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CALIFORNIA CORPORATE & SECURITIES LAW

California’s New RULLCA Provides Ample Potential For Member Liability

Recently, I wrote about Corporations Code Section 17703.04(a) which in singularly inept fashion attempts to establish the non-liability of members of a limited liability company under the California’s new Revised Uniform Limited Liability Company Act.  Whatever principle Section 17703.04(a) may be trying to enunciate, it’s clear that the new act provides ample opportunity for member liability, including the following:

  • Liability to persons who suffer loss by reliance on inaccurate information in a record delivered to the Secretary of State (Cal. Corp. Code § 17702.07);
  • Liability for contributions (Cal. Corp. Code § 17704.03);
  • Liability for improper distributions (Cal. Corp. Code § 17704.06);
  • Liability for return of distributed assets following dissolution (Cal. Corp. Code § 17707.07); and
  • Liability for failure to execute or file document (Cal. Corp. Code § 17713.06).

Of course, the “mother of all potential liabilities” for members of a California LLC  is the potential for alter ego liability pursuant Section 17703.04(b).  As to this last point, UCLA Law School Professor Stephen Bainbridge argues in a recent paper that veil piercing in LLCs is “hopelessly dysfunctional” and that encourages “inefficient investment in irrelevant precautions, while encouraging expensive and complex litigation”.  His paper, Abolishing LLC Veil Piercing, can be downloaded here.

 

 

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