BILL NUMBER: AB 506	CHAPTERED
	BILL TEXT

	CHAPTER  775
	FILED WITH SECRETARY OF STATE  OCTOBER 11, 2015
	APPROVED BY GOVERNOR  OCTOBER 11, 2015
	PASSED THE SENATE  AUGUST 27, 2015
	PASSED THE ASSEMBLY  AUGUST 31, 2015
	AMENDED IN SENATE  AUGUST 17, 2015
	AMENDED IN SENATE  JULY 15, 2015
	AMENDED IN SENATE  JUNE 29, 2015
	AMENDED IN SENATE  JUNE 10, 2015
	AMENDED IN ASSEMBLY  APRIL 23, 2015

INTRODUCED BY   Assembly Member Maienschein

                        FEBRUARY 23, 2015

   An act to amend Sections 17701.02, 17701.10, 17701.12, 17701.13,
17704.01, 17704.04, 17704.07, 17704.08, 17704.09, 17704.10, 17705.02,
17706.03, 17707.01, 17707.03, 17707.06, 17707.09, 17708.07,
17710.03, 17710.06, 17710.12, 17713.04, and 17713.12 of the
Corporations Code, relating to business.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 506, Maienschein. Limited liability companies.
   Existing law, the California Revised Uniform Limited Liability
Company Act, authorizes one or more persons to form a limited
liability company by, among other things, signing and delivering
articles of organization to the Secretary of State. The act
authorizes a person, as defined, to dissociate as a member of a
limited liability company at any time by withdrawing as a member by
express will. The act deems a person to be dissociated from a limited
liability company upon the occurrence of certain events, including,
among others, an individual's death. The act provides the effects
when a person, including an individual, is dissociated from a limited
liability company. Existing law limits the application of an
operating agreement.
   This bill would specify that upon dissociation a person's right to
vote as a member in the management and conduct of the limited
liability company's activities terminates. The bill would authorize,
if a member dies, or a guardian or conservator of the estate is
appointed for the member, or a member's interest is being
administered by an attorney-in-fact under a valid power of attorney,
the member's executor, administrator, guardian, conservator,
attorney-in-fact, or other legal representative to exercise all of
the member's rights for the purpose of settling the member's estate
or administering the member's property, including any power the
member had under the articles of organization or an operating
agreement to give a transferee the right to become a member. The bill
would also modify the definition of "electronic transmission by the
limited liability company" and would expand the definition of "person"
under the act. The bill would modify what an operating agreement may
provide, as specified. The bill would provide that specified
provisions of the Labor Code, relating to consideration for
employment and employment contracts, shall not apply to membership
interests issued by any limited liability company or foreign limited
liability company, as specified.
   Existing law requires that any distributions made by a limited
liability company before its dissolution and winding up be among the
members in accordance with the operating agreement.
   This bill would further require that the profits and losses of a
limited liability company be allocated among the members, and among
classes of members, in the manner provided in the operating
agreement, and would require that profits and losses be allocated in
proportion to the value of the contributions from each member if the
operating agreement does not otherwise provide.
   Existing law requires the consent of all members of the limited
liability company to approve a merger or conversion and to amend the
operating agreement.
   This bill would eliminate that requirement.
   Existing law requires a limited liability company to reimburse for
any payment made and indemnify for any debt, obligation, or other
liability incurred by a member of a member-managed limited liability
company or the manager of a manager-managed limited liability company
in the course of the member's or manager's activities on behalf of
the limited liability company, if, in making the payment or incurring
the debt, obligation, or other liability, the member or manager
complied with specified duties.
   This bill would require the limited liability company to indemnify
the agent of a limited liability company to the extent that the
agent has been successful on the merits in defense or settlement of
any claim, issue, or matter if the agent acted in good faith and in a
manner that the agent reasonably believed to be in the best
interests of the limited liability company and its members, as
provided.
   Under existing law, the persons who filed the certificate of
dissolution are required to sign and file with the Secretary of State
a certificate of cancellation of articles of organization upon the
completion of the winding up of the affairs of the limited liability
company, except as specified. Existing law requires the certificate
of cancellation of articles of organization to include, among other
things, that upon the filing of the certificate of cancellation, the
limited liability company is required to be canceled and its powers,
rights, and privileges are required to cease. Under existing law, a
limited liability company that is dissolved continues to exist for
the purpose of, among other things, winding up its affairs and
prosecuting and defending actions by or against it in order to
collect and discharge obligations.
   This bill would instead provide that a limited liability company
that has filed a certificate of cancellation continues to exist for
those purposes, as specified.
   This bill would limit the applicability of the act to acts or
transactions by a limited liability company or by the members or
managers of the limited liability company occurring, or an operating
agreement or other contracts entered into by the limited liability
company or by the members or managers of the limited liability
company, on or after January 1, 2014.
   This bill would incorporate additional changes to Section 17710.06
of the Corporations Code made by this bill and AB 1471 to take
effect if both bills are chaptered and this bill is chaptered last.
   This bill would incorporate additional changes to Section 17713.12
of the Corporations Code made by this bill and AB 1517 to take
effect if both bills are chaptered and this bill is chaptered last.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 17701.02 of the Corporations Code is amended to
read:
   17701.02.  In this title:
   (a) "Acknowledged" means that an instrument is either of the
following:
   (1) Formally acknowledged as provided in Article 3 (commencing
with Section 1180) of Chapter 4 of Title 4 of Part 4 of Division 2 of
the Civil Code.
   (2) Executed to include substantially the following wording
preceding the signature:

   "It is hereby declared that I am the person who executed this
instrument which execution is my act and deed."

   Any certificate of acknowledgment taken without this state before
a notary public or a judge or clerk of a court of record having an
official seal need not be further authenticated.
   (b) "Articles of organization" means the articles required by
Section 17702.01. The term includes the articles of organization as
amended or restated.
   (c) "Contribution" means any benefit provided by a person to a
limited liability company:
   (1) In order to become a member upon formation of the limited
liability company and in accordance with an agreement between or
among the persons that have agreed to become the initial members of
the limited liability company.
   (2) In order to become a member after formation of the limited
liability company and in accordance with an agreement between the
person and the limited liability company.
   (3) In the person's capacity as a member and in accordance with
the operating agreement or an agreement between the member and the
limited liability company.
   (d) "Debtor in bankruptcy" means a person that is the subject of
either of the following:
   (1) An order for relief under Title 11 of the United States Code
or a successor statute of general application.
   (2) A comparable order under federal, state, or foreign law
governing bankruptcy or insolvency, an assignment for the benefit of
creditors, or an order appointing a trustee, receiver, or liquidator
of the person or of all or substantially all of the person's
property.
   (e) "Designated office" means either of the following:
   (1) The office that a limited liability company is required to
designate and maintain under Section 17701.13.
   (2) The principal office of a foreign limited liability company.
   (f) "Distribution," except as otherwise provided in subdivision
(g) of Section 17704.05, means a transfer of money or other property
from a limited liability company to another person on account of a
transferable interest.
   (g) "Domestic" means organized under the laws of this state when
used in relation to any limited liability company, other business
entity, or person other than a natural person.
   (h) "Effective," with respect to a record required or permitted to
be delivered to the Secretary of State for filing under this title,
means effective under subdivision (c) of Section 17702.05.
   (i) (1) "Electronic transmission by the limited liability company"
means a communication delivered by any of the following means:
   (A) Facsimile telecommunication or electronic mail when directed
to the facsimile number or electronic mail address, respectively, for
that recipient on record with the limited liability company.
   (B) Posting on an electronic message board or network that the
limited liability company has designated for those communications,
together with a separate notice to the recipient of the posting,
which transmission shall be validly delivered upon the later of the
posting or delivery of the separate notice thereof.
   (C) Other means of electronic communication to which both of the
following apply:
   (i) The communication is delivered to a recipient who has provided
an unrevoked consent to the use of those means of transmission.
   (ii) The communication creates a record that is capable of
retention, retrieval, and review, and that may thereafter be rendered
into clearly legible tangible form.
   (2) "Electronic transmission to the limited liability company"
means a communication delivered by any of the following means:
   (A) Facsimile telecommunication or electronic mail when directed
to the facsimile number or electronic mail address, respectively,
that the limited liability company has provided from time to time to
members or managers for sending communications to the limited
liability company.
   (B) Posting on an electronic message board or network that the
limited liability company has designated for those communications,
which transmission shall be validly delivered upon the posting.
   (C) Other means of electronic communication to which both of the
following apply:
   (i) The limited liability company has placed in effect reasonable
measures to verify that the sender is the member or manager, in
person or by proxy, purporting to send the transmission.
   (ii) The communication creates a record that is capable of
retention, retrieval, and review, and that may thereafter be rendered
into clearly legible tangible form.
   (j) "Foreign limited liability company" means an unincorporated
entity formed under the law of a jurisdiction other than this state
and denominated by that law as a limited liability company.
   (k) "Limited liability company," except in the phrase "foreign
limited liability company," means a domestic entity formed under this
