California's New LLC Law

Beginning in January 2014, newly formed limited liability companies ("LLCs") in California will be formed under a new LLC law. the Revised Uniform Limited Liability Company Act or "RULLCA."  The new law is very significant because many smaller companies use the flexibility of the LLC structure to operate their business.  Among many changes, RULLCA gives new LLCs greater flexibility is curtailing and defining the fiduciary duties their members or managers will be subjected to.  The prior act gave California LLCs and their members substantially less flexibility in eliminating fiduciary obligations as compared to LLCs in other states such as Delaware.  Now, under RULLCA, default fiduciary duties are limited to those duties specified in the acts.  Moreover, even those duties can be curtailed as long as they are not curtailed "unreasonably." The new law gives founding members and managers a greater ability to shield themselves from liability.  On the other hand, investors must be more careful where fiduciary obligations have been sharply limited because those investors will have a significantly lesser ability to protect their interests in court.