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California Operating Agreements Should be Reviewed Due to New Act

Added by Hawley Troxell in Articles & Publications, Business Law on December 3, 2013

As you may recall, in July 2008 the Idaho legislature substantially updated Idaho’s LLC act (referred to as the Revised Uniform Limited Liability Company Act). This update changed some of the LLC default rules and prompted many LLCs to revisit their existing operating agreements to ensure they worked as intended, especially under the new rules. Many times, we found with our clients that even if they didn’t need to change their operating agreements as a result of the new act, their agreements were not exactly what they wanted or needed, and that other changes were prudent.

The new California LLC act will take effect in 2014. Similar to the process we went through in 2008 with respect to Idaho LLCs, those with California LLCs should use this opportunity to revisit their existing operating agreements. For example, your operating agreement may say that the company is manager-managed and the managers owe the company and its members a full suite of fiduciary duties, but in reality you never intended to hold the managers responsible to that degree. Additionally, whether you knew it or not, you may have been relying on certain default rules in the California LLC act that will change with the new act. It is important to understand the new default rules so that you can make a conscious decision whether to opt-out. Those are just a couple of examples and we could go on and on, but for the sake of brevity let’s leave it at this: for questions about the new California LLC act or assistance evaluating your operating agreement, please contact our Business Group or call 208.344.6000.