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Forming and Operating California Limited Liability Companies

The essential practice guide to organize and operate limited liability companies under California’s LLC Act.

The essential practice guide to organize and operate limited liability companies under California’s LLC Act.

  • Complete coverage of California’s LLC law
  • Expert advice on structuring a California LLC
  • Tax considerations
  • Annotated long-form, short-form, and single-member operating agreements
  • Operating an LLC; operating a foreign LLC in California
  • Issuing and transferring membership interests
  • Conversions and mergers; series LLCs
  • Liquidating and dissolving LLCs
  • Helpful citations and concordance tables linking current and prior law, as well as Delaware law
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The essential practice guide to organize and operate limited liability companies under California’s LLC Act.

  • Complete coverage of California’s LLC law
  • Expert advice on structuring a California LLC
  • Tax considerations
  • Annotated long-form, short-form, and single-member operating agreements
  • Operating an LLC; operating a foreign LLC in California
  • Issuing and transferring membership interests
  • Conversions and mergers; series LLCs
  • Liquidating and dissolving LLCs
  • Helpful citations and concordance tables linking current and prior law, as well as Delaware law

1

Overview of California Limited Liability Companies

Richard G. Burt

  • I.  INTRODUCTION
    • A.  Scope and Purposes of Book  1.1
    • B.  Limited Liability Company Basics
      • 1.  What Is a Limited Liability Company?  1.2
      • 2.  Formation  1.3
      • 3.  Advantages of LLC Form Over Limited Partnership and S Corporation Forms  1.4
        • a.  Advantages Over Limited Partnership  1.5
        • b.  Advantages Over S Corporation  1.6
  • II.  OVERVIEW OF CALIFORNIA’S LLC ACT
    • A.  History  1.7
    • B.  Comparison of RULLCA and Beverly-Killea  1.8
    • C.  Applicability to Existing LLCs  1.9
    • D.  Purpose  1.10
    • E.  Powers  1.11
    • F.  Default Rules  1.12
    • G.  Articles of Organization  1.13
    • H.  Operating Agreement  1.14
    • I.  Members Not Personally Liable  1.15
    • J.  Capital Contributions  1.16
    • K.  Profits and Losses  1.17
    • L.  Distributions  1.18
    • M.  State Taxes and Fees  1.19
    • N.  Management  1.20
    • O.  Voting Rights  1.21
    • P.  Fiduciary Duties, Good Faith, and Exculpation  1.22
    • Q.  Membership Interest  1.23
    • R.  Transferable Interest  1.24
    • S.  Transferee’s Lack of Rights  1.25
    • T.  LLC With Natural Person as Sole Member  1.26
    • U.  Right to Information  1.27
    • V.  Securities Laws  1.28
    • W.  Expulsion  1.29
    • X.  Dissociation  1.30
      • 1.  Events of Dissociation  1.31
      • 2.  Consequences of Dissociation  1.32
    • Y.  Dissolution and Winding Up  1.33
    • Z.  Mergers and Reorganizations  1.34
    • AA.  Statutory Conversions  1.35
    • AB.  Foreign LLCs  1.36
  • III.  LESS SUITABLE BUSINESSES FOR LLC FORM  1.37

2

Establishing the Attorney-Client Relationship

Paul J. Derenthal

  • I.  SCOPE OF CHAPTER  2.1
  • II.  ETHICAL ISSUES IN REPRESENTING BUSINESS ORGANIZATIONS
    • A.  Gathering Information to Determine Whether Representation Is Appropriate  2.2
    • B.  Assessing Attorney’s Professional Competence to Represent Client  2.3
    • C.  Identifying Potential Conflicts of Interest
      • 1.  Conflicts Among Parties  2.4
        • a.  Inherent Conflict in LLC Between Active and Passive Managers and Members  2.5
        • b.  When Multiple Representation Is Inappropriate  2.6
        • c.  Representation of the Entity  2.6A
      • 2.  Conflicts Between Attorney and Client
        • a.  Disclosure and Consent Requirements  2.7
        • b.  Conflicts When Attorney Serves as Both Counselor to and Officer of Entity  2.8
  • III.  ESTABLISHING SCOPE OF ATTORNEY’S ROLE
    • A.  Broad Range of Potential Responsibilities  2.9
      • 1.  Maintaining Lines of Communication  2.10
      • 2.  Providing Business Advice as Well as Legal Counsel  2.11
    • B.  Compensation Issues
      • 1.  Formal Requirements of Agreement  2.12
      • 2.  Engagement Letter
        • a.  Purpose and Contents  2.13
        • b.  Statutory Requirements Governing Fee Agreements  2.14
  • IV.  ATTORNEY-CLIENT AGREEMENTS AND CONSENTS TO REPRESENTATION
    • A.  Form: Conflicts Letter and Written Consent  2.15
    • B.  Form: Engagement Agreement for Hourly Rate  2.16

3

Choosing the Appropriate Business Entity

Christopher A. Karachale

Dale E. Short

Martin T. Goldblum

Dietrick L. Miller

  • I.  SCOPE OF CHAPTER  3.1
  • II.  OVERVIEW: CHOOSING FROM ALTERNATIVE FORMS OF ENTITIES  3.2
    • A.  Sole Proprietorship  3.3
    • B.  Corporation (Including S Corporation)  3.4
    • C.  General Partnership  3.5
    • D.  Limited Partnership  3.6
    • E.  Limited Liability Partnership  3.7
    • F.  Limited Liability Company  3.8
  • III.  CONSIDERATIONS IN SELECTING THE MOST APPROPRIATE FORM OF ENTITY
    • A.  Ease or Difficulty of Formation; Transaction Costs  3.9
      • 1.  Corporation  3.10
      • 2.  General Partnership  3.11
      • 3.  Limited Liability Partnership  3.11A
      • 4.  Limited Partnership  3.12
      • 5.  Limited Liability Company  3.13
    • B.  Federal Income Tax Considerations  3.14
      • 1.  Classification of Entities for Tax Purposes  3.15
      • 2.  Tax Consequences of Formation  3.16
        • a.  Contributions of Cash  3.17
        • b.  Contributions of Property  3.18
        • c.  Contributions of Services  3.19
      • 3.  Taxation of the Entity and Its Owners
        • a.  C Corporations
          • (1)  Entity-Level Tax; Double Taxation  3.20
          • (2)  Inability to Utilize Losses  3.21
          • (3)  Passive Activity Loss Rules; At-Risk Rules  3.22
          • (4)  Method of Accounting  3.23
          • (5)  Taxable Year  3.24
        • b.  S Corporation  3.25
          • (1)  Pass-Through Entity  3.26
          • (2)  Requirements to Qualify as an S Corporation  3.27
          • (3)  Distributions to Shareholders  3.28
          • (4)  At-Risk Rules; Passive Activity Loss Rules  3.29
          • (5)  Method of Accounting  3.30
          • (6)  Taxable Year  3.31
          • (7)  Differing Tax Treatment Between Partnership and S Corporation  3.32
            • (a)  No Special Allocations; Only One Class of Stock  3.33
            • (b)  Debt Does Not Increase Basis in Stock  3.34
            • (c)  No IRC §754 Election  3.35
            • (d)  Gain Recognized on Contribution of Appreciated Property  3.36
            • (e)  Gain Recognized on Distributions of Appreciated Property  3.37
        • c.  Partnership
          • (1)  Pass-Through Entity  3.38
          • (2)  Distributions  3.39
          • (3)  Special Allocations  3.40
          • (4)  Debt Increases Basis  3.41
          • (5)  Section 754 Election  3.42
          • (6)  At-Risk Rules  3.43
          • (7)  Passive Activity Loss Rules  3.44
          • (8)  Termination of Partnership for Tax Purposes  3.45
          • (9)  Method of Accounting  3.46
          • (10)  Taxable Year  3.47
        • d.  Limited Liability Company
          • (1)  Pass-Through Entity  3.48
          • (2)  Distributions  3.49
          • (3)  Application of Partnership Tax Rules to LLCs  3.50
      • 4.  Taxation on Disposition of Interests and Liquidation
        • a.  Corporation  3.51
        • b.  Partnership  3.52
        • c.  Limited Liability Company  3.53
    • C.  State Tax Considerations
      • 1.  Corporation  3.54
      • 2.  S Corporation  3.55
      • 3.  Partnership  3.56
      • 4.  Limited Liability Company  3.57
    • D.  Other Tax Considerations
      • 1.  Self-Employment Income  3.58
      • 2.  Fringe Benefits
        • a.  Corporation  3.59
        • b.  S Corporation  3.60
        • c.  Partnership  3.61
        • d.  Limited Liability Company  3.62
      • 3.  Employment Taxes
        • a.  Corporation  3.63
        • b.  S Corporation   3.63A
        • c.  Partnership  3.63B
        • d.  Limited Liability Company  3.63C
    • E.  Management and Control
      • 1.  Corporation  3.64
      • 2.  General Partnership  3.65
      • 3.  Limited Liability Partnership  3.65A
      • 4.  Limited Partnership  3.66
      • 5.  Limited Liability Company  3.67
    • F.  Liability of Owners for Business Obligations
      • 1.  Corporation  3.68
      • 2.  General Partnership  3.69
      • 3.  Limited Liability Partnership  3.69A
      • 4.  Limited Partnership  3.70
      • 5.  Limited Liability Company  3.71
    • G.  Transferability of Interests; Liquidity  3.72
      • 1.  Corporation  3.73
      • 2.  General Partnership and Limited Liability Partnership  3.74
      • 3.  Limited Partnership  3.75
      • 4.  Limited Liability Company  3.76
    • H.  Ease of Raising Capital
      • 1.  Corporation  3.77
      • 2.  General Partnership  3.78
      • 3.  Limited Liability Partnership  3.78A
      • 4.  Limited Partnership  3.79
      • 5.  Limited Liability Company  3.80
    • I.  Continuity of Business  3.81
      • 1.  Corporation  3.82
      • 2.  General Partnership and Limited Liability Partnership  3.83
      • 3.  Limited Partnership  3.84
      • 4.  Limited Liability Company  3.85
    • J.  Other Factors Influencing the Choice of Entity
      • 1.  Fiduciary Duties
        • a.  Corporation  3.86
        • b.  General Partnership and Limited Liability Partnership  3.87
        • c.  Limited Partnership  3.87A
        • d.  Limited Liability Company  3.88
      • 2.  Interstate Transactions  3.89
      • 3.  Anonymity of Owners  3.90
      • 4.  Estate Planning for Families  3.91
      • 5.  Restrictions on Type of Business  3.92
  • IV.  CHOOSING THE STATE OF ORGANIZATION OF THE LIMITED LIABILITY COMPANY  3.93
    • A.  Additional Costs of Foreign LLCs  3.94
    • B.  Advantages of a Delaware LLC  3.95
    • C.  Possible Disadvantages of a Delaware LLC  3.95A
    • D.  Advantages of Other States’ LLCs  3.96
  • V.  SUMMARY: WHEN TO USE AN LLC; WHEN NOT TO USE AN LLC
    • A.  Comparative Advantages
      • 1.  C Corporation Versus LLC  3.97
      • 2.  S Corporation Versus LLC  3.98
      • 3.  Partnership Versus LLC  3.99
      • 4.  Limited Partnership Versus LLC  3.100
    • B.  Real Estate Investments, Joint Ventures, Venture Capital  3.101
  • VI.  CHARTS: COMPARISON OF ENTITIES
    • A.  Business Factors  3.102
    • B.  Tax Factors  3.103

3A

Organizational Checklist for a Limited Liability Company

  • I.  Organizational Checklist for Limited Liability Company
    • A.  Introductory Comment  3A.1
    • B.  Organizational Checklist for Limited Liability Company  3A.2

4

Tax Issues in Forming the Limited Liability Company

Phillip L. Jelsma

  • I.  SCOPE OF CHAPTER  4.1
  • II.  CLASSIFICATION OF LLC FOR FEDERAL TAX PURPOSES  4.2
    • A.  Federal Check-the-Box Regulations  4.3
    • B.  Classification Process  4.4
    • C.  Making an Election  4.5
    • D.  Foreign Business Entities  4.6
    • E.  Single-Member Entities  4.7
    • F.  When Taxation as Corporation May Be Beneficial  4.8
    • G.  Form: Entity Classification Election (IRS Form 8832)  4.9
    • H.  Diagram: Tax Classification  4.10
  • III.  CLASSIFICATION OF LLC FOR CALIFORNIA TAX PURPOSES  4.11
    • A.  California Check-the-Box Regulations  4.12
    • B.  Treatment of Existing Entities  4.13
    • C.  Changing Classification  4.14
    • D.  Foreign Eligible Entities  4.15
    • E.  Single-Member Entities  4.16
  • IV.  TAX EFFECT OF MEMBERS’ CONTRIBUTIONS TO LLC  4.17
    • A.  Tax Treatment of Member
      • 1.  General Rule: No Gain or Loss on Contribution  4.18
        • a.  Contribution of Services in Exchange for LLC Interest  4.19
        • b.  Gain Recognized if Contribution Is Disguised Sale  4.20
        • c.  Potential Gain if LLC Assumes Member’s Liabilities  4.21
        • d.  Member’s Basis  4.22
      • 2.  LLC Taxed as Corporation  4.23
    • B.  Tax Treatment of the Entity
      • 1.  General Rule: No Gain or Loss on Receipt of Contribution  4.24
      • 2.  LLC Taxed as Corporation  4.25
    • C.  Taxes Incurred on Transfer of Real and Personal Property
      • 1.  Sales Tax  4.26
        • a.  Transfer of Property for First Issue of Membership Interests  4.27
        • b.  Other Transfers of Property by Member  4.28
        • c.  Transfers of 80 Percent of Business  4.29
      • 2.  Property Taxes  4.30
      • 3.  Documentary Transfer Tax  4.31
  • V.  TAX IMPACT ON INDIVIDUAL MEMBERS  4.32
    • A.  IRC §199A: 20 Percent Deduction on Qualified Business Income  4.32A
      • 1.  Who Is Entitled to the Deduction?  4.32B
      • 2.  What Is a Qualified Business?  4.32C
      • 3.  Exclusions From Qualified Business Income  4.32D
      • 4.  Limitation Based on W-2 Wages Paid  4.32E
      • 5.  Limitation Based on Taxable Income  4.32F
      • 6.  Income Below a Certain Level  4.32G
      • 7.  Example of the Benefit of the Deduction  4.32H
      • 8.  Impact of the Deduction  4.32I
      • 9.  Summary of IRC §199A  4.32J
    • B.  Income Tax Rates  4.33
    • C.  Compensation of Members: Employment or Self-Employment Taxes  4.34
    • D.  Medicare Contribution Tax  4.34A
    • E.  Members’ Ability to Use Business Losses  4.35
    • F.  Estate Planning With LLCs  4.36
      • 1.  Value of LLC Interest May Be Based on Discounted Liquidation Value  4.37
      • 2.  LLC as General Partner of Family Limited Partnership  4.38
      • 3.  LLC as Alternative to Family Limited Partnership  4.39

