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27 Pac. L. J. 261 (1995-1996)
California's New Limited Liability Company Act: A Look at the Good the Bad and the Ambiguous

handle is hein.journals/mcglr27 and id is 305 raw text is: California's New Limited Liability Company Act: A Look at the Good, the Bad, and the Ambiguous Franklin A. Gevurtz* TABLE OF CONTENTS I. RIGHTS OF THE MEMBERS INTER SE ............................. 262 A. Basic Operating Rules .................................. 262 B. Fiduciary Duty ....................................... 267 C. Fundamental Changes .................................. 270 1. Sale or Combination of Businesses ...................... 271 2. Admission of New Members .......................... 275 3. Involuntary Exit: Expulsion of Members ................ 279 4. Voluntary Exit: Cash-out Rights ....................... 283 5. Alteration of the Contract Between the Members .......... 289 11. CREDITOR PROTECTION ISSUES ...... : ......................... 294 A. Distributions ......................................... 294 B. Piercing the LLC ...................................... 299 CONCLUSION ................................................ 302 California has now joined almost all the other states in enacting legislation that authorizes a new business entity-the limited liability company ( LLC)1 The object of this new form is to obtain classification for federal income tax purposes as a partnership, while at the same time allow the firm's owners to achieve insulation from personal responsibility for the debts of the firm.2 The purpose of this article is neither to praise nor criticize this overall development? I leave to * Professor of Law, University of the Pacific, McGeorge School of Law. B.S. 1974, University of California, Los Angeles; J.D. 1977, University of California, Berkeley. 1. CAL. CORP. CODE §§ 17000-17705 (West Supp. 1996). Even more recently, California enacted a limited liability partnership (or LLP) statute. See Julia A. Butcher, Review of Selected 1995 California Legislation, 27 PAc. L.J. 349, 440-47 (1996) (discussing the enactment of S.B. 513, dealing with LLPs, available at 1995 Cal. Legis. Serv. ch. 679, sec. 1-20, at 4079-98). This statute provides limited liability to law and accounting firms in exchange for minimum insurance coverage. Beyond this, California LLPs generally are governed by the State's version of the Uniform Partnership Act. Hence, the LLP act raises few of the issues addressed in this article which occur in the far broader LLC act. 2. See FRANKLIN A. GEvURTz, BUSINESS PLANNING 53-109 (2d ed. 1995) (discussing in detail why this combination is desirable). 3. See, e.g., Timothy M. Harris, Review of Selected 1994 California Legislation, 26 PAC. LJ. 202, 305, 309-11 (1995) (explaining the purpose and concerns underlying California's LLC enactment).

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