger provides that all of the
15members shall have the dissenters’ rights provided in Article 11
16(commencing with Section 17711.01).

17(f) The surviving limited liability company or surviving other
18business entity shall keep the agreement of merger at its designated
19office or at the business address specified in paragraph (5) of
20subdivision (a) of Section 17710.14, as applicable, and, upon the
21request of a member of a constituent limited liability company or
22a holder of shares, interests, or other securities of a constituent
23other business entity, the managers or members of the surviving
24limited liability company or the authorized person of the surviving
25other business entity shall promptly deliver to the member or the
26holder of shares, interests, or other securities, at the expense of the
27surviving limited liability company or surviving other business
28entity, a copy of the agreement of merger. A waiver by a member
29or holder of shares, interests, or other securities of the rights
30provided in this subdivision shall be unenforceable.

31

SEC. 21.  

Section 17713.04 of the Corporations Code is
32amended to read:

33

17713.04.  

(a) Except as otherwise provided in subdivisions
34(b) and (c), this title shall apply to all domestic limited liability
35companies existing on or after January 1, 2014, to all foreign
36limited liability companies registered with the Secretary of State
37prior to January 1, 2014, whose registrations have not been
38canceled as of January 1, 2014, to all foreign limited liability
39companies registered with the Secretary of State on or after January
P44   11, 2014, and to all actions taken by the managers or members of
2a limited liability company on or after that date.

3(b) Except as otherwise specified in this title, this title applies
4only to the acts or transactions by a limited liability company or
5 by the members or managers of the limited liability company
6occurring, or an operating agreement or other contracts entered
7into by the limited liability company or by the members or
8managers of the limited liability company, on or after January 1,
92014. The prior law governs all acts or transactions by a limited
10liability company or by the members or managers of the limited
11liability company occurring, and any operating agreement or other
12contracts entered into by the limited liability company or by the
13members or managers of the limited liability company, prior to
14January 1, 2014.

15(c) Any vote or consent by the managers or members of a limited
16liability company prior to January 1, 2014, shall be governed by
17prior law. If a certificate or document is required to be filed in a
18public office of this state relating to a vote or consent by the
19managers or members of the limited liability company prior to
20January 1, 2014, it may be filed after that date pursuant to the filing
21requirements of this title, even though the vote or consent is
22governed by prior law.

23(d) This title does not cancel or otherwise affect the status of,
24or create a new filing requirement with the Secretary of State or
25any other agency, board, commission, or department for, any
26domestic limited liability company in existence on December 31,
272013, or any foreign limited liability company registered to transact
28intrastate business in this state prior to January 1, 2014.

29(e) For the purposes of this section, “prior law” means Title 2.5
30(commencing with Section 17000) as it read on December 31,
312013.

32

SEC. 22.  

Section 17713.12 of the Corporations Code is
33amended to read:

34

17713.12.  

(a) A limited liability company is liable for a civil
35penalty in an amount not exceeding one million dollars
36($1,000,000) if the limited liability company does both of the
37following:

38(1) Has actual knowledge that a member, officer, manager, or
39agent of the limited liability company does any of the following:

P45   1(A) Makes, publishes, or posts, or has made, published, or
2posted, either generally or privately to the members or other
3persons, either of the following:

4(i) An oral, written, or electronically transmitted report, exhibit,
5notice, or statement of its affairs or pecuniary condition that
6contains a material statement or omission that is false and intended
7to give membership shares in the limited liability company a
8materially greater or a materially less apparent market value than
9they really possess.

10(ii) An oral, written, or electronically transmitted report,
11prospectus, account, or statement of operations, values, business,
12profits, or expenditures that includes a material false statement or
13omission intended to give membership shares in the limited liability
14company a materially greater or a materially less apparent market
15value than they really possess.

16(B) Refuses or has refused to make any book entry or post any
17notice required by law in the manner required by law.

18(C) Misstates or conceals or has misstated or concealed from a
19regulatory body a material fact in order to deceive a regulatory
20body to avoid a statutory or regulatory duty, or to avoid a statutory
21or regulatory limit or prohibition.