5

Taxation of LLC Operations

Phillip L. Jelsma

  • I.  SCOPE OF CHAPTER  5.1
  • II.  APPLICATION OF PARTNERSHIP TAX RULES TO LLCs  5.2
  • III.  CALIFORNIA TAXATION
    • A.  Follows Federal Law in Taxing LLC Classified as Partnership  5.3
    • B.  California Taxes and Fees  5.4
      • 1.  Former Fee on Total Income Unconstitutional  5.4A
      • 2.  Legislative Response: Amended Rev & T C §17942  5.4B
      • 3.  Calculating and Paying Statutory Fee  5.5
      • 4.  Suspension and Revivor  5.5A
      • 5.  Nonresident Member’s Tax  5.6
  • IV.  TAX ACCOUNTING
    • A.  Pass-Through Treatment  5.7
    • B.  Computing Taxable Income
      • 1.  Income Computed at Entity Level  5.8
      • 2.  Disallowed Deductions  5.9
      • 3.  Separately Stated Items  5.10
      • 4.  Bankruptcy Exception; Cancellation of Indebtedness Income  5.10A
    • C.  Selecting Tax Year  5.11
    • D.  Selecting Method of Accounting  5.12
      • 1.  If C Corporation Is a Member  5.13
      • 2.  If LLC Is a Tax Shelter  5.14
    • E.  Elections Affecting Computation of Taxable Income
      • 1.  Elections Made by the LLC  5.15
      • 2.  Elections Made by LLC Members  5.16
      • 3.  Partnership Audits and Adjustments; Election Out  5.16A
    • F.  Federal and State Income Tax Reporting Requirements
      • 1.  IRS Form 1065; Schedule K-1 (1065)  5.17
      • 2.  FTB Forms 568, 3522, 3832; Schedule K-1 (568)  5.18
    • G.  Withholding Taxes of Foreign and Nonresident Members
      • 1.  Withholding of Federal Taxes on Foreign Member’s Distributive Share  5.19
      • 2.  Withholding of California Taxes on Foreign and Domestic Nonresident’s Distributive Share
        • a.  Foreign Nonresidents  5.20
        • b.  Domestic Nonresidents  5.21
    • H.  Tax Matters Partner; Partnership Representative  5.22
  • V.  MEMBER’S BASIS IN AN LLC INTEREST
    • A.  Purposes of Calculation  5.23
    • B.  Determining Member’s Initial Basis
      • 1.  Acquisition by Capital Contribution  5.24
      • 2.  Acquisition by Purchase of an LLC Interest  5.25
      • 3.  Acquisition by Gift  5.26
      • 4.  Acquisition by Inheritance  5.27
    • C.  Adjustments to Member’s Basis
      • 1.  Increases in Basis  5.28
      • 2.  Decreases in Basis  5.29
    • D.  Effect of LLC Liabilities on Member’s Basis  5.30
      • 1.  Increase and Decrease in Member’s Share of LLC Liabilities Reflected in Basis  5.31
      • 2.  Determining a Member’s Share of LLC Liabilities  5.32
        • a.  Recourse Liabilities  5.33
        • b.  Nonrecourse Liabilities  5.34
  • VI.  MEMBER’S DISTRIBUTIVE SHARE
    • A.  Significance of Distributive Shares  5.35
    • B.  Determining a Member’s Distributive Share  5.36
      • 1.  Allocations With Substantial Economic Effect  5.37
        • a.  Capital Account Maintenance  5.38
        • b.  Liquidating Distributions  5.39
        • c.  Capital Account Deficit Restoration Requirement  5.40
        • d.  Qualified Income Offset  5.41
        • e.  Substantiality of Economic Effects  5.42
      • 2.  Allocation in Accordance With Member’s Interest in the LLC  5.43
      • 3.  Special Rules for Allocations of Nonrecourse Deductions  5.44
        • a.  Safe Harbor Test  5.45
        • b.  Minimum Gain Chargeback  5.46
      • 4.  Allocations of Precontribution Gain, Loss, and Deduction  5.47
        • a.  Allocations of Built-In Gain or Loss  5.48
        • b.  Allocations of Cost Recovery Deductions  5.49
        • c.  Ceiling Limitation and “Small Disparity” Rule  5.50
    • C.  Allocations Relating to Family LLCs  5.51
      • 1.  Donating an LLC Interest to a Family Member  5.52
      • 2.  When Donee Recognized as Member of the LLC  5.53
    • D.  Limitations on Deductibility of a Member’s Share of LLC Losses  5.54
      • 1.  Basis Limitation  5.55
      • 2.  At-Risk Limitation  5.56
      • 3.  Passive Loss Limitation  5.57
  • VII.  CURRENT DISTRIBUTIONS TO A MEMBER
    • A.  Member’s Recognition of Gain and Loss  5.58
      • 1.  Distributions of Cash  5.59
      • 2.  Distributions of Other Assets  5.60
        • a.  Distributions That Alter a Member’s Interest in IRC §751 Property  5.61
        • b.  Distributions That Alter Members’ Shares of LLC Liabilities  5.62
        • c.  Distributions Relating to Built-In Gain Property  5.63
        • d.  Distributions Treated as Disguised Sales  5.64
        • e.  Distributions of Property Subject to Depreciation and Investment Credit Recapture
          • (1)  Depreciation Carries Over  5.65
          • (2)  Investment Credit Recapture  5.66
    • B.  Member’s Basis in LLC Interest and Distributed Property
      • 1.  Basis for LLC Membership Interest  5.67
      • 2.  Basis for Distributed Property  5.68
    • C.  Holding Period for Distributed Property  5.69
  • VIII.  LIQUIDATING PAYMENTS TO A MEMBER  5.70
    • A.  When Payments Are Liquidating Payments  5.71
    • B.  Payments for LLC Property  5.72
    • C.  All Other Payments  5.73
    • D.  Close of Taxable Year With Respect to Withdrawing Member  5.74
  • IX.  SALES AND EXCHANGES OF LLC INTERESTS
    • A.  Liquidating Payments Distinguished From Sales Proceeds  5.75
    • B.  Tax Consequences to Selling Member
      • 1.  Amount of Gain or Loss  5.76
      • 2.  Character of Gain or Loss  5.77
      • 3.  Suspended Losses  5.78
    • C.  Tax Consequences to Purchaser  5.79
    • D.  Allocation of LLC Tax Items  5.80
    • E.  Tax Consequences to LLC and Remaining Members  5.81
  • X.  LLC TRANSACTIONS WITH MEMBERS
    • A.  Distributions Treated Differently From Other LLC Payments to Members  5.82
      • 1.  Payments to Member Acting in Nonmember Capacity  5.83
      • 2.  Payments to Member Acting in Member Capacity  5.84
    • B.  Self-Employment Tax  5.85
    • C.  LLC Member/Employees in Two-Tier Entities  5.85A
    • D.  Medicare Contribution Tax  5.85B
  • XI.  TAX TERMINATIONS
    • A.  Distinguished From Dissolution  5.86
    • B.  Method of Tax Termination
      • 1.  Cessation of Business  5.87
      • 2.  Sale or Exchange of 50 Percent Interest in LLC Capital and Profits [Repealed]  5.88
    • C.  Effect of Tax Termination on Members  5.89

6

Nontax Factors in Structuring the Limited Liability Company

Allan B. Duboff

  • I.  SCOPE OF CHAPTER  6.1
  • II.  DOES LLC FORMATION SERVE THE CLIENT’S INTERESTS?
    • A.  Taking Client’s Existing Business Arrangements Into Account  6.2
    • B.  Weighing Compatibility of Client’s Goals With California LLC Act
      • 1.  Limitations on Purpose or Business  6.3
      • 2.  Incorporating Act’s Provisions Into Operating Agreement  6.4
      • 3.  Freedom of Contract Afforded by Act’s Default Provisions  6.5
      • 4.  RULLCA’s Mandatory Provisions  6.6
  • III.  MANAGEMENT
    • A.  By Members  6.7
    • B.  By Manager
      • 1.  Number of Managers  6.8
      • 2.  Method of Management  6.9
      • 3.  Qualifications  6.10
      • 4.  Election  6.11
      • 5.  Vacancies  6.12
      • 6.  Removal  6.13
      • 7.  Resignation  6.14
      • 8.  Limitations on Management Authority  6.15
    • C.  Officers  6.16
    • D.  Compensation  6.17
  • IV.  MEMBERS’ RIGHTS
    • A.  Rights That Cannot Be Modified  6.18
    • B.  Amendment of Articles or Operating Agreement  6.19
    • C.  Transfers of Membership Interests  6.20
    • D.  Other Rights  6.21
    • E.  Dissociation of Member  6.22
    • F.  Method of Determining Voting Approval  6.23
  • V.  LIABILITY
    • A.  Liability to Third Parties
      • 1.  Members
        • a.  General Rule  6.24
        • b.  Alter Ego Doctrine  6.25
          • (1)  Reason for Invoking Doctrine  6.26
          • (2)  Two-Pronged Test  6.27
          • (3)  Typical Fact Patterns  6.28
          • (4)  Source and Adequacy of Funding  6.29
          • (5)  Segregation of Personal and Company Affairs  6.30
          • (6)  Observing Formalities  6.31
        • c.  Forced Contributions  6.32
        • d.  Return of Improper Distributions  6.33
        • e.  After Dissolution  6.34
      • 2.  Managers  6.35
    • B.  Liability to Members and Company
      • 1.  Fiduciary Duties of Managers or Members of a Member-Managed LLC  6.36
        • a.  Duty of Loyalty  6.37
        • b.  Duty of Care  6.38
        • c.  Obligation of Good Faith and Fair Dealing  6.39
      • 2.  Fiduciary Duties of Members Who Are Not Managers  6.40
      • 3.  Liability for Consenting to Improper Distributions  6.41
    • C.  Indemnification  6.42
    • D.  Insurance  6.43
  • VI.  CAPITAL STRUCTURE
    • A.  Number and Type of Member Classes  6.44
    • B.  Admission of New Members  6.45
  • VII.  FINANCE
    • A.  Initial Capital Contributions  6.46
    • B.  Additional Funding
      • 1.  No Requirement for Members to Make Additional Contributions  6.47
      • 2.  Additional Capital Contributions  6.48
      • 3.  Borrowing Options  6.49
    • C.  Failure to Make Required Contributions  6.50
      • 1.  Collection Action  6.51
      • 2.  Additional Remedies  6.52
  • VIII.  DISTRIBUTIONS
    • A.  Constraints on LLC’s Ability to Make Distributions  6.53
    • B.  Liability for Consenting to and Receiving Improper Distributions
      • 1.  Consenting to Improper Distributions  6.54
      • 2.  Receipt of Improper Distributions  6.55
    • C.  Types of Distributions  6.56
    • D.  Distributions in Kind  6.57
    • E.  Method of Determining Distributions  6.58
  • IX.  DISSOCIATION OF MEMBER  6.59
    • A.  Dissociation Events  6.60
    • B.  Wrongful Dissociation  6.61
    • C.  Status Following Dissociation  6.62
  • X.  TRANSFER OF MEMBERSHIP INTERESTS
    • A.  Restrictions on Transfer
      • 1.  Statutory Restrictions  6.63
      • 2.  Contractual Restrictions  6.64
    • B.  Effects of Transfer  6.65
    • C.  Noncompetition  6.66

