PLLC Proposes Changes to California LLC Law

The Partnership and LLCs Committee (“PLLC”) will propose amendments to two sections of the California Revised Uniform Limited Liability Company Act (“RULLCA”). The proposed amendments will clarify how an otherwise dissolved (canceled) LLC may continue to exist for purposes of distributing its assets and paying off its liabilities, if needed, after a certificate of cancellation has been filed.

A proposed amendment to these sections of RULLCA was previously proposed in the former SB1305, introduced by Assembly member Jay Obernolte. PLLC has prepared an alternative amendment to address this matter. 

Specifically, the amendments proposed by PLLC to Sections 17707.06 and 17707.08 of the Corporations Code are as follows (in italicized underlined text):

I. California Corporations Code Section 17707.06.

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

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

(c)        Any assets inadvertently or otherwise omitted from the winding up continue in the canceled limited liability company for the benefit of the persons entitled to those assets upon cancellation and on realization shall be distributed accordingly.  Any manager of a limited liability company which has filed a certificate of cancellation of a manager-managed limited liability company or a majority of the members of a member-managed limited liability company which has filed a certificate of cancellation of a member-managed limited liability company may distribute the assets or pay the liabilities of the limited liability company.

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

1. The act of a person authorized to wind up the affairs of the limited liability company, if the act is appropriate for winding up the activities of the limited liability company.
2. The act of a person authorized to act on behalf of the limited liability company, if the act would have bound the limited liability company before cancellation, if the other party to the transaction did not have notice of the cancellation.

This proposed amendment to Section 17707.06(c) of the Corporations Code clarifies who may act on behalf of a dissolved (canceled) limited liability company that has filed a Certificate of Cancellation with the Secretary of State.

Rationale for the Change

This revision to Section 17707.06(c) clarifies who may act on behalf of a dissolved (canceled) limited liability company that has filed a certificate of cancellation with the Secretary of State.

II.        California Corporations Section 17707.08.           

(a)(1) The managers shall sign and cause to be filed in the office of, and on a form prescribed by, the Secretary of State, a certificate of dissolution upon the dissolution of the limited liability company pursuant to Article 7 (commencing with Section 17707.01), unless the event causing the dissolution is that specified in subdivision (c) of Section 17707.01, in which case the persons conducting the winding up of the limited liability company’s affairs pursuant to Section 17707.04 shall have the obligation to sign and cause to be filed the certificate of dissolution.

(2)        The certificate of dissolution shall set forth all of the following:

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

(B)       Any other information the persons filing the certificate of dissolution determine to include.

(C)       The event listed in Section 17707.01 causing dissolution.

(3)        If a dissolution pursuant to subdivision (b) of Section 17707.01 is made by the vote of all of the members and a statement to that effect is added to the certificate of cancellation of articles of organization pursuant to subdivision (b), the separate filing of a certificate of dissolution pursuant to this subdivision is not required.

(b)        (1) The managers shall sign and cause to be filed in the office of, and on a form prescribed by, 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 pursuant to Section 17707.06, unless the event causing the dissolution is that specified in subdivision (c) of Section 17707.01, in that case the persons conducting the winding up of the limited liability company’s affairs pursuant to Section 17707.04 shall have the obligation to sign and cause to be filed the certificate of cancellation of articles of organization.

(2)        The certificate of cancellation of articles of organization shall set forth all of the following:

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

(B)       That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, or a final annual tax return, as described by Section 17947 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.

(C)       Except as provided in Section 17707.06, that upon the filing of the certificate of cancellation, the limited liability company shall be canceled and its powers, rights, and privileges shall cease.

(D)       Any other information the persons filing the certificate of cancellation of articles of organization determine to include.

(3)        The Secretary of State shall notify the Franchise Tax Board of the filing.

(c)        Upon filing a certificate of cancellation pursuant to subdivision (b), a limited liability company shall be canceled and its powers, rights, and privileges shall cease.

Rationale for The Change

This proposed revision to Section 17707.08(b)(2)(C) of the Corporations Code clarifies how and to what extent a dissolved (canceled) limited liability company may continue its existence after having filed a certificate of cancellation with the Secretary of State.  

Comments Welcomed

PLLC welcomes public comments on the draft bill. Comments and questions can be submitted to Chris Chediak (Chair, PLLC) at chediak@weintraub.com.

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This eBulletin was prepared by Monica Lin at CEO Law, Inc. (lin@CEOFirm.com)