22(2) Within 30 days after actual knowledge is acquired of the
23actions described in paragraph (1), the limited liability company
24knowingly fails to do both of the following:

25(A) Notify the Attorney General or appropriate government
26agency in writing, unless the limited liability company has actual
27knowledge that the Attorney General or appropriate government
28agency has been notified.

29(B) Notify its members and investors in writing, unless the
30limited liability company has actual knowledge that the members
31and investors have been notified.

32(b) The requirement for notification under this section is not
33applicable if the action taken or about to be taken by the limited
34liability company, or by a member, officer, manager, or agent of
35the limited liability company under paragraph (1) of subdivision
36(a), is abated within the time prescribed for reporting, unless the
37appropriate government agency requires disclosure by regulation.

38(c) If the action reported to the Attorney General pursuant to
39this section implicates the government authority of an agency other
P46   1than the Attorney General, the Attorney General shall promptly
2forward the written notice to that agency.

3(d) If the Attorney General was not notified pursuant to
4subparagraph (A) of paragraph (2) of subdivision (a), but the
5limited liability company reasonably and in good faith believed
6that it had complied with the notification requirements of this
7section by notifying a government agency listed in paragraph (5)
8of subdivision (e), no penalties shall apply.

9(e) For purposes of this section:

10(1) “Manager” means a person defined by subdivision (m) of
11Section 17701.01 having both of the following:

12(A) Management authority over the limited liability company.

13(B) Significant responsibility for an aspect of the limited liability
14company that includes actual authority for the financial operations
15or financial transactions of the limited liability company.

16(2) “Agent” means a person or entity authorized by the limited
17liability company to make representations to the public about the
18limited liability company’s financial condition and who is acting
19within the scope of the agency when the representations are made.

20(3) “Member” means a person as defined by subdivision (o) of
21Section 17701.01 that is a member of the limited liability company
22at the time the disclosure is required pursuant to subparagraph (B)
23of paragraph (2) of subdivision (a).

24(4) “Notify its members” means to give sufficient description
25of an action taken or about to be taken that would constitute acts
26or omissions as described in paragraph (1) of subdivision (a). A
27notice or report filed by a limited liability company with the United
28States Securities and Exchange Commission that relates to the
29facts and circumstances giving rise to an obligation under
30paragraph (1) of subdivision (a) shall satisfy all notice requirements
31arising under paragraph (2) of subdivision (a) but shall not be the
32exclusive means of satisfying the notice requirements, provided
33that the Attorney General or appropriate agency is informed in
34writing that the filing has been made together with a copy of the
35filing or an electronic link where it is available online without
36charge.

37(5) “Appropriate government agency” means an agency on the
38following list that has regulatory authority with respect to the
39financial operations of a limited liability company:

40(A) Department of Corporations.

P47   1(B) Department of Insurance.

2(C) Department of Financial Institutions.

3(D) Department of Managed Health Care.

4(E) United States Securities and Exchange Commission.

5(6) “Actual knowledge of the limited liability company” means
6the knowledge a member, officer, or manager of a limited liability
7company actually possesses or does not consciously avoid
8possessing, based on an evaluation of information provided
9pursuant to the limited liability company’s disclosure controls and
10procedures.

11(7) “Refuse to make a book entry” means the intentional decision
12not to record an accounting transaction when all of the following
13conditions are satisfied:

14(A) The independent auditors required recordation of an
15accounting transaction during the course of an audit.

16(B) The audit committee of the limited liability company has
17not approved the independent auditor’s recommendation.

18(C) The decision is made for the primary purpose of rendering
19the financial statements materially false or misleading.

20(8) “Refuse to post any notice required by law” means an
21intentional decision not to post a notice required by law when all
22of the following conditions exist:

23(A) The decision not to post the notice has not been approved
24by the limited liability company’s audit committee.

25(B) The decision is intended to give the membership shares in
26the limited liability company a materially greater or a materially
27less apparent market value than they really possess.

28(9) “Misstate or conceal material facts from a regulatory body”
29means an intentional decision not to disclose material facts when
30all of the following conditions exist:

31(A) The decision not to disclose material facts has not been
32approved by the limited liability company’s audit committee.

33(B) The decision is intended to give the membership shares in
34the limited liability company a materially greater or a materially
35less apparent market value than they really possess.