7

Filing Requirements for Forming a Limited Liability Company

Richard G. Burt

  • I.  SCOPE OF CHAPTER  7.1
  • II.  PRELIMINARY MATTERS
    • A.  Selection of Name  7.2
      • 1.  Mandatory and Prohibited Elements of Name  7.3
      • 2.  “Distinguishable in the Records of the Secretary of State”  7.4
      • 3.  Name Not Likely to Mislead  7.5
      • 4.  Name Availability Search  7.6
      • 5.  “Prepay” Accounts for Checking LLC Names  7.7
      • 6.  Reservation of Name  7.8
      • 7.  Form: Name Reservation Request Form  7.9
      • 8.  If Desired Name Not Available; Use of Fictitious Business Name  7.10
    • B.  Articles of Organization  7.11
    • C.  Filing Fee  7.12
  • III.  FILING ARTICLES OF ORGANIZATION
    • A.  Guidelines for Completing Form LLC-1
      • 1.  Online Availability of Forms  7.13
      • 2.  Form: Articles of Organization—Limited Liability Company (Secretary of State Form LLC-1)   7.14
        • a.  LLC Name  7.15
        • b.  Initial LLC Business Addresses  7.16
        • c.  Agent for Service of Process  7.17
        • d.  Type of Management  7.18
        • e.  Purpose Statement  7.19
        • f.  Additional Matters, Attachments  7.20
        • g.  Constructive Notice of Provisions in the Articles  7.21
        • h.  Signatures  7.22
        • i.  Filing of Forms  7.23
        • j.  Bizfile California; Electronic Filing of Forms  7.23A
      • 3.  Preclearance and Expedited Filing Services  7.24
        • a.  Preclearance Procedures  7.25
        • b.  Average Processing Times; Expedited Filing Procedures  7.26
  • IV.  MODIFYING ARTICLES OF ORGANIZATION
    • A.  Amendment
      • 1.  Procedure and Requirements  7.27
      • 2.  Form: Limited Liability Company Certificate of Amendment (Secretary of State Form LLC-2)  7.28
    • B.  Restatement
      • 1.  Procedure and Requirements  7.29
      • 2.  Form: Restated Articles of Organization of a Limited Liability Company (Secretary of State Form LLC-10)  7.30
    • C.  Correction
      • 1.  Procedure and Requirements  7.31
      • 2.  Form: Limited Liability Company Certificate of Correction (Secretary of State Form LLC-11)  7.32
  • V.  OTHER FILING ISSUES
    • A.  Delayed Effectiveness; Delayed Filing  7.33
    • B.  Resubmission After Rejection  7.34
  • VI.  BIENNIAL STATEMENTS OF INFORMATION  7.35
  • VII.  MERGERS AND CONVERSIONS; DISSOLUTION  7.36

8

Preliminary Considerations in Drafting the Operating Agreement

Rachelle H. Cohen

Benjamin D. Gemperle

  • I.  SCOPE OF CHAPTER  8.1
  • II.  EFFECT OF PRIOR LAW  8.2
  • III.  NATURE AND PURPOSE OF OPERATING AGREEMENT
    • A.  Definition and Function of Operating Agreement
      • 1.  Statutory Definition  8.3
      • 2.  Essential for Operation and Governance  8.3A
      • 3.  Operating Agreements for Single-Member LLCs  8.3B
    • B.  Adoption and Amendment  8.4
    • C.  Drafting Guidelines
      • 1.  Flexibility Provided by RULLCA  8.5
      • 2.  Operating Agreement Generally Prevails Over Articles of Organization  8.6
      • 3.  RULLCA’s Restrictive Provisions  8.7
  • IV.  SELECTING THE APPROPRIATE FORM OF OPERATING AGREEMENT
    • A.  Complexity  8.8
    • B.  Tax Allocations  8.9

9

Annotated Long-Form Operating Agreement

Edward Gartenberg

Brett Heeger

Rachelle H. Cohen

  • I.  INTRODUCTORY COMMENT  9.1
  • II.  FORM: LONG-FORM OPERATING AGREEMENT
    • A.  Introductory Clauses
      • 1.  Form: Parties and Date  9.2
      • 2.  Form: Recitals  9.3
    • B.  Form: Definitions  9.4
    • C.  Formation
      • 1.  Form: Formation  9.5
      • 2.  Form: Name of Company  9.6
      • 3.  Form: Address of Company  9.7
      • 4.  Form: Agent for Service of Process  9.8
      • 5.  Form: Business Purposes  9.9
      • 6.  Form: Limited Liability Company  9.10
      • 7.  Form: Term of Company’s Existence  9.11
      • 8.  Form: Initial Members  9.12
      • 9.  Form: Manager  9.13
    • D.  Capital and Capital Contributions
      • 1.  Form: Capital Contributions  9.14
      • 2.  Form: Additional Contributions  9.15
      • 3.  Remedies When Member Fails to Make Additional Capital Contributions
        • a.  Form: Dilution to Make Up Shortfall  9.16
        • b.  Form: Enforcement; Penalizing Defaulting Member  9.17
      • 4.  Form: Capital Accounts  9.18
      • 5.  Form: No Return of Capital Contribution  9.19
      • 6.  Form: Interest  9.20
      • 7.  Form: Limited Liability  9.21
      • 8.  Form: No Priority of Treatment  9.22
    • E.  Allocations and Distributions
      • 1.  Allocation of Profits and Losses
        • a.  Form: Priority of Allocations  9.23
        • b.  Special Allocations
          • (1)  Form: Definitions Relating to Special Allocations  9.24
          • (2)  Form: Certain Special Allocations  9.25
            • (a)  Form: Allocations of Member Nonrecourse Deductions  9.26
            • (b)  Form: Allocation of Profits From Capital Events  9.27
            • (c)  Form: Allocation of Losses From Capital Events  9.28
            • (d)  Form: Allocations Respecting Asset Distributions  9.29
            • (e)  Form: Allocations Respecting Contributed Property  9.30
            • (f)  Form: Allocations Between Transferor and Transferee  9.31
        • c.  Form: Revaluation of Company Assets  9.32
        • d.  Form: Compliance With Law and Regulations  9.33
      • 2.  Distributions
        • a.  Form: Available Cash From Business Operations  9.34
        • b.  Form: Available Cash From Capital Events  9.35
        • c.  Form: Noncash Proceeds  9.36
        • d.  Form: Liquidating Proceeds  9.37
    • F.  Management of Company
      • 1.  Form: Management  9.38
      • 2.  Form: Term of Manager  9.39
      • 3.  Form: Appointment and Removal of Managers  9.40
      • 4.  Form: Duties of Manager  9.41
      • 5.  Form: Procedure for Action by Managers  9.42
      • 6.  Form: Time Devoted to the Company  9.43
      • 7.  Form: Compensation  9.44
      • 8.  Form: Officers of the Company  9.45
      • 9.  Form: Title to Assets  9.46
      • 10.  Form: Banking  9.47
    • G.  Financial Records; Partnership Representative
      • 1.  Form: Accounts  9.48
      • 2.  Form: Accounting  9.49
      • 3.  Form: Records  9.50
      • 4.  Form: Financial Statements  9.51
      • 5.  Form: Income Tax Returns  9.52
      • 6.  Partnership Representative
        • a.  Form: Manager as Partnership Representative  9.53
        • b.  Form: Authority to Be Exercised by Partnership Representative  9.54
    • H.  Membership
      • 1.  Form: Members and Voting Rights  9.55
      • 2.  Form: Record Dates  9.56
      • 3.  Form: Membership Certificates  9.57
      • 4.  Form: Meetings: Call, Notice, and Quorum  9.58
      • 5.  Form: Adjournment of Meetings  9.59
      • 6.  Form: Waiver of Notice  9.60
      • 7.  Form: Proxies  9.61
      • 8.  Form: Participation in Meetings by Electronic Means  9.62
      • 9.  Form: Action by Members Without a Meeting  9.63
      • 10.  Form: No Agency; Indemnification  9.64
    • I.  Dissociation of Members and Transfers of Membership Interests
      • 1.  Form: Dissociation of Members  9.65
      • 2.  Form: Restrictions on Transfer  9.66
      • 3.  Form: Right of First Refusal  9.67
      • 4.  Form: Triggering Events  9.68
      • 5.  Form: Marital Dissolution or Death of a Spouse  9.69
      • 6.  Form: Option Periods  9.70
      • 7.  Form: Nonparticipation of Interested Member  9.71
      • 8.  Form: Option Purchase Price  9.72
      • 9.  Form: Substituted Member  9.73
      • 10.  Form: Duties of Substituted Member  9.74
      • 11.  Form: Securities Laws  9.75
    • J.  Dissolution and Winding Up
      • 1.  Form: Events of Dissolution  9.76
      • 2.  Form: Winding Up  9.77
      • 3.  Form: Deficits  9.78
    • K.  Form: Noncompetition and Confidentiality  9.79
    • L.  Indemnification and Arbitration
      • 1.  Form: Indemnification  9.80
      • 2.  Form: Arbitration  9.81
    • M.  Form: Power of Attorney  9.82
    • N.  General Provisions
      • 1.  Form: Entire Agreement; Amendment  9.83
      • 2.  Form: Counterpart Executions  9.84
      • 3.  Form: Governing Law; Severability  9.85
      • 4.  Form: Binding Effect  9.86
      • 5.  Form: Number and Gender  9.87
      • 6.  Form: Further Assurances  9.88
      • 7.  Form: Members’ Other Business  9.89
      • 8.  Form: Agent  9.90
      • 9.  Form: Authority to Contract  9.91
      • 10.  Form: Titles and Headings  9.92
      • 11.  Form: Amendment  9.93
      • 12.  Form: Time of the Essence  9.94
      • 13.  Form: No Third Party Beneficiary Intended  9.95
      • 14.  Form: Waiver  9.95A
    • O.  Execution and Signatures
      • 1.  Form: Execution  9.96
      • 2.  Signatures
        • a.  Form: Signatures of Individual Members  9.97
        • b.  Form: Partnership Signature by Individual General Partner  9.98
        • c.  Form: Partnership Signature by Corporate General Partner  9.99
        • d.  Form: Signature for Corporation  9.100
        • e.  Form: Signature for Trust  9.101
        • f.  Form: Signature for Estate  9.102
    • P.  Form: Consent of Spouse or Domestic Partner  9.103

10

Annotated Short-Form and Single-Member Operating Agreements

Edward Gartenberg

Brett Heeger

  • I.  INTRODUCTION
    • A.  When Use Is Appropriate  10.1
    • B.  Right-of-First-Refusal Provision Not Included  10.2
    • C.  Cross-Referrals to Long-Form Provisions  10.3
  • II.  SHORT-FORM MULTIMEMBER OPERATING AGREEMENT
    • A.  Form: Parties and Date  10.4
    • B.  Form: Recitals  10.5
    • C.  Form: Definitions  10.6
    • D.  Formation
      • 1.  Form: Filing of Articles of Organization  10.7
      • 2.  Form: Name  10.8
      • 3.  Form: Address  10.9
      • 4.  Form: Agent for Service of Process  10.10
      • 5.  Form: Business Purposes  10.11
      • 6.  Form: Term of Company’s Existence  10.12
      • 7.  Form: Members as Managers  10.13
    • E.  Capital and Capital Contributions
      • 1.  Form: Capital Contributions  10.14
      • 2.  Form: Failure to Make Capital Contributions  10.15
      • 3.  Form: Capital Accounts  10.16
      • 4.  Form: Withdrawals  10.17
      • 5.  Form: Interest  10.18
      • 6.  Form: Limited Liability  10.19
      • 7.  Form: No Priority of Treatment  10.20
    • F.  Allocations and Distributions
      • 1.  Form: Allocation of Profits and Losses  10.21
      • 2.  Form: Qualified Income Offset  10.22
      • 3.  Form: Allocations Respecting Asset Distributions  10.23
      • 4.  Form: Allocations Between Transferor and Transferee  10.24
      • 5.  Form: Distributions  10.25
      • 6.  Form: Noncash Proceeds  10.26
      • 7.  Form: Liquidating Proceeds  10.27
      • 8.  Election Out of Partnership Audit Rules  10.27A
    • G.  Management of Company
      • 1.  Form: All Members as Managers  10.28
      • 2.  Form: Procedure for Action by Members  10.29
      • 3.  Form: Compensation  10.30
      • 4.  Form: Officers of the Company  10.31
      • 5.  Form: Title to Assets  10.32
      • 6.  Form: Banking  10.33
    • H.  Accounts and Records
      • 1.  Form: Accounts  10.34
      • 2.  Form: Accounting  10.35
      • 3.  Form: Records  10.36
      • 4.  Form: Income Tax Returns  10.37
    • I.  Membership
      • 1.  Form: Members and Voting Rights  10.38
      • 2.  Form: Record Dates  10.39
      • 3.  Form: Proxies  10.40
    • J.  Dissociation of Members; Transfers of Membership Interests
      • 1.  Form: Dissociation of Members; Notice  10.41
      • 2.  Form: Restrictions on Transfer  10.42
      • 3.  Form: Triggering Events  10.43
      • 4.  Form: Marital Dissolution or Death of a Spouse  10.44
      • 5.  Form: Option Periods  10.45
      • 6.  Form: Nonparticipation of Interested Member  10.46
      • 7.  Form: Option Purchase Price  10.47
      • 8.  Form: Substituted Member  10.48
      • 9.  Form: Duties of Substituted Member  10.49
      • 10.  Form: Securities Laws  10.50
    • K.  Dissolution and Winding Up
      • 1.  Form: Events of Dissolution  10.51
      • 2.  Form: Winding Up  10.52
      • 3.  Form: Deficits  10.53
    • L.  Form: Arbitration  10.54
    • M.  General Provisions
      • 1.  Form: Entire Agreement; Amendment  10.55
      • 2.  Form: Counterpart Executions  10.56
      • 3.  Form: Governing Law; Severability  10.57
      • 4.  Form: Benefit  10.58
      • 5.  Form: Number and Gender  10.59
      • 6.  Form: Further Assurances  10.60
      • 7.  Form: Members’ Other Business  10.61
      • 8.  Form: Agent  10.62
      • 9.  Form: Authority to Contract  10.63
      • 10.  Form: Titles and Headings  10.64
      • 11.  Form: Amendment  10.65
      • 12.  Form: Time of the Essence  10.66
      • 13.  Form: No Third Party Beneficiary Intended  10.67
    • N.  Form: Execution Clause, Signatures
      • 1.  Execution Clause  10.68
      • 2.  Signatures
        • a.  Form: Signatures of Individual Members  10.69
        • b.  Form: Partnership Signature by Individual General Partner  10.69A
        • c.  Form: Partnership Signature by Corporate General Partner  10.69B
        • d.  Form: Corporate Signature  10.69C
        • e.  Form: Signature for Trust  10.69D
        • f.  Form: Signature for Estate  10.69E
    • O.  Form: Consent of Spouse or Domestic Partner  10.70
  • III.  SINGLE-MEMBER OPERATING AGREEMENT
    • A.  Form: Parties and Date  10.71
    • B.  Form: Recitals  10.72
    • C.  Formation
      • 1.  Form: Filing of Articles of Organization  10.73
      • 2.  Form: Name  10.74
      • 3.  Form: Address  10.75
      • 4.  Form: Agent for Service of Process  10.76
      • 5.  Form: Business Purposes  10.77
      • 6.  Form: Term of Company’s Existence  10.78
      • 7.  Form: Member as Manager  10.79
    • D.  Capital and Capital Contributions
      • 1.  Form: Capital Contributions  10.80
      • 2.  Form: Limited Liability  10.81
    • E.  Allocations and Distributions
      • 1.  Form: Allocations Between Transferor and Transferee  10.82
      • 2.  Form: Distributions  10.83
    • F.  Management of Company
      • 1.  Form: Sole Member as Manager  10.84
      • 2.  Form: Officers of the Company  10.85
      • 3.  Form: Title to Assets  10.86
      • 4.  Form: Banking  10.87
    • G.  Accounts and Records
      • 1.  Form: Accounts  10.88
      • 2.  Form: Accounting  10.89
      • 3.  Form: Records  10.90
    • H.  Form: Restrictions on Transfer  10.91
    • I.  Dissolution and Winding Up
      • 1.  Form: Events of Dissolution  10.92
      • 2.  Form: Winding Up  10.93
    • J.  General Provisions
      • 1.  Form: Entire Agreement; Amendment  10.94
      • 2.  Form: Governing Law; Severability  10.95
      • 3.  Form: Titles and Headings  10.96
      • 4.  Form: Amendment  10.97
      • 5.  Form: Time of the Essence  10.98
      • 6.  Form: No Third Party Beneficiary Intended  10.99
    • K.  Form: Execution Clause  10.100
    • L.  Form: Consent of Spouse or Domestic Partner  10.101

