Website Heading

CALIFORNIA CORPORATE & SECURITIES LAW

If It’s An LLC, Why Cite Corporate Law?

I continue to be surprised when courts refer to state laws governing corporations when the subject entity is a limited liability company.  A recent example of this confusion can be found in Piatelli Co. v. Chambers, 2014 U.S. Dist. LEXIS 1556 (D. Nev. Jan. 7, 2014).  That case involved a dispute over whether an agreement had been approved by the members of an LLC.  The operating agreement provided:

No annual or regular meetings of the Members are required to be held. However, if such meetings are held, such meetings will be noticed, held and conducted pursuant to the Act. In any instance in which the approval of the Members is required under this Agreement, such approval may be obtained in any manner permitted by the Act, except that proxies shall not be allowed.  Unless otherwise provided in this Agreement, approval of the Members will mean the approval of a Majority vote of the Members.

Another provision of the operating agreement specified that the term “Act” refers to the Beverly Killea Limited Liability Act, Cal. Corp. Code § 17000, et seq.  Because Section 17001 defined “vote” to include action by written consent, the Court found that the disputed agreement had been approved under California law when it was signed by four of the five members of the LLC.  California’s current LLC law includes a similar definition.  Cal. Corp. Code § 17701.02(ac).

The Court, however, also considered whether the same result obtained under Nevada law.  Here is where I believe the opinion ran off the rails.  The Court stated “Nevada’s analogous statute likewise defines “vote” to include actions constituting “written consent” citing  NRS § 78.010(1)(a).  That statute, however, is part of Chapter 78 of Nevada Revised Statutes which governs corporations.  Nevada’s statutes governing LLCs are found in Chapter 86 and that chapter does not define “vote”.  In fact, there is some evidence that the Nevada legislature did not equate “vote” with written consent.  NRS 86.286(1) provides in part: “An operating agreement may be adopted only by the unanimous vote or unanimous written consent of the members . . .” (emphasis added).

For more on Nevada LLC law, see my book, Bishop & Zucker on Nevada Corporations and Limited Liability Companies.

As a reminder, I’ll be joining former Governor Gray Davis and Delaware lawyer Rolin Bissell in speaking next Friday at the 2014 Annual Delaware & California Law Update Symposium (Formerly Known as the Glendon Tremaine Symposium).

Share on:

ANY QUESTIONS REGARDING CALIFORNIA CORPORATE AND SECURITIES LAW? CONTACT US DIRECTLY

We offer expert advice with the intricacies of California law.

Our years of experience and expertise allow us to help clients navigate the business laws in California.

CONTACT US

Get the latest news and analysis about California Corporate & Securities law. Subscribe to our newsletter today!

Related Articles