36(10) “Material false statement or omission” means an untrue
37statement of material fact or an omission to state a material fact
38necessary in order to make the statements made under the
39circumstances under which they were made not misleading.

P48   1(11) “Officer” means a person appointed pursuant to Section
217703.02, except an officer of a specified subsidiary limited
3liability company who is not also an officer of the parent limited
4liability company.

5(f) This section only applies to limited liability companies that
6are issuers, as defined in Section 2 of the federal Sarbanes-Oxley
7Act of 2002 (15 U.S.C. Sec. 7201 et seq.).

8(g) An action to enforce this section may only be brought by
9the Attorney General or a district attorney or city attorney in the
10name of the people of the State of California.

11begin insert

begin insertSEC. 22.5.end insert  

end insert

begin insertSection 17713.12 of the end insertbegin insertCorporations Codeend insertbegin insert is
12amended to read:end insert

13

17713.12.  

(a) A limited liability company is liable for a civil
14penalty in an amount not exceeding one million dollars
15($1,000,000) if the limited liability company does both of the
16following:

17(1) Has actual knowledge that a member, officer, manager, or
18agent of the limited liability company does any of the following:

19(A) Makes, publishes, or posts, or has made, published, or
20posted, either generally or privately to thebegin delete shareholdersend deletebegin insert membersend insert
21 or other persons, either of the following:

22(i) An oral, written, or electronically transmitted report, exhibit,
23notice, or statement of its affairs or pecuniary condition that
24contains a material statement or omission that is false and intended
25to give membership shares in the limited liability company a
26materially greater or a materially less apparent market value than
27they really possess.

28(ii) An oral, written, or electronically transmitted report,
29prospectus, account, or statement of operations, values, business,
30profits, or expenditures that includes a material false statement or
31omission intended to give membership shares in the limited liability
32company a materially greater or a materially less apparent market
33value than they really possess.

34(B) Refuses or has refused to make any book entry or post any
35notice required by law in the manner required by law.

36(C) Misstates or conceals or has misstated or concealed from a
37regulatory body a material fact in order to deceive a regulatory
38body to avoid a statutory or regulatory duty, or to avoid a statutory
39or regulatory limit or prohibition.

P49   1(2) Within 30 days after actual knowledge is acquired of the
2actions described in paragraph (1), the limited liability company
3knowingly fails to do both of the following:

4(A) Notify the Attorney General or appropriate government
5agency in writing, unless the limited liability company has actual
6knowledge that the Attorney General or appropriate government
7agency has been notified.

8(B) Notify its members and investors in writing, unless the
9limited liability company has actual knowledge that the members
10and investors have been notified.

11(b) The requirement for notification under this section is not
12applicable if the action taken or about to be taken by the limited
13liability company, or by a member, officer, manager, or agent of
14the limited liability company under paragraph (1) of subdivision
15(a), is abated within the time prescribed for reporting, unless the
16appropriate government agency requires disclosure by regulation.

17(c) If the action reported to the Attorney General pursuant to
18this section implicates the government authority of an agency other
19than the Attorney General, the Attorney General shall promptly
20forward the written notice to that agency.

21(d) If the Attorney General was not notified pursuant to
22subparagraph (A) of paragraph (2) of subdivision (a), but the
23limited liability company reasonably and in good faith believed
24that it had complied with the notification requirements of this
25section by notifying a government agency listed in paragraph (5)
26of subdivision (e), no penalties shall apply.

27(e) For purposes of this section:

28(1) “Manager” means a person defined by subdivision (m) of
29Section 17701.01 having both of the following:

30(A) Management authority over the limited liability company.

31(B) Significant responsibility for an aspect of the limited liability
32company that includes actual authority for the financial operations
33or financial transactions of the limited liability company.

34(2) “Agent” means a person or entity authorized by the limited
35liability company to make representations to the public about the
36limited liability company’s financial condition and who is acting
37within the scope of the agency when the representations are made.

38(3) “Member” means a person as defined by subdivision (o) of
39Section 17701.01 that is a member of the limited liability company
P50   1at the time the disclosure is required pursuant to subparagraph (B)
2of paragraph (2) of subdivision (a).