11

Conversions and Mergers

Emily J. Yukich

  • I.  SCOPE OF CHAPTER  11.1
  • II.  PRELIMINARY CONSIDERATIONS FOR CONVERSIONS AND MERGERS
    • A.  Why Convert?  11.2
    • B.  Types of Conversions  11.3
      • 1.  Statutory Conversion Provisions  11.4
        • a.  Converting Partnerships  11.5
        • b.  Converting Corporations  11.6
      • 2.  Using RULLCA’s Merger Provisions for Conversion  11.7
      • 3.  Conversion Outside RULLCA’s Conversion and Merger Provisions  11.8
    • C.  Why Merge?  11.9
    • D.  Federal Income Taxes
      • 1.  Converting Partnerships  11.10
      • 2.  Converting Corporations  11.11
        • a.  When Converting a Corporation Is Appropriate  11.12
        • b.  Special Situations: Converting S Corporations  11.13
        • c.  Merger of Subsidiary Into LLC  11.14
    • E.  Securities Laws
      • 1.  LLC Membership Interests  11.15
      • 2.  General Partnerships  11.16
      • 3.  Limited Partnerships  11.17
      • 4.  Corporations  11.18
    • F.  Sales and Use Taxes  11.19
    • G.  Real Property Transfer Taxes  11.20
    • H.  Property Tax Reassessment
      • 1.  When Real Property Is Reassessed  11.21
      • 2.  Exception to General Rule  11.22
    • I.  Franchise Tax Considerations  11.23
  • III.  STATUTORY CONVERSIONS
    • A.  Acts Permit Conversion  11.24
      • 1.  Conversion Entities  11.25
      • 2.  Conversion Prerequisites  11.26
    • B.  Rights and Obligations on Conversion  11.27
    • C.  Plan of Conversion  11.28
      • 1.  Approval of Plan  11.29
      • 2.  Dissenters’ Rights  11.30
      • 3.  Form: Plan of Conversion for Converting Entity to LLC  11.31
    • D.  Statement of Conversion  11.32
      • 1.  Effect of Filing Statement or Certificate of Conversion  11.33
      • 2.  Converted Entity Retains Tax Liabilities of Converting Entity  11.34
      • 3.  Recording Certified Evidence of Conversion When Converted Entity Owns California Real Estate  11.35
      • 4.  Notifying Creditors of Conversion  11.36
      • 5.  Form: Limited Liability Company Articles of Organization—Conversion (Secretary of State Form LLC-1A)   11.37
    • E.  Effective Date of Conversion  11.38
    • F.  California Securities Law Compliance  11.39
    • G.  Abandonment of Conversion  11.40
  • IV.  STATUTORY MERGERS
    • A.  Acts Permit Merger  11.41
    • B.  Documenting the Merger  11.42
    • C.  Rights and Obligations on Merger  11.43
    • D.  Diagram: Structure of Statutory Merger  11.44
    • E.  Agreement of Merger
      • 1.  Required Contents of Agreement  11.45
      • 2.  Form: Short-Form Agreement of Merger  11.46
      • 3.  Form: Long-Form Agreement of Merger Between Limited Liability Company and General Partnership  11.47
      • 4.  Form: Long-Form Agreement of Merger Between Limited Partnership and Limited Liability Company  11.48
      • 5.  Form: Long-Form Agreement of Merger Between Corporation and Limited Liability Company  11.49
      • 6.  Amendment of Agreement of Merger  11.50
    • F.  Approval of Merger
      • 1.  By Limited Liability Company  11.51
      • 2.  By Limited Partnership  11.52
      • 3.  By General Partnership  11.53
      • 4.  By Corporation  11.54
    • G.  Certificate of Merger
      • 1.  Contents of Certificate  11.55
      • 2.  Execution of Certificate  11.56
      • 3.  Form: Certificate of Merger (Secretary of State Form OBE MERGER-1)  11.57
    • H.  Effective Date of Merger  11.58
    • I.  Surviving Entity Assumes Tax Liabilities of Merging Entities  11.59
    • J.  Recording Evidence of Merger  11.60
    • K.  Dissenters’ Rights  11.61
    • L.  Abandonment of Merger  11.62
  • V.  CONVERTING PARTNERSHIPS TO LIMITED LIABILITY COMPANIES OUTSIDE CONVERSION AND MERGER STATUTES  11.63
    • A.  Alternative 1: Partners Contribute Partnership Interests to Limited Liability Company  11.64
      • 1.  Diagram: Exchanging Partnership Interests for Limited Liability Company Membership Interests  11.65
      • 2.  Documentation for Alternative 1 Conversion  11.66
    • B.  Alternative 2: Partners Contribute Partnership Assets to Limited Liability Company  11.67
      • 1.  Diagram: Liquidating Partnership and Contributing Partnership Assets  11.68
      • 2.  Documentation for Alternative 2 Conversion  11.69
    • C.  Alternative 3: Partnership Contributes Assets to Limited Liability Company  11.70
      • 1.  Diagram: Exchanging Partnership Assets for LLC Membership Interests  11.71
      • 2.  Documentation for Alternative 3 Conversion  11.72
  • VI.  CONVERTING CORPORATIONS TO LIMITED LIABILITY COMPANIES OUTSIDE CONVERSION AND MERGER STATUTES  11.73
    • A.  Alternative 1: Shareholders Contribute Stock to Limited Liability Company  11.74
      • 1.  Diagram: Exchanging Stock for LLC Membership Interests  11.75
      • 2.  Documentation for Alternative 1 Conversion  11.76
    • B.  Alternative 2: Shareholders Contribute Corporation Assets to Limited Liability Company  11.77
      • 1.  Diagram: Liquidating Corporation and Contributing Corporate Assets  11.78
      • 2.  Documentation for Alternative 2 Conversion  11.79
    • C.  Alternative 3: Corporation Contributes Assets to Limited Liability Company  11.80
      • 1.  Diagram: Exchanging Corporate Assets for LLC Membership Interests  11.81
      • 2.  Documentation for Alternative 3 Conversion  11.82

12

Issuing and Transferring Membership Interests

Christopher Chediak

William F. Webster

  • I.  SCOPE OF CHAPTER  12.1
  • II.  CHARACTER OF LLC MEMBERSHIP INTERESTS
    • A.  Under RULLCA and Beverly-Killea
      • 1.  LLC’s Issuance of Membership Interests  12.2
      • 2.  “Membership Interests” and “Transferable Interests” Distinguished  12.3
      • 3.  Rights of Transferees  12.4
      • 4.  Creating Separate Series or Classes of Membership Interests  12.5
      • 5.  Transfers of Membership or Transferable Interests
        • a.  By Members  12.6
          • (1)  Rights and Obligations of Transferor  12.7
          • (2)  Rights and Obligations of Transferee  12.8
        • b.  Other Transfers
          • (1)  Rights of Secured and Judgment Creditors  12.9
          • (2)  Effect of Member’s Death  12.10
        • c.  Through Conversion or Merger Procedures  12.11
    • B.  Membership Interests Under State and Federal Securities Laws  12.12
  • III.  APPLICATION OF FEDERAL SECURITIES LAWS TO ISSUANCE AND TRANSFER OF MEMBERSHIP INTERESTS
    • A.  “Security” Includes Investment Contract  12.13
    • B.  When an LLC Interest Is an Investment Contract
      • 1.  By Analogy to General Partnership Interest  12.14
        • a.  Profits Derived From the Efforts of Others: The Howey Test  12.15
        • b.  Investor Lacks Ability to Control Management: The Williamson Test  12.16
      • 2.  Other Tests of Interest as Security: “Similar Circumstances” and “Family Resemblance”  12.17
      • 3.  Investment-as-Security Analysis Applied to a Specific LLC Interest  12.18
    • C.  Registering Transactions Under the Securities Act  12.19
    • D.  Securities and Transactions Exempt From Registration Requirement  12.20
      • 1.  Nonpublic Offerings  12.21
        • a.  Requirements for a Nonpublic Offering
          • (1)  Information Available to Investors  12.22
          • (2)  Securities Have “Come to Rest”  12.23
        • b.  Investor Representations and Legend Requirements  12.24
      • 2.  Limited Offerings—Regulation D  12.25
        • a.  Rule 504: Offerings up to $5 Million  12.26
        • b.  Rule 505 (Repealed)  12.27
        • c.  Rule 506: Offerings With No Monetary Limit  12.28
      • 3.  Intrastate Offerings
        • a.  Section 3(a)(11) Exemption  12.29
        • b.  Rule 147; Rule 147A  12.30
        • c.  Rule 147  12.30A
        • d.  Rule 147A  12.30B
        • e.  Using Intrastate Exemption With Other Exemptions  12.31
        • f.  Form: Legend for Certificate and Operating Agreement  12.32
      • 4.  Coordination With California Exemption for Sales to Qualified Purchasers—Regulation CE  12.33
      • 5.  Offerings Under Compensatory Benefit Plans  12.34
      • 6.  Crowdfunding  12.34A
      • 7.  Regulation A+  12.34B
    • E.  Other Transactions
      • 1.  Conversions, Mergers, and Exchanges  12.35
      • 2.  Nonissuer Transactions  12.36
        • a.  Rule 144  12.37
        • b.  Securities Act §4(1½) Exemption  12.38
    • F.  Application of Federal Antifraud Provisions to Issuance and Transfer of Membership Interests  12.39
      • 1.  Exchange Act §10(b) and Rule 10b–5  12.40
      • 2.  Securities Act §17(a)  12.41
      • 3.  Securities Act §§11, 12(a)  12.42
      • 4.  Disclosure Documents  12.43
        • a.  All Material Information  12.44
        • b.  Type of Investor Determines Level of Disclosure  12.45
      • 5.  Regulation D Information Delivery Requirement  12.46
      • 6.  California Notice Requirement  12.47
  • IV.  APPLICATION OF CALIFORNIA SECURITIES LAWS TO ISSUANCE AND TRANSFER OF MEMBERSHIP INTERESTS
    • A.  LLC Membership Interests Defined as Securities
      • 1.  Exemption Based on Members’ Active Participation in Management  12.48
      • 2.  Risk That Nonsecurity Will Become a Security After Acquisition  12.49
    • B.  Qualification Required for Nonexempt Transactions  12.50
      • 1.  Merit Regulation: “Fair, Just, and Equitable” Standard  12.51
      • 2.  Transaction Definitions Essential for Determining Whether Qualification Is Required  12.52
    • C.  Exemptions From Qualification for Issuance of Membership Interests  12.53
      • 1.  Exempt Securities  12.54
      • 2.  Exempt Transactions
        • a.  Issuer and Nonissuer Transactions and Reorganizations Can Be Exempt  12.55
        • b.  Limited Offering Exemption  12.56
          • (1)  No More Than 35 Purchasers  12.57
          • (2)  Qualified Purchasers  12.58
          • (3)  Purchaser’s Investment Representation  12.59
          • (4)  Form: Subscription Agreement  12.60
          • (5)  Form: Investor Questionnaire  12.61
          • (6)  Form: Professional Adviser Questionnaire  12.62
          • (7)  Form: Assumption Agreement  12.63
          • (8)  Form: Full Recourse Promissory Note  12.64
          • (9)  Form: Legend Limiting Transfer for Certificate or Operating Agreement  12.65
          • (10)  No Advertising  12.66
          • (11)  Filing Notice  12.67
        • c.  Exemption for Sales to Qualified Purchasers That Are Accompanied by a General Announcement  12.68
          • (1)  Purchaser Must Be Qualified  12.69
          • (2)  Disclosure Document  12.70
          • (3)  Information in General Announcement  12.71
          • (4)  Filing Notice of Transaction  12.72
        • d.  Nonissuer Exemptions  12.73
        • e.  Other Transactions Exempt From Qualification  12.74
    • D.  Exemption From Qualification for Mergers and Conversions
      • 1.  Conversion to LLC From Corporate, Partnership, or Limited Partnership Form  12.75
      • 2.  Alternative to Merger or Conversion  12.76
    • E.  Qualifying an Issuer Transaction  12.77
      • 1.  Qualification by Coordination  12.78
      • 2.  Qualification by Notification  12.79
      • 3.  Qualification by Permit  12.80
        • a.  Preparing the Application  12.81
        • b.  Filing the Application  12.82
        • c.  Division of Corporations’ Review of the Application  12.83
    • F.  Liability for Violations Under California Securities Laws  12.84
      • 1.  Liability for Failure to Qualify Offers and Sales of Securities  12.85
      • 2.  Liability for Manipulation of Prices or Appearance of Trading  12.86
      • 3.  Liability for Misrepresentation of Material Facts  12.87
      • 4.  Liability for Unlawful Insider Trading  12.88
      • 5.  Vicarious Liability  12.89
      • 6.  Common Law Liability  12.90
  • V.  DISSOCIATION OF A MEMBER FROM THE LLC
    • A.  Power of Members to Dissociate, Wrongful Dissociation  12.91
    • B.  Manner and Timing of Dissociation  12.92
    • C.  Rights of Member on Dissociation  12.93
    • D.  Member’s Dissociation Not Subject to Securities Laws  12.94

