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CALIFORNIA CORPORATE & SECURITIES LAW

More Silliness In California’s Revised Uniform Limited Liability Company Act

Readers will know that I have been a frequent critic of California’s Revised Uniform Limited Liability Company Act, Cal. Corp. Code § 17701.01 et seq. In many cases, it is simply hard to believe that the legislature really intended what it enacted. See, e.g., How Confused Is This? California Defines LLCs Subject To New Law To Include Foreign LLCs. Today’s example of oddball intent is Corporations Code Section 17701.06(c) which provides that California law governs the “authority of the members and agents of a limited liability company”.

That sounds reasonable enough until one focuses the word agent. Suppose, for example, a California LLC establishes a factory in Michigan and hires employees in Michigan.  Did the California legislature really intend that California law would govern out-of-state employment contracts simply because the LLC was organized in California?  Note that Section 17701.06(c) is at odds with Section 291 of the Restatement (Second) Conflict of Laws.  Section 291 requires the rights and duties of a principal and agent toward each other are determined by the local law of the state which, with respect to the particular issue, has the most significant relationship to the parties and the transaction under the principles stated in Section 6 of the Restatement.  Under Section 6, a court should follow the statutory directive of its own state on choice of law.

Although the CARULLCA was based on the Uniform Limited Liability Company Act drafted by the National Conference of Commissioners on Uniform State Laws, Section 17701.06(c) cannot be blamed on the NCCUSL.  Section 104 of the Uniform Act does not purport to apply the law of organization to the authority of agents.

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