Default Provisions of the New California Limited Liability Company Act Must Be Considered When Drafting Operating Agreements for California LLCs

The new Revised Uniform Limited Liability Company Act (RULLCA) enacted January 1, 2014 will have significant consequences for real estate-related enterprises and other businesses forming limited liability companies in California. Among other provisions, RULLCA places limits on contractual flexibility, creates new default voting requirements for LLC actions, and affirms the rights of judgment creditors to foreclose on LLC interests.

The California Legislature, in enacting RULLCA, has widened the gap between California’s law and the Delaware Limited Liability Company Act, which is the preference of many operators, lenders and institutional investors. Consequently California companies may opt to form their entities in Delaware rather than California, where they would be subject to the various potential pitfalls under RULLCA.