13

Operating a Limited Liability Company

Christopher Chediak

Allan B. Duboff

  • I.  SCOPE OF CHAPTER  13.1
  • II.  MAINTAINING LIMITED LIABILITY PROTECTION
    • A.  Alter Ego Liability  13.2
    • B.  Other Sources of Liability  13.2A
    • C.  Steps to Minimize Liability  13.2B
  • III.  COMPLYING WITH FILING REQUIREMENTS
    • A.  Biennial Filing of Statement of Information
      • 1.  Statement of Information  13.3
      • 2.  Foreign LLCs Also Required to File  13.3A
      • 3.  Updating Information on File  13.3B
      • 4.  Penalties for Late Filing  13.3C
      • 5.  Form: Statement of Information (Secretary of State Form LLC-12)   13.3D
      • 6.  Form: Statement of No Change (Secretary of State Form LLC-12NC)  13.3E
    • B.  Fictitious Business Names  13.4
    • C.  Updating Recorded Articles of Organization  13.5
  • IV.  LICENSING AND QUALIFICATION REQUIREMENTS
    • A.  State and Local Licenses  13.6
    • B.  Qualifying to Do Business in Other States  13.7
  • V.  ACCOUNTING AND TAX MATTERS
    • A.  Selection and Change of Method of Accounting  13.8
    • B.  Choice of Fiscal Year  13.9
    • C.  Federal and State Tax Filing Requirements
      • 1.  Employer Identification Number; Election to Be Taxed as Corporation  13.10
      • 2.  Employers’ Payroll Withholding Taxes  13.11
      • 3.  California and Federal Tax Returns  13.12
    • D.  California Sales and Use Taxes  13.13
    • E.  Personal and Real Property Taxes  13.14
    • F.  Gross Receipts Fee and Other Taxes  13.15
  • VI.  MAINTAINING BOOKS AND RECORDS  13.16
  • VII.  MEMBERS’ INFORMATION AND INSPECTION RIGHTS
    • A.  LLC Documents and Records, Financial Statements, Tax or Information Returns
      • 1.  All LLCs  13.17
      • 2.  LLCs With More Than 35 Members  13.17A
      • 3.  Information Required for Members’ Tax Returns  13.17B
      • 4.  Remedies for Noncompliance  13.17C
    • B.  Form: Consent to Electronic Delivery of Notices, Reports, and Information  13.18
    • C.  E-Sign Requirements for Consents  13.18A
  • VIII.  AMENDING THE OPERATING AGREEMENT  13.18B
  • IX.  MEMBERS’ VOTING RIGHTS  13.19
  • X.  MEMBERS’ MEETINGS
    • A.  Frequency  13.20
    • B.  Form: Call for Meeting  13.21
    • C.  Record Date  13.22
    • D.  Notice of Meeting  13.23
    • E.  Form: Notice of Members’ Meeting  13.24
    • F.  Form: Waiver of Notice and Consent  13.25
    • G.  Form: Declaration of Mailing or Delivery by Electronic Transmission  13.26
    • H.  Proxies
      • 1.  Use of Proxies  13.27
      • 2.  Form: Proxy  13.28
    • I.  Meeting Procedures
      • 1.  Conducting the Meeting   13.29
      • 2.  Participation by Electronic Transmission or Video Conference  13.29A
      • 3.  Quorum  13.30
      • 4.  Voting at Meetings  13.31
      • 5.  Recording the Proceedings  13.32
      • 6.  Form: Outline for Preparation of Minutes  13.33
      • 7.  Form: Minutes of Members’ Meeting  13.34
  • XI.  MEMBERS’ ACTION OR CONSENT WITHOUT MEETING
    • A.  Governing Principles  13.35
    • B.  Form: Members’ Consent  13.36
  • XII.  MEETINGS OF MANAGERS  13.37
  • XIII.  MEMBERS’ ENFORCEMENT RIGHTS
    • A.  Actions by Attorney General  13.38
    • B.  Class Actions and Derivative Actions  13.39
    • C.  Dissenters’ Rights  13.40
  • XIV.  EMPLOYEE MATTERS
    • A.  Employee/Independent Contractor Classification  13.40A
    • B.  Workers’ Compensation  13.41
    • C.  Other Labor Laws  13.42
  • XV.  FORM: SAMPLE MEMORANDUM TO CLIENT  13.43

14

Operating a Foreign Limited Liability Company in California

James F. Fotenos

  • I.  SCOPE OF CHAPTER  14.1
  • II.  DEFINITION OF FOREIGN LLC  14.2
  • III.  CHOICE OF JURISDICTION
    • A.  Factors Influencing Choice  14.3
      • 1.  Estate and Gift Tax Planning Considerations  14.4
      • 2.  Restrictions on Professional and Certain Other Service LLCs  14.5
    • B.  California Information and Inspection Rights Retained for “Pseudo-Foreign” LLCs  14.6
  • IV.  TRANSACTING INTRASTATE BUSINESS  14.7
  • V.  DOING BUSINESS IN CALIFORNIA FOR STATE TAX PURPOSES
    • A.  Entity-Level Taxes and Fees  14.7A
    • B.  Member-Level Taxes and Fees  14.7B
  • VI.  REGISTRATION OF FOREIGN LLCs
    • A.  Filing Requirements  14.8
      • 1.  Name  14.9
      • 2.  Other Required Information  14.10
      • 3.  Form: Application to Register a Foreign Limited Liability Company (LLC) (Secretary of State Form LLC-5)  14.11
      • 4.  Filing Tips for Form LLC-5  14.12
      • 5.  Appointment of Agent for Service of Process  14.13
      • 6.  Amendments to Registration  14.14
      • 7.  Form: Amendment to Registration of a Foreign Limited Liability Company (LLC) (Secretary of State Form LLC-6)  14.15
      • 8.  Certificate of Correction  14.16
      • 9.  Form: Limited Liability Company Certificate of Correction (Secretary of State Form LLC-11)  14.17
      • 10.  Damages for Reliance on Inaccurate Information in Filed Record  14.18
      • 11.  Biennial Statement of Information; Penalties for Failure to File  14.19
    • B.  Effect of Failure to Register as a Foreign LLC
      • 1.  No Right to Maintain California Court Proceedings  14.20
      • 2.  Voidability of Contracts  14.21
      • 3.  No Loss of Limited Liability  14.22
  • VII.  CALIFORNIA COURT JURISDICTION OVER FOREIGN LLCs  14.23
  • VIII.  CANCELLATION OF REGISTRATION  14.24

15

Series LLCs

Michael G. Schinner

  • I.  INTRODUCTION  15.1
  • II.  DELAWARE ADVANTAGES  15.2
  • III.  THE DELAWARE SERIES LLC  15.3
  • IV.  THE NEVADA SERIES LLC  15.4
  • V.  THE ILLINOIS SERIES LLC  15.5
  • VI.  FORMATION REQUIREMENTS  15.6
  • VII.  BENEFITS OF MULTISERIES LLC  15.7
    • A.  Avoids Multiple LLCs or Subsidiaries  15.8
    • B.  Ease of Adding and Dissolving Series  15.9
    • C.  Bankruptcy Remote Entities  15.10
    • D.  Liability Protection  15.11
      • 1.  Real Estate  15.12
      • 2.  Investment Funds  15.13
    • E.  Reduction of Legal, Accounting, and Administrative Costs  15.14
    • F.  Equity Compensation Arrangements  15.15
    • G.  Tax-Free Transfers Within the LLC  15.16
  • VIII.  POTENTIAL PITFALLS
    • A.  Piercing the Veil  15.17
    • B.  Avoiding the Pitfalls  15.18
    • C.  Multiple Taxable Entities
      • 1.  Tax Classification Under Federal Law  15.19
      • 2.  Potential Use of Disregarded Single-Member Series for Tax Purposes  15.20
    • D.  California Tax Issues  15.21
    • E.  Accounting Issues  15.22
  • IX.  CONCLUSION  15.23

16

Liquidating and Dissolving Limited Liability Companies

Charles P. Ortmeyer

  • I.  SCOPE OF CHAPTER  16.1
  • II.  ETHICAL ISSUES IN DISSOLUTION AND WINDING UP
    • A.  Conflicts and Confidences
      • 1.  Comparison With Other Legal Entities  16.2
      • 2.  Who Is the Client?  16.3
      • 3.  Protection of Client Confidences  16.4
      • 4.  Attorney-Client Privilege  16.5
    • B.  Prior Conflict Waiver Agreements  16.6
    • C.  Waiver Standards  16.7
  • III.  DISSOLUTION AND CANCELLATION OF AN LLC
    • A.  Streamlined Cancellation Procedures for LLCs That Have Not Commenced Business  16.7A
    • B.  Statutory Dissolution Events  16.8
      • 1.  On Event Specified in Articles of Organization or Written Operating Agreement  16.9
      • 2.  By Vote of 50 Percent or More of the Member Voting Interests  16.10
      • 3.  No Members  16.11
      • 4.  On Entry of a Decree of Judicial Dissolution  16.12
    • C.  "De Facto" Dissolution  16.12A
    • D.  Grounds for Seeking Judicial Dissolution  16.13
      • 1.  Not Reasonably Practicable to Carry On LLC Business  16.14
      • 2.  Dissolution Is Reasonably Necessary for Protection of Member Rights  16.15
      • 3.  LLC Business Abandoned  16.16
      • 4.  Management Deadlocked or Subject to Internal Dissension  16.17
      • 5.  Fraud, Mismanagement, or Abuse of Authority  16.18
    • E.  Avoiding Judicial Dissolution Through Exercise of Statutory Buyout Option
      • 1.  Option to Purchase  16.19
      • 2.  Valuation Procedures Generally  16.20
      • 3.  Liquidation Value Versus Going Concern Value  16.20A
      • 4.  Usually No Minority Discount  16.20B
      • 5.  Potential Deduction for Damages  16.20C
    • F.  Judicial Dissolution as Remedy for Wrongdoing or Abuse  16.20D
      • 1.  Judicial Dissociation as Alternative  16.20E
      • 2.  Strategies Related to Valuation  16.20F
      • 3.  Effect of Dismissal of Suit for Judicial Dissolution  16.21
    • G.  Alternatives to Dissolution
      • 1.  Negotiated Withdrawal and Redemption  16.22
      • 2.  Resolution of Disputes by Nonconsensual Dissociation of a Member
        • a.  Effect of Dissociation  16.23
        • b.  When Involuntary Dissociation Can Occur  16.24
          • (1)  Event Stated in Operating Agreement  16.25
          • (2)  Expulsion by Members’ Unanimous Consent  16.26
          • (3)  Judicial Dissociation  16.27
          • (4)  Death, Incapacity  16.28
          • (5)  Bankruptcy in a Member-Managed LLC  16.29
          • (6)  Trusts, Estates  16.30
          • (7)  Members Who Are Not Natural Persons  16.31
          • (8)  Merger, Termination of LLC  16.32
      • 3.  Renegotiation of Operating Agreement  16.33
      • 4.  Alternative Dispute Resolution  16.34
      • 5.  Conversion to Manager-Managed LLC  16.35
    • H.  Related Procedures
      • 1.  Inspection Rights Enforcement  16.36
      • 2.  Rescission  16.37
      • 3.  Class and Derivative Actions  16.38
      • 4.  Actions by Attorney General  16.39
    • I.  Effect of Dissolution and Filing of Certificate of Dissolution or Cancellation
      • 1.  On LLC’s Existence  16.40
      • 2.  On Agreements  16.41
      • 3.  On Creditors  16.42
      • 4.  On Pending Actions  16.43
      • 5.  On Tax Matters  16.44
  • IV.  REVOCATION OF DISSOLUTION AND CONTINUANCE OF COMPANY
    • A.  Agreement to Continue  16.45
    • B.  Certificate of Continuation; Voiding Certificate of Dissolution  16.46
    • C.  Rights of Creditors  16.47
    • D.  Rights of Former Members  16.48
    • E.  New Members  16.49
  • V.  WINDING UP OF AN LLC
    • A.  Filing of Certificate  16.50
    • B.  Responsible Persons  16.51
    • C.  Duties in Winding Up  16.52
    • D.  Creditors’ Rights and Remedies
      • 1.  Provision for Debts  16.53
      • 2.  Enforcement of Contribution Rights  16.54
      • 3.  Recovery of Improper Distributions  16.55
      • 4.  Litigation  16.56
    • E.  Sales and Use Tax Liability  16.57
    • F.  Distributions
      • 1.  Priorities  16.58
      • 2.  Court-Supervised Winding Up  16.59
    • G.  Form: Dissolution and Winding Up Agreement
      • 1.  Form: Heading and Preamble  16.60
      • 2.  Form: Recitals  16.61
      • 3.  Form: Effective Date and Cessation of Business  16.62
      • 4.  Form: Appointment of Liquidating Member  16.63
      • 5.  Form: Powers of Liquidating Member  16.64
      • 6.  Form: Duties of Liquidating Member  16.65
      • 7.  Form: Indemnification of Liquidating Member  16.66
      • 8.  Form: Payment of Creditors  16.67
      • 9.  Form: Distributions  16.68
      • 10.  Form: Obligations of Members  16.69
      • 11.  Form: Release of Claims  16.70
      • 12.  Form: Mutual Representations  16.71
      • 13.  Form: Disputed Matters  16.72
      • 14.  Form: Retention of Records  16.73
      • 15.  Form: Successors  16.74
      • 16.  Form: Notices  16.75
      • 17.  Form: Governing Law  16.76
      • 18.  Form: Entire Agreement  16.77
      • 19.  Form: Execution  16.78
      • 20.  Form: Consent of Spouse or Registered Domestic Partner  16.79
    • H.  Mechanics and Formalities of Winding Up
      • 1.  Certificate of Dissolution or Cancellation  16.80
      • 2.  Form: Limited Liability Company Certificate of Dissolution (Secretary of State Form LLC-3)  16.81
      • 3.  Form: Certificate of Continuation of a California Limited Liability Company (Secretary of State Form LLC-8)  16.82
      • 4.  Filing Certificate of Cancellation
        • a.  Required and Discretionary Information  16.83
        • b.  Form: Limited Liability Company Certificate of Cancellation (Secretary of State Form LLC-4/7)  16.84
        • c.  Form: Limited Liability Company Short Form Certificate of Cancellation (Secretary of State Form LLC-4/8)   16.85
      • 5.  Fictitious Business Name Abandonment  16.86
      • 6.  Bulk Sales Notice  16.87
      • 7.  Cancellation of Recorded Certified Copy of Articles of Organization  16.88
      • 8.  Final Considerations  16.89

