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Updated Default LLC Dissolution Statute Becomes Effective Jan. 1, 2017

Earlier this summer, an important piece of legislation that affects numerous businesses was signed into law. Pertinently, Assembly Bill 1722 was signed into law by California Governor Jerry Brown on July 22, 2016 and becomes effective January 1, 2017.

The bill amends Corporations Code §§ 17707.01,17707.02, which currently authorize a limited liability company (LLC) to dissolve the entity with a vote of a majority of the members (or, if there are no members, the majority of the managers) or a vote of a greater percentage of voting interests as set forth in the company's articles of organization or operating agreement. In other words, under current law, the dissolution of a LLC requires a vote of more than 50% of the voting interests. In the case of a 50/50 deadlock between two equal members, the only way to break the standoff is bring a costly litigation action seeking judicial dissolution.

AB 1722 sought to reduce this "majority" standard to bring it into congruence with the default corporate dissolution statute. (Corp. Code § 1900(a).) This bill required the vote of fifty percent (50%) or more of the voting interests of the members of the LLC to dissolve. The practical effect of this otherwise seemingly minor change is significant. Now, for example, the "50% or more" standard allows these small, two-member (owned 50/50) LLCs to dissolve the business entity without experiencing the unpleasant, time-consuming process of judicial dissolution. Of course, AB 1722 still allows members of a limited liability company to require a higher voting percentage to affect dissolution via the company's articles of organization or bylaws. The new legislation simply harmonizes the default LLC statute with the default corporate dissolution statute.

Ben Schwefel is an Associate Attorney at The Loftin Firm. For questions relating to a business, nonprofit, or estate planning matter, contact Ben at (760) 814-9649. 

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