3(4) “Notify its members” means to give sufficient description
4of an action taken or about to be taken that would constitute acts
5or omissions as described in paragraph (1) of subdivision (a). A
6notice or report filed by a limited liability company with the United
7States Securities and Exchange Commission that relates to the
8facts and circumstances giving rise to an obligation under
9paragraph (1) of subdivision (a) shall satisfy all notice requirements
10arising under paragraph (2) of subdivision (a) but shall not be the
11exclusive means of satisfying the notice requirements, provided
12that the Attorney General or appropriate agency is informed in
13writing that the filing has been made together with a copy of the
14filing or an electronic link where it is available online without
15charge.

16(5) “Appropriate government agency” means an agency on the
17following list that has regulatory authority with respect to the
18financial operations of a limited liability company:

19(A) Department ofbegin delete Corporations.end deletebegin insert Business Oversight.end insert

20(B) Department of Insurance.

21(C) Department ofbegin delete Financial Institutions.end deletebegin insert Managed Health Care.end insert

begin delete

22(D) Department of Managed Health Care.

end delete
begin delete

23(E)

end delete

24begin insert(D)end insert United States Securities and Exchange Commission.

25(6) “Actual knowledge of the limited liability company” means
26the knowledge a member, officer, or manager of a limited liability
27company actually possesses or does not consciously avoid
28possessing, based on an evaluation of information provided
29pursuant to the limited liability company’s disclosure controls and
30procedures.

31(7) “Refuse to make a book entry” means the intentional decision
32not to record an accounting transaction when all of the following
33conditions are satisfied:

34(A) The independent auditors required recordation of an
35accounting transaction during the course of an audit.

36(B) The audit committee of the limited liability company has
37not approved the independent auditor’s recommendation.

38(C) The decision is made for the primary purpose of rendering
39the financial statements materially false or misleading.

P51   1(8) “Refuse to post any notice required by law” means an
2intentional decision not to post a notice required by law when all
3of the following conditions exist:

4(A) The decision not to post the notice has not been approved
5by the limited liability company’s audit committee.

6(B) The decision is intended to give the membership shares in
7the limited liability company a materially greater or a materially
8less apparent market value than they really possess.

9(9) “Misstate or conceal material facts from a regulatory body”
10means an intentional decision not to disclose material facts when
11all of the following conditions exist:

12(A) The decision not to disclose material facts has not been
13approved by the limited liability company’s audit committee.

14(B) The decision is intended to give the membership shares in
15the limited liability company a materially greater or a materially
16less apparent market value than they really possess.

17(10) “Material false statement or omission” means an untrue
18statement of material fact or an omission to state a material fact
19necessary in order to make the statements made under the
20circumstances under which they were made not misleading.

21(11) “Officer” means a person appointed pursuant to Section
2217703.02, except an officer of a specified subsidiary limited
23liability company who is not also an officer of the parent limited
24liability company.

25(f) This section only applies to limited liability companies that
26are issuers, as defined in Section 2 of the federal Sarbanes-Oxley
27Act of 2002 (15 U.S.C. Sec. 7201 et seq.).

28(g) An action to enforce this section may only be brought by
29the Attorney General or a district attorney or city attorney in the
30name of the people of the State of California.

31begin insert

begin insertSEC. 23.end insert  

end insert
begin insert

Section 19.5 of this bill incorporates amendments to
32Section 17710.06 of the Corporations Code proposed by both this
33bill and Assembly Bill 1471. It shall only become operative if (1)
34both bills are enacted and become effective on or before January
351, 2016, (2) each bill amends Section 17710.06 of the Corporations
36Code, and (3) this bill is enacted after Assembly Bill 1471, in which
37case Section 19 of this bill shall not become operative.

end insert
38begin insert

begin insertSEC. 24.end insert  

end insert
begin insert

Section 22.5 of this bill incorporates amendments to
39Section 17713.12 of the Corporations Code proposed by both this
40bill and Assembly Bill 1517. It shall only become operative if (1)
P52   1both bills are enacted and become effective on or before January
21, 2016, (2) each bill amends Section 17713.12 of the Corporations
3Code, and (3) this bill is enacted after Assembly Bill 1517, in which
4case Section 22 of this bill shall not become operative.

end insert


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