17

Concordance Tables

  • I.  CONCORDANCE TABLE I: OLD TO NEW LLC ACTS  17.1
  • II.  CONCORDANCE TABLE II: NEW TO OLD LLC ACTS  17.2
  • III.  CONCORDANCE TABLE III: CALIFORNIA RULLCA TO DELAWARE LLC ACT  17.3
  • IV.  CONCORDANCE TABLE IV: DELAWARE LLC ACT TO CALIFORNIA RULLCA  17.4

18

Operating Agreement Forms Without Annotations

  • I.  INTRODUCTORY COMMENT  18.1
  • II.  FORM: LONG-FORM OPERATING AGREEMENT  18.2
  • III.  FORM: SHORT-FORM MULTI-MEMBER OPERATING AGREEMENT  18.3
  • IV.  FORM: SINGLE-MEMBER OPERATING AGREEMENT  18.4

FORMING AND OPERATING CALIFORNIA LIMITED LIABILITY COMPANIES

(3d Edition)

December 2018

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH02

Chapter 2

Establishing the Attorney-Client Relationship

02-015

§2.15

Conflicts Letter and Written Consent

02-016

§2.16

Engagement Agreement for Hourly Rate

CH03A

Chapter 3A

Organizational Checklist for a Limited Liability Company

03A-002

§3A.2

Organizational Checklist for Limited Liability Company

CH09

Chapter 9

Annotated Long-Form Operating Agreement

09-002

§§9.2-9.103

Parties and Date

 

§9.3

Recitals

 

§9.4

Definitions

 

§9.5

Formation

 

§9.6

Name of Company

 

§9.7

Address of Company

 

§9.8

Agent for Service of Process

 

§9.9

Business Purposes

 

§9.10

Limited Liability Company

 

§9.11

Term of Company’s Existence

 

§9.12

Initial Members

 

§9.13

Manager

 

§9.14

Capital Contributions

 

§9.15

Additional Contributions

 

§9.16

Dilution to Make Up Shortfall

 

§9.17

Enforcement; Penalizing Defaulting Member

 

§9.18

Capital Accounts

 

§9.19

No Return of Capital Contribution

 

§9.20

Interest

 

§9.21

Limited Liability

 

§9.22

No Priority of Treatment

 

§9.23

Priority of Allocations

 

§9.24

Definitions Relating to Special Allocations

 

§9.25

Certain Special Allocations

 

§9.26

Allocations of Member Nonrecourse Deductions

 

§9.27

Allocation of Profits From Capital Events

 

§9.28

Allocation of Losses From Capital Events

 

§9.29

Allocations Respecting Asset Distributions

 

§9.30

Allocations Respecting Contributed Property

 

§9.31

Allocations Between Transferor and Transferee

 

§9.32

Revaluation of Company Assets

 

§9.33

Compliance With Law and Regulations

 

§9.34

Available Cash From Business Operations

 

§9.35

Available Cash From Capital Events

 

§9.36

Noncash Proceeds

 

§9.37

Liquidating Proceeds

 

§9.38

Management

 

§9.39

Term of Manager

 

§9.40

Appointment and Removal of Managers

 

§9.41

Duties of Manager

 

§9.42

Procedure for Action by Managers

 

§9.43

Time Devoted to the Company

 

§9.44

Compensation

 

§9.45

Officers of the Company

 

§9.46

Title to Assets

 

§9.47

Banking

 

§9.48

Accounts

 

§9.49

Accounting

 

§9.50

Records

 

§9.51

Financial Statements

 

§9.52

Income Tax Returns

 

§9.53

Manager as Partnership Representative

 

§9.54

Authority to Be Exercised by Partnership Representative

 

§9.55

Members and Voting Rights

 

§9.56

Record Dates

 

§9.57

Membership Certificates

 

§9.58

Meetings: Call, Notice, and Quorum

 

§9.59

Adjournment of Meetings

 

§9.60

Waiver of Notice

 

§9.61

Proxies

 

§9.62

Participation in Meetings by Electronic Means

 

§9.63

Action by Members Without a Meeting

 

§9.64

No Agency; Indemnification

 

§9.65

Dissociation of Members

 

§9.66

Restrictions on Transfer

 

§9.67

Right of First Refusal

 

§9.68

Triggering Events

 

§9.69

Marital Dissolution or Death of a Spouse

 

§9.70

Option Periods

 

§9.71

Nonparticipation of Interested Member

 

§9.72

Option Purchase Price

 

§9.73

Substituted Member

 

§9.74

Duties of Substituted Member

 

§9.75

Securities Laws

 

§9.76

Events of Dissolution

 

§9.77

Winding Up

 

§9.78

Deficits

 

§9.79

Noncompetition and Confidentiality

 

§9.80

Indemnification

 

§9.81

Arbitration

 

§9.82

Power of Attorney

 

§9.83

Entire Agreement; Amendment

 

§9.84

Counterpart Executions

 

§9.85

Governing Law; Severability

 

§9.86

Binding Effect

 

§9.87

Number and Gender

 

§9.88

Further Assurances

 

§9.89

Members’ Other Business

 

§9.90

Agent

 

§9.91

Authority to Contract

 

§9.92

Titles and Headings

 

§9.93

Amendment

 

§9.94

Time of the Essence

 

§9.95

No Third Party Beneficiary Intended

 

§9.95A

Waiver

 

§9.96

Execution

 

§9.97

Signatures of Individual Members

 

§9.98

Partnership Signature by Individual General Partner

 

§9.99

Partnership Signature by Corporate General Partner

 

§9.100

Signature for Corporation

 

§9.101

Signature for Trust

 

§9.102

Signature for Estate

 

§9.103

Consent of Spouse or Domestic Partner

CH10

Chapter 10

Annotated Short-Form and Single-Member Operating Agreements

10-004

§§10.4-10.70

Parties and Date

 

§10.5

Recitals

 

§10.6

Definitions

 

§10.7

Filing of Articles of Organization

 

§10.8

Name

 

§10.9

Address

 

§10.10

Agent for Service of Process

 

§10.11

Business Purposes

 

§10.12

Term of Company’s Existence

 

§10.13

Members as Managers

 

§10.14

Capital Contributions

 

§10.15

Failure to Make Capital Contributions

 

§10.16

Capital Accounts

 

§10.17

Withdrawals

 

§10.18

Interest

 

§10.19

Limited Liability

 

§10.20

No Priority of Treatment

 

§10.21

Allocation of Profits and Losses

 

§10.22

Qualified Income Offset

 

§10.23

Allocations Respecting Asset Distributions

 

§10.24

Allocations Between Transferor and Transferee

 

§10.25

Distributions

 

§10.26

Noncash Proceeds

 

§10.27

Liquidating Proceeds

 

§10.27A

Election Out of Partnership Audit Rules

 

§10.28

All Members as Managers

 

§10.29

Procedure for Action by Members

 

§10.30

Compensation

 

§10.31

Officers of the Company

 

§10.32

Title to Assets

 

§10.33

Banking

 

§10.34

Accounts

 

§10.35

Accounting

 

§10.36

Records

 

§10.37

Income Tax Returns

 

§10.38

Members and Voting Rights

 

§10.39

Record Dates

 

§10.40

Proxies

 

§10.41

Dissociation of Members; Notice

 

§10.42

Restrictions on Transfer

 

§10.43

Triggering Events

 

§10.44

Marital Dissolution or Death of a Spouse

 

§10.45

Option Periods

 

§10.46

Nonparticipation of Interested Member

 

§10.47

Option Purchase Price

 

§10.48

Substituted Member

 

§10.49

Duties of Substituted Member

 

§10.50

Securities Laws

 

§10.51

Events of Dissolution

 

§10.52

Winding Up

 

§10.53

Deficits

 

§10.54

Arbitration

 

§10.55

Entire Agreement; Amendment

 

§10.56

Counterpart Executions

 

§10.57

Governing Law; Severability

 

§10.58

Benefit

 

§10.59

Number and Gender

 

§10.60

Further Assurances

 

§10.61

Members’ Other Business

 

§10.62

Agent

 

§10.63

Authority to Contract

 

§10.64

Titles and Headings

 

§10.65

Amendment

 

§10.66

Time of the Essence

 

§10.67

No Third Party Beneficiary Intended

 

§10.68

Execution Clause

 

§10.69

Signatures of Individual Members

 

§10.69A

Partnership Signature by Individual General Partner

 

§10.69B

Partnership Signature by Corporate General Partner

 

§10.69C

Corporate Signature

 

§10.69D

Signature for Trust

 

§10.69E

Signature for Estate

 

§10.70

Consent of Spouse or Domestic Partner

10-071

§§10.71-10.101

Parties and Date

 

§10.72

Recitals

 

§10.73

Filing of Articles of Organization

 

§10.74

Name

 

§10.75

Address

 

§10.76

Agent for Service of Process

 

§10.77

Business Purposes

 

§10.78

Term of Company’s Existence

 

§10.79

Member as Manager

 

§10.80

Capital Contributions

 

§10.81

Limited Liability

 

§10.82

Allocations Between Transferor and Transferee

 

§10.83

Distributions

 

§10.84

Sole Member as Manager

 

§10.85

Officers of the Company

 

§10.86

Title to Assets

 

§10.87

Banking

 

§10.88

Accounts

 

§10.89

Accounting

 

§10.90

Records

 

§10.91

Restrictions on Transfer

 

§10.92

Events of Dissolution

 

§10.93

Winding Up

 

§10.94

Entire Agreement; Amendment

 

§10.95

Governing Law; Severability

 

§10.96

Titles and Headings

 

§10.97

Amendment

 

§10.98

Time of the Essence

 

§10.99

No Third Party Beneficiary Intended

 

§10.100

Execution Clause

 

§10.101

Consent of Spouse or Domestic Partner

CH11

Chapter 11

Conversions and Mergers

11-031

§11.31

Plan of Conversion for Converting Entity to LLC

11-046

§11.46

Short-Form Agreement of Merger

11-047

§11.47

Long-Form Agreement of Merger Between Limited Liability Company and General Partnership

11-048

§11.48

Long-Form Agreement of Merger Between Limited Partnership and Limited Liability Company

11-049

§11.49

Long-Form Agreement of Merger Between Corporation and Limited Liability Company

CH12

Chapter 12

Issuing and Transferring Membership Interests

12-032

§12.32

Legend for Certificate and Operating Agreement

12-060

§12.60

Subscription Agreement

12-061

§12.61

Investor Questionnaire

12-062

§12.62

Professional Adviser Questionnaire

12-063

§12.63

Assumption Agreement

12-064

§12.64

Full Recourse Promissory Note

12-065

§12.65

Legend Limiting Transfer for Certificate or Operating Agreement

CH13

Chapter 13

Operating a Limited Liability Company

13-018

§13.18

Consent to Electronic Delivery of Notices, Reports, and Information

13-021

§13.21

Call for Meeting

13-024

§13.24

Notice of Members’ Meeting

13-025

§13.25

Waiver of Notice and Consent

13-026

§13.26

Declaration of Mailing or Delivery by Electronic Transmission

13-028

§13.28

Proxy

13-033

§13.33

Outline for Preparation of Minutes

13-034

§13.34

Minutes of Members’ Meeting

13-036

§13.36

Members’ Consent

13-043

§13.43

Form: Sample Memorandum to Client

CH16

Chapter 16

Liquidating and Dissolving Limited Liability Companies

16-060

§§16.60-16.79

Heading and Preamble

 

