January 9, 2014
With the new California limited liability company law in full force, we have been fielding many questions from clients about how the law impacts their investments. The new law, the California Revised Uniform Limited Liability Company Act, took effect at the start of the year. As a practical matter, the new law will not significantly impact many private equity or venture-backed companies, as many are formed outside California (although more on that below), are organized as corporations, or have governing documents that already address many issues that are created by the new law. Also, for PE investments that are wholly owned by the fund, the new law will have little effect because the fund has full managerial authority over the venture.
Nevertheless, there are several changes in the new law that may require attention, particularly for investors in joint ventures or those holding minority interests. This alert identifies those changes and suggests ways to address them. Keep in mind that parties to existing companies may be unwilling to change their documentation, so as a practical matter they may not be able to address these issues. But for new ventures, new practices may be in order.
Private equity and venture-backed investments organized as California LLCs may want to reexamine customary practices for structuring their entities. Otherwise, new rules under the California Revised Uniform Limited Liability Company Act may provide unwelcome surprises.