California Llc No Operating Agreement

The current LLC Act provides that the personal representative of a member`s estate may exercise the rights of the deceased member for the purpose of paying the estate and managing the member`s property, including the member`s power under the enterprise agreement to give a transferee the right to become a member. The current law also provides for these rights for a guardian, curator or other legal representative of an incompetent member. Under the new law, no rights are granted to representatives of an incompetent member. While the personal representative of a deceased member is entitled to all the information to which a member is entitled, the representative also has only the rights of a taker. If members intend to grant representatives the rights available under the 1994 Act, they should amend their enterprise agreement to reflect those rights. The new law also has a standard rule requiring an LLC to reimburse LLC members managed by members and LLC managers for payments made in connection with their activities on behalf of the LLC, provided they have complied with their legal obligations. If members prefer that the refund not be mandatory or that certain conditions are met for members or managers to be entitled to reimbursement (whether fees are approved in advance or do not exceed certain amounts), they should amend the enterprise agreement to end this standard rule. Under the new law, a disassociated member is subject to the same risk as a taker – that members may amend the enterprise agreement to amend the obligations that the LLC or its members owe to the disassociated member. In addition, because of his or her acquirer status, a remote member is no longer entitled to participate in the management or execution of the activities of an LLC. Nor does a remote member have the right to access records or other information about the activities of the LLC, with any other than the right to an accounting from the date of the dissolution of the LLC.

While the new law explicitly enshrines these restricted rights, misreprescing these issues, including the use of inconsistent terminology, could give rise to litigation as to whether the loss of the right to participate in the management of the LLC includes the loss of voting rights. Although the new law explicitly states that takers do not have the right to access information, another provision states that “a holder of a transferable interest” has these rights.

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LORRI WALTERS Realtor®

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