§16.61

Recitals

 

§16.62

Effective Date and Cessation of Business

 

§16.63

Appointment of Liquidating Member

 

§16.64

Powers of Liquidating Member

 

§16.65

Duties of Liquidating Member

 

§16.66

Indemnification of Liquidating Member

 

§16.67

Payment of Creditors

 

§16.68

Distributions

 

§16.69

Obligations of Members

 

§16.70

Release of Claims

 

§16.71

Mutual Representations

 

§16.72

Disputed Matters

 

§16.73

Retention of Records

 

§16.74

Successors

 

§16.75

Notices

 

§16.76

Governing Law

 

§16.77

Entire Agreement

 

§16.78

Execution

 

§16.79

Consent of Spouse or Registered Domestic Partner

CH18

Chapter 18

Operating Agreement Forms Without Annotations

18-002

§18.2

Form: Long-Form Operating Agreement

18-003

§18.3

Form: Short-Form Multi-Member Operating Agreement

18-004

§18.4

Form: Single-Member Operating Agreement

 

Selected Developments

December 2018 Update

Conflicts of Interest

An attorney cannot accept or continue representation of a client without obtaining the client’s informed written consent if

  • The attorney’s representation is directly adverse to another client in the same or a separate matter (Cal Rules of Prof Cond 1.7(a)); or

  • There is a significant risk the attorney’s representation of the client will be materially limited by the lawyer’s responsibilities to or relationships with another client, a former client, or a third person, or by the lawyer’s own interests (Cal Rules of Prof Cond 1.7(b)).

To obtain an “informed written consent,” the attorney must first adequately disclose in writing to the client both

  • The relevant circumstances giving rise to the conflict or potential conflict and the need for such consent; and

  • The material risks, including any actual and reasonably foreseeable adverse consequences to the client, arising from the giving of consent to the representation (Cal Rules of Prof Cond 1.01(e), (e–1)).

Furthermore, an attorney cannot accept or continue representation of a client without providing written disclosure to the client of the relevant circumstances, even when there is no significant risk that the attorney’s representation of the client will be materially limited by the attorney’s responsibilities to or relationships with another client, a former client, or a third person, or by the attorney’s own interests, when

  • The attorney has, or knows that another lawyer in the attorney’s firm has, a legal, business, financial, professional, or personal relationship with or responsibility to a party in the same matter (Cal Rules of Prof Cond 1.7(c)(1)); or

  • The attorney knows or reasonably should know that another party’s lawyer is a spouse, parent, child, or sibling of the attorney, lives with the attorney, is a client of the attorney or another lawyer in the attorney’s firm, or has an intimate personal relationship with the attorney (Cal Rules of Prof Cond 1.7(c)(2)).

See §2.7.

In Beachcomber Mgmt. Crystal Cove LLC v Superior Court (2017) 13 CA5th 1105, 1118, the court ruled that an attorney who previously represented both a closely held company and its insiders may continue representing insiders in a derivative lawsuit brought on the company’s behalf against insiders. See §16.4.

Tax Cuts and Jobs Act

On December 22, 2017, legislation commonly referred to as the Tax Cuts and Jobs Act (TCJA) (HR 1) (Pub L 115–97, 131 Stat 2054) was signed into law. The TCJA made significant changes to the taxation of C corporations and of the owners of S corporations, partnerships, and LLCs (so-called pass-through entities), generally effective for tax years beginning on or after January 1, 2018. In general, the TCJA provides reduced tax rates for both C corporations and owners of pass-through entities. However, many of the TCJA tax changes are subject to sunset on December 31, 2025 (or other specified dates). Entity selection based on post-2018 tax benefits must therefore be weighed against the potential expiration of these benefits. In addition, it is unclear whether California will conform its Revenue and Taxation Code to the federal tax changes made by the TCJA. See §3.14.

Under the TCJA, the federal income tax rate on corporations was reduced from a maximum of 35 percent to a fixed rate of 21 percent. See §3.20.

Under the TCJA, the net operating loss (NOL) deduction is limited to 80 percent of a corporation’s taxable income and can be carried forward indefinitely. IRC §172. For partnerships and LLCs, the NOL is not deductible at the entity level but may be deducted against other income by the individual partners or members, subject to certain limitations. See §§3.44, 5.9, 5.54–5.57. See also the at-risk rules (IRC §465) and the passive activity loss rules (IRC §469). The TCJA also provides general limitations on noncorporate taxpayer losses. For tax years 2018 through 2025, individual filers can only deduct $250,000 of business losses against nonbusiness income ($500,000 for joint filers). IRC §461(l). The limitation is indexed to inflation and losses in excess of the thresholds are carried forward under the TCJA NOL rules. See §§3.21, 5.54.

A C corporation may not, as a general rule, use the cash method of accounting. IRC §448(a)(1). However, the TCJA expanded the exceptions to this rule to allow corporate taxpayers with annual average gross receipts that do not exceed $25 million for the three prior taxable-year periods to use the cash method. IRC §448(c). See §3.23.

A partnership is treated as terminated if no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership. IRC §708(b)(1). Before enactment of the TCJA, a partnership was considered terminated if 50 percent or more of the interests in a partnership’s capital and profits were sold or exchanged within 12 months. However, the TCJA eliminated these “technical termination” rules. See §3.45.

The American Jobs Creation Act of 2004 (AJCA) (Pub L 108–357, 118 Stat 1589) amended IRC §743(b) to provide another ground for adjusting the basis of an LLC interest—namely, when there is a “substantial built-in loss” immediately following the transfer of the interest. An LLC has a substantial built-in loss with respect to a transfer of an interest if the adjusted basis in the property exceeds the fair market value of the property by more than $250,000. The TCJA modified the definition of substantial built-in loss so that a substantial built-in loss also exists if, on a hypothetical disposition of all LLC assets at fair market value by the LLC immediately after the transfer of the LLC interest, the transferee would be allocated a net loss in excess of $250,000. See IRC §743(d)(1). See §5.79.

Also under the TCJA, the purchaser of an LLC membership interest must withhold 10 percent of the amount realized on the sale or exchange of an LLC interest that is effectively connected with a U.S. trade or business, unless the seller certifies that it is not a nonresident alien or foreign corporation. See IRC §§864(c), 1446(f). In addition, the sale of a membership interest by a foreign member of an LLC owning U.S. real property interests may trigger a withholding obligation. That withholding obligation is on the purchaser and is equal to 15 percent of the amount of the sale (IRC §1445(e)(5)). That withholding obligation is triggered if the gross assets of the LLC consist of 50 percent of U.S. real property interests, and 90 percent or more of the value of the gross assets consist of U.S. real property interests and cash or cash equivalents. Temp Treas Reg §1.1445–11T(d). See §5.79.

IRC §199A: New 20 Percent Deduction on Qualified Business Income

Among other things, the TCJA introduced new IRC §199A, which provides for a 20 percent deduction on certain qualified business income earned by pass-through entities such as sole proprietorships, partnerships, LLCs, and S corporations. The 20 percent deduction reduces the effective maximum tax rate on eligible pass-through income from 37 percent to 29.6 percent. See §4.32A.

The 20 percent deduction is available to all taxpayers except C corporations. IRC §199A(a). Thus, individuals, trusts, and estates that hold interests in pass-through entities are entitled to the 20 percent deduction on their qualified business income. The deduction also applies to an individual’s qualified business income earned if the individual is a sole proprietorship or the member of a single-member LLC. See §4.32B.

The 20 percent deduction only applies to income from qualified businesses. See IRC §199A(c)(1). The issue of what is a qualified business is discussed in detail in §4.32C. Certain specified service businesses are excluded from the definition of qualified business. In addition, there is an issue whether a particular activity rises to the level of a trade or business. The most common example is rental real estate when the property is either a single-family residential property or a triple net lease property. Case law is not clear whether either activity rises to the level of a trade or business. The enactment of IRC §199A only puts greater stress on this issue. See §4.32C.

Not all income earned by a pass-through entity is entitled to the 20 percent deduction. Generally, the income must be earned by a trade or business within the United States. IRC §199A(c)(3)(A)(i). Also excluded is investment income. IRC §199A(c)(3)(B). Reasonable compensation paid to the taxpayer with respect to the business and any guaranteed payments are also not included in qualified business income. IRC §199A(c)(4). It appears that rental income, royalty income, and other types of passive income are included in qualified business income. See IRC §199A(c)(1). See §4.32D.

Although initially the deduction is 20 percent of the qualifying business income, it is subject to a limitation based on the W-2 wages paid by the business. The W-2 wages limitation is the greater of (a) 50 percent of the W-2 wages paid by the business or (b) 25 percent of the W-2 wages paid by the business plus 2.5 percent of the original cost of depreciable property and acquisition costs for that property that are capitalized in the business. IRC §199A(b)(2)(B). Depreciable property is only included for as long as the asset is subject to depreciation. Once the asset is fully depreciated, it comes out of the 2.5 percent asset base. See §4.32E.

The amount of the deduction is also subject to another limitation. It cannot exceed 20 percent of the taxpayer’s taxable income before the deduction, reduced by net capital gain. IRC §199A(a)(1). For example, a taxpayer who has more itemized and nonbusiness deductions than nonbusiness income will be subject to this limitation. If the taxpayer’s income is only qualified business income, but the taxpayer has deductions for home mortgage interest, state and local taxes, and charitable contributions, 20 percent of taxable income will be less than 20 percent of qualified business income. The effect of this provision is to prevent the deduction from creating a loss for the year. The deduction cannot cause a taxpayer’s taxable income to be negative. See §4.32F.

Despite the exclusion of income from certain service businesses (see IRC §199A(d)(1); §4.32C), certain taxpayers below specified income thresholds can still earn the deduction. Joint taxpayers whose income is $315,000 or less or single taxpayers whose taxable income is $157,500 or less are entitled to the deduction. IRC §199A(b)(3)(A). On a joint return, the benefit is phased out between $315,000 and $415,000 of taxable income; for a single taxpayer, the benefit is phased out between $157,500 and $207,500 of taxable income. IRC §199A(b)(3)(B). See §4.32G.

Updated chap 4 includes several new sections containing examples of the benefit of the IRC §199 deduction, the impact of the deduction on certain taxpayers, and a chart that should facilitate analysis of the operation of the deduction. See §§4.32H–4.32J.

Other Tax Law Developments

In Swart Enters., Inc. v Franchise Tax Bd. (2017) 7 CA5th 497, 500, the court of appeal held that an out-of-state corporation was not doing business in California and was not subject to the $800 minimum franchise tax when the corporation’s only connection to California was its passive ownership of a 0.2 percent membership interest in a manager-managed California LLC. See §3.57.

An LLC may elect out of the partnership audit and adjustment rules only if all of its members qualify as “eligible partners” under Treas Reg §301.6221(b)–1(b)(3)(i). This category includes individuals, C corporations, S corporations, estates of deceased partners, and certain foreign entities. The following, however, are not “eligible partners” under Treas Reg §301.6221(b)–1(b)(3)(ii): partnerships; trusts; certain foreign entities; “disregarded entities” (as defined in Treas Reg §301.7701–2(c)(2)(i)); estates of individuals other than deceased partners; and nominees or others that hold interests in an entity on behalf of another person. Under Treas Reg §301.7701–2(c)(2)(i), a “disregarded entity” includes any business entity (other than a corporation) that has a single owner. Thus, any LLC with even one single-member LLC as a member will not be eligible to elect out of the centralized partnership audit regime. See §5.16A.

California Secretary of State

Through the California Secretary of State’s BizFile service, http://www.sos.ca.gov/business-programs/bizfile/, it is now possible to file LLC formation documents and statements of information online, using a laptop, tablet, or smartphone. See §7.23A for additional information. All of the Secretary of State LLC forms are posted online, at http://www.sos.ca.gov/business-programs/business-entities/forms/#llc, and are modified from time to time. Before completing an LLC form, it is a good idea to check the Secretary of State’s website to ensure that the current form is used. The website also sets forth the current filing fees and other relevant information. See §§7.1, 7.23A.

As discussed in §§7.35 and 13.3–13.3E, it is also possible to prepare and file the required biennial Statement of Information (Limited Liability Company) (Form LLC-12) entirely online. In addition, the public can view online (and download or print) PDFs of the two most recent Statements of Information of record and PDFs of articles of organization (and amendments) for most LLCs. See §7.23A.

Rights of Transferees

A transferee who holds only a transferable interest will have no right to vote, to participate in management, or to conduct activities of the LLC, except as permitted under Corp C §17705.04 with respect to a deceased member’s personal representative or other legal representative. Corp C §17705.02(a)(3). But see SP Inv. Fund I LLC v Cattell (2017) 18 CA5th 898, in which the court held that a limited partner could contract to transfer the right to direct the voting of his limited partnership interest even though the transferee had not been approved as a new limited partner. See §12.8.