title or an entity that becomes subject to this title pursuant to
Article 13 (commencing with Section 17713.01).
   (l) "Majority of the managers" unless otherwise provided in the
operating agreement, means more than 50 percent of the managers of
the limited liability company.
   (m) "Majority of the members" unless otherwise provided in the
operating agreement, means more than 50 percent of the membership
interests of members in current profits of the limited liability
company.
   (n) "Manager" means a person that under the operating agreement of
a manager-managed limited liability company is responsible, alone or
in concert with others, for performing the management functions
stated in subdivision (c) of Section 17704.07.
   (o) "Manager-managed limited liability company" means a limited
liability company that qualifies under subdivision (a) of Section
17704.07.
   (p) "Member" means a person that has become a member of a limited
liability company under Section 17704.01 and has not dissociated
under Section 17706.02.
   (q) "Member-managed limited liability company" means a limited
liability company that is not a manager-managed limited liability
company.
   (r) "Membership interest" means a member's rights in the limited
liability company, including the member's transferable interest, any
right to vote or participate in management, and any right to
information concerning the business and affairs of the limited
liability company provided by this title.
   (s) "Operating agreement" means the agreement, whether or not
referred to as an operating agreement and whether oral, in a record,
implied, or in any combination thereof, of all the members of a
limited liability company, including a sole member, concerning the
matters described in subdivision (a) of Section 17701.10. The term
"operating agreement" may include, without more, an agreement of all
members to organize a limited liability company pursuant to this
title. An operating agreement of a limited liability company having
only one member shall not be unenforceable by reason of there being
only one person who is a party to the operating agreement. The term
includes the agreement as amended or restated.
   (t) "Organization" means, whether domestic or foreign, a
partnership whether general or limited, limited liability company,
association, corporation, professional corporation, professional
association, nonprofit corporation, business trust, or statutory
business trust having a governing statute.
   (u) "Organizer" means a person that acts under Section 17702.01 to
form a limited liability company.
   (v) "Person" means an individual, partnership, limited
partnership, trust, a trustee of a trust, including, but not limited
to, a trust described under Division 9 (commencing with Section
15000) of the Probate Code, estate, association, corporation, limited
liability company, or other entity, whether domestic or foreign.
Nothing in this subdivision shall be construed to confer any rights
under the California Constitution or the United States Constitution.
   (w) "Principal office" means the principal executive office of a
limited liability company or foreign limited liability company,
whether or not the office is located in this state.
   (x) "Record" means information that is inscribed on a tangible
medium or that is stored in an electronic or other medium and is
retrievable in perceivable form.
   (y) "State" means a state of the United States, the District of
Columbia, Puerto Rico, the United States Virgin Islands, or any
territory or insular possession subject to the jurisdiction of the
United States.
   (z) "Transfer" includes an assignment, conveyance, deed, bill of
sale, lease, mortgage, security interest, encumbrance, gift, and
transfer by operation of law.
   (aa) "Transferable interest" means the right, as originally
associated with a person's capacity as a member, to receive
distributions from a limited liability company in accordance with the
operating agreement, whether or not the person remains a member or
continues to own any part of the right.
   (ab) "Transferee" means a person to which all or part of a
transferable interest has been transferred, whether or not the
transferor is a member.
   (ac) "Vote" includes authorization by written consent or consent
given by electronic transmission to the limited liability company.
  SEC. 2.  Section 17701.10 of the Corporations Code is amended to
read:
   17701.10.  (a) Except as otherwise provided in this section, the
operating agreement governs all of the following:
   (1) Relations among the members as members and between the members
and the limited liability company.
   (2) The rights and duties under this title of a person in the
capacity of manager.
   (3) The activities of the limited liability company and the
conduct of those activities.
   (4) The means and conditions for amending the operating agreement.

   (b) To the extent the operating agreement does not otherwise
provide for a matter described in subdivision (a), this title governs
the matter.
   (c) In addition to the matters specified in paragraphs (1) to (4),
inclusive, of subdivision (d), an operating agreement shall not do
any of the following:
   (1) Vary a limited liability company's capacity under Section
17701.05 to sue and be sued in its own name.
   (2) Vary the law applicable under Section 17701.06.
   (3) Vary the power of the court under Section 17702.04.
   (4) Subject to paragraphs (14) and (15) of this subdivision and
subdivisions (d) to (g), inclusive, eliminate the duty of loyalty,
the duty of care, or any other fiduciary duty.
   (5) Subject to subdivisions (d) to (g), inclusive, eliminate the
contractual obligation of good faith and fair dealing under
subdivision (d) of Section 17704.09, but the operating agreement may
prescribe the standards by which the performance of the obligation is
to be measured, if the standards are not manifestly unreasonable as
determined at the time the standards are prescribed.
   (6) Vary the requirements of Section 17701.13 to 17701.16,
inclusive, or any provision under Article 8 (commencing with Section
17708.01).
   (7) Vary the power of a court to decree dissolution in the
circumstances specified in subdivision (a) of Section 17707.03 or the
provisions for avoidance of dissolution in subdivision (c) of
Section 17707.03.
   (8) Except as provided therein, vary the requirements of Article 2
(commencing with Section 17702.01) or Article 7 (commencing with
Section 17707.01).
   (9) Unreasonably restrict the right of a member to maintain an
action under Article 9 (commencing with Section 17709.01).
   (10) Restrict the right of a member that will have personal
liability with respect to a surviving or converted organization to
approve a merger or conversion under Article 10 (commencing with
Section 17710.01).
   (11) Except as otherwise provided in subdivision (b) of Section
17701.12, restrict the rights under this title of a person other than
a member or manager.
   (12) Except as provided therein, vary any provision under Article
10 (commencing with Section 17710.01).
   (13) Vary any provision under Article 11 (commencing with Section
17711.01), Article 12 (commencing with Section 17712.01), or Article
13 (commencing with Section 17713.01).
   (14) Eliminate the duty of loyalty under subdivision (b) of
Section 17704.09, but the operating agreement may do any of the
following:
   (A) Identify specific types or categories of activities that do
not violate the duty of loyalty, if not manifestly unreasonable.
   (B) Specify the number or percentage of members that may authorize
or ratify, after full disclosure to all members of all material
facts, a specific act or transaction that otherwise would violate the
duty of loyalty.
   (15) Unreasonably reduce the duty of care under subdivision (c) of
Section 17704.09.
   (d) Except as provided in subdivision (c) and subdivisions (e) to
(g), inclusive, the effects of the provisions of this title may be
varied as among the members or as between the members and the limited
liability company by the operating agreement; provided, however,
that the provisions of Sections 17701.13, 17703.01, and 17704.08 and
subdivisions (f) to (r), inclusive, and (u) to (w), inclusive, of
Section 17704.07 shall only be varied by a written operating
agreement. Notwithstanding the first sentence of this subdivision and
in addition to the matters specified in subdivision (c), the
operating agreement shall not do any of the following:
   (1) Vary the definitions of Section 17701.02, except as
specifically provided therein.
   (2) Vary a member's rights under Section 17704.10.
   (3) Vary any of the provisions of this section or Section
17701.12, except as provided therein.
   (4) Vary any of the provisions of subdivisions (s) and (t) of
Section 17704.07.
   (e) The fiduciary duties of