Reverse Veil Piercing

For a case allowing potential alter ego liability with respect to an LLC for the obligations of a member (“reverse veil piercing”), see Curci Invs., LLC v Baldwin (2017) 14 CA5th 214. In Curci, the court noted that a creditor does not have the same options against a member of an LLC as it has against a shareholder of a corporation. “[I]f the debtor is a member of an LLC, the creditor may only obtain a charging order against distributions made to the member.… The debtor remains a member of the LLC with all the same rights to manage and control the LLC, including … the right to decide when distributions to members are made, if ever.” 14 CA5th at 223. The court therefore ruled that reverse veil piercing might be available. In contrast, reverse veil piercing was not allowed in Phillips, Spallas & Angstadt, LLP v Fotouhi (2011) 197 CA4th 1132 or in Postal Instant Press, Inc. v Kaswa Corp. (2008) 162 CA4th 1510, but neither Phillips nor Postal Instant Press involved LLCs. See §§12.9, 13.2.

Effect of Certificate of Cancellation

Prior to 2016, Corp C §17707.06(a) provided that an LLC that has been dissolved continues to exist not only to wind up its affairs, but also to prosecute and defend actions against it concerning its obligations and the disposition and conveyance of its property and other assets. However, under Corp C §17707.08(c), once a certificate of cancellation was filed, the LLC was required to be cancelled and its powers, rights, and privileges ceased. Effective January 1, 2016, Corp C §17707.06(a) was amended by substituting the phrase “has filed a certificate of cancellation” for the phrase “is dissolved,” so that now, an LLC that has been cancelled expressly 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.” See §16.53.

Retroactivity of RULLCA Amendment

The retroactivity of the amendment to Corp C §17707.06(a) was discussed in DD Hair Lounge, LLC v State Farm Gen. Ins. Co. (2018) 20 CA5th 1238, in which the court declined to give the amendment retroactive effect so as to allow the plaintiff to maintain its lawsuit. The plaintiff was an LLC whose articles were cancelled after the January 1, 2014, RULLCA effective date but before the effective date of the amendment to §17707.06(a), but the plaintiff had hidden its certificate of cancellation in an attempt to maintain its suit. See §§1.9, 16.53.

About the Third Edition Authors

RICHARD G. BURT received his B.A. degree in 1970 from the University of Pennsylvania and his J.D. degree in 1973 from George Washington University. Mr. Burt practices law in San Jose, specializing in commercial and real estate transactions and business organizations. He has served several times as a member of the Partnerships and Limited Liability Companies Committee of the State Bar’s Business Law Section.

CHRISTOPHER CHEDIAK received his B.S. degree in 1980 from the University of California, Davis, and his J.D. degree in 1983 from the University of Southern California. Mr. Chediak is a shareholder and a member of the corporate department of the Weintraub Genshlea Chediak Law Corporation in Sacramento. He is a member of the State Bar Business Law Section’s Corporations Committee and formerly a member of the Partnerships and Limited Liability Companies Committee that assisted the legislature in drafting California’s LLC Act.

PAUL J. DERENTHAL received his B.A. degree in 1976 from the University of San Francisco and his J.D. degree in 1980 from the University of California, Hastings College of the Law. Mr. Derenthal is a partner in the law firm of Derenthal & Dannhauser LLP in Oakland. His practice focuses on counseling clients on matters relating to business organization, operations, capitalization and transactions, and advising on securities law compliance matters.

ALLAN B. DUBOFF received his B.A. degree in 1980 from the University of California, Los Angeles, his J.D. degree in 1984 from the University of Pennsylvania, and his M.B.A. from the Wharton Graduate School, University of Pennsylvania. Mr. Duboff, of Loeb & Loeb LLP, Los Angeles, specializes in general corporate, partnership, limited liability company matters and in mergers and acquisitions, private equity, venture capital, joint ventures, and licensing matters. He was a member of the State Bar Business Law Section’s Partnerships and Limited Liability Companies Committee that assisted the legislature in drafting California’s LLC Act and was the editor and primary drafter of the State Bar’s Guide to Organizing and Operating a Limited Liability Company in California. He also has served as Treasurer of Business Law Section of the State Bar and as Chair of the Los Angeles County Bar Association, Business and Corporations Law Section.

JAMES F. FOTENOS is a partner in Greene Radovsky Maloney Share & Hennigh LLP, San Francisco, and holds A.B., J.D., and M.B.A. degrees from Stanford University and its Law School and School of Business, respectively. His practice focuses on corporate, securities, and pass-through entity counseling, including representing issuers in private debt and equity financing, corporate governance, SEC reporting and compliance, and mergers and acquisitions. He is a frequent contributor to CEB publications. He has served as Co-Chair of the Opinions Committee and the Corporations Committee of the Business Law Section of the State Bar of California, as a member and Treasurer of the Executive Committee of the Business Law Section, and as Chair of the Partnerships and Limited Liability Companies Committee. He is the editor of the quarterly newsletter In Our Opinion, published by the Legal Opinions Committee of the ABA’s Business Law Section.

EDWARD GARTENBERG received his B.A. degree from Columbia University in 1971 and his J.D. degree from Columbia Law School in 1974. His practice experience encompasses complex business and securities litigation; arbitration; and federal, state, and regulatory investigations. He is experienced as counsel and as an expert witness in partnership, LLC, and securities issues. Mr. Gartenberg was formerly a Special Counsel at the Division of Enforcement of the SEC and a Special Assistant United States Attorney. He has served as an arbitrator for AAA and FINRA. Before co-founding his current firm, Gartenberg Gelfand Hayton LLP, he served as Chair of the SEC Defense and Securities Litigation practice of a major international law firm. Mr. Gartenberg also served as Chair of the Partnerships and Limited Liability Companies Committee of the State Bar. He has lectured numerous times at law schools, continuing legal education programs, and professional organizations. He has also written extensively on partnership, LLC, fiduciary duty, and ethics issues.

BENJAMIN D. GEMPERLE received his B.S. degree from Loyola Marymount University in 1995, his M.B.A. from Loyola Marymount University in 1999 with an emphasis in finance and management, and his J.D. from Loyola Law School in 2002, where he served as Chief Research Editor of the Loyola of Los Angeles Entertainment Law Review. Mr. Gemperle is a senior counsel in the Los Angeles office of Locke Lord LLP, where he focuses on complex commercial real estate and corporate transactions. He has significant experience in the formation and governance of privately held entities, as well as private debt and equity offerings, and securities compliance matters. Mr. Gemperle’s corporate work is complemented by his real estate practice, where he focuses primarily on commercial leasing, acquisitions and dispositions, and secured financing transactions.

MARTIN T. GOLDBLUM received his J.D. degree from the New York University School of Law, where he was an officer of the law review and a member of the Order of the Coif. He served as a clerk for Judge Oscar H. Davis of the U.S. Court of Claims (now the U.S. Court of Appeals for the Federal Circuit) and as an attorney in the Appellate Section of the Tax Division of the U.S. Department of Justice before moving to California and entering private practice. Mr. Goldblum chairs the Tax Department of TroyGould PC. He has broad expertise in tax matters, but focuses primarily on the tax aspects of mergers and acquisitions, executive compensation, and corporate and partnership taxation. He has been chosen as a Super Lawyer for Southern California for the last several years, as well as for the year 2014.

PHILLIP L. JELSMA received his B.S. degree from the University of Southern California and his J.D. degree from Stanford Law School, where he was a member of the Stanford Law Review. Mr. Jelsma is a partner in Crosbie Gliner Schiffman Southard & Swanson LLP (or cgs3), a San Diego law firm specializing in real estate transactions. He is an adjunct professor at the University of San Diego School of Law, where he teaches the Taxation of Property Transactions course. He has served as a member of the State Bar of California Drafting Committees for the Beverly-Killea Limited Liability Company Act, the California Revised Uniform Limited Liability Company Act, the Revised Uniform Limited Partnership Act, and the Revised Uniform Partnership Act.

DIETRICK L. MILLER received his B.A. degree in 2000 from Portland State University, his M.A. in 2004 from National Sun Yat-sen University, Taiwan, and his J.D. degree in 2012 from the University of California, Los Angeles, School of Law, where he was Editor-in-Chief of the UCLA Pacific Basin Law Journal. Mr. Miller is an associate in TroyGould PC’s Corporate Department and China Practice Group, where his practice includes general corporate law and governance, cross-border transactions, mergers and acquisitions, private equity transactions, and regulatory compliance.

CHARLES P. ORTMEYER received his B.A. degree from the University of California, Berkeley, and his J.D. degree from the University of California, Berkeley, School of Law, in 1979, where he was a senior editor of the California Law Review and a member of Order of the Coif. During 1979–1981, Mr. Ortmeyer was a law clerk to the Hon. Betty B. Fletcher, of the United States Court of Appeals for the Ninth Circuit. His practice is focused on business formation, financing, and transactions. His industry experience includes technology products and services, telecommunications, hedge funds and venture capital funds, contract manufacturing, and software development and licensing. Mr. Ortmeyer is the co-author of Securities Regulation Forms (Clark Boardman Callaghan), a 4-volume treatise on documentation of securities transactions.

MICHAEL G. SCHINNER received his B.A. degree from the College of Mount St. Joseph on the Ohio, his J.D. degree from the University of Cincinnati, where he was a member of the Law Review, and his LL.M. (Taxation) from Golden Gate University. Mr. Schinner is the founder of the Schinner Law Group, a San Francisco and Silicon Valley-based law firm specializing in corporate and tax law. He is also an adjunct professor at Golden Gate University, where he teaches courses on limited liability companies and S corporations. He is a frequent lecturer for CEB, the Bar Association of San Francisco, and the State Bar of California, and he has published articles in CEB’s California Business Law Practitioner and California Business Law Reporter, the California Tax Lawyer, the Journal of Taxation, the Journal of S Corporation Taxation, and the American Journal of Tax Policy.

DALE E. SHORT received his B.S. degree in 1977 from Iowa State University, where he was elected Phi Beta Kappa, and his J.D. degree in 1980 from the University of Southern California’s Gould School of Law, where he was elected to the Order of the Coif and was a member of the Law Review. He is chairman of TroyGould PC’s Corporate Department, where his practice is devoted primarily to corporate and securities transactions for a client mix of public companies and successful, privately held businesses. Mr. Short was named by The Best Lawyers in America as the “2014 Los Angeles Securities Regulation Lawyer of the Year” and has earned a listing in Best Lawyers® on numerous occasions, most recently in 2014.

WILLIAM F. WEBSTER received his B.A. degree in 1981 from the University of California, Santa Barbara, and his J.D. degree in 1989 from the University of California, Hastings College of the Law. Mr. Webster is vice president and general counsel at Asset Preservation, Inc., a 1031-exchange qualified intermediary located in Roseville. He is a former member of the Partnerships and LLCs Committee of the State Bar Business Law Section, and the Executive Committee of the Business Section of the Sacramento County Bar Association.

About the December 2018 Update Authors

RICHARD G. BURT is the December 2018 update author of Chapters 1 and 7. See the “About the Third Edition Authors” section for Mr. Burt’s biography.

CHRISTOPHER CHEDIAK is a December 2018 update co-author of Chapter 12 and the update author of Chapter 13. See the “About the Third Edition Authors” section for Mr. Chediak’s biography.

PAUL J. DERENTHAL is the December 2018 update author of Chapter 2. See the “About the Third Edition Authors” section for Mr. Derenthal’s biography.

ALLAN B. DUBOFF is the December 2018 update author of Chapter 6. See the “About the Third Edition Authors” section for Mr. Duboff’s biography.

EDWARD GARTENBERG is a December 2018 update co-author of Chapter 9. See the “About the Third Edition Authors” section for Mr. Gartenberg’s biography.

BRETT HEEGER is a December 2018 update co-author of Chapter 9. An attorney with Gartenberg Gelfand Hayton LLP, Los Angeles, a boutique corporate and securities firm serving clients in Southern California and around the world. Mr. Heeger received his undergraduate degree from Brown University and his J.D. degree from Harvard Law School. Keenly interested in how small businesses can contribute to sustainable economic development, he is dedicated to supporting businesses from inception through each phase of growth. Mr. Heeger has substantial experience helping clients find the best legal structure, build partnerships, and structure financing opportunities to achieve optimal growth. A graduate of the L.A. Chamber of Commerce Riordan Leadership Institute and a member of the California Center for Cooperative Development and the Brown University Club of Los Angeles, he serves on the board of Hands4Hope LA, a nonprofit providing after-school care to children of single parents in North Hollywood.

PHILLIP L. JELSMA is the December 2018 update author of Chapters 4 and 5. See the “About the Third Edition Authors” section for Mr. Jelsma’s biography.

CHRISTOPHER KARACHALE is the December 2018 update author of Chapter 3. Mr. Karachale is a partner at Hanson Bridgett LLP in San Francisco, where he advises individuals and business entities on a broad range of tax planning and tax controversy matters. He also serves as outside general counsel to small and medium-sized businesses in the San Francisco Bay Area. Mr. Karachale publishes and speaks widely on a variety of topics, include tax issues affecting start-ups and their founders. He is certified as a legal specialist in taxation law and has been named a Northern California Super Lawyers Rising Star every year since 2013. Mr. Karachale received his undergraduate degree from Middlebury College, an M.A. degree from Stanford University, his J.D. degree from the University of San Francisco, and an LL.M. degree in tax from New York University.

CHARLES P. ORTMEYER is the December 2018 update author of Chapter 16. See the “About the Third Edition Authors” section for Mr. Ortmeyer’s biography.

MICHAEL G. SCHINNER is the December 2018 update author of Chapter 15. See the “About the Third Edition Authors” section for Mr. Schinner’s biography.

WILLIAM F. WEBSTER is a December 2018 update co-author of Chapter 12. See the “About the Third Edition Authors” section for Mr. Webster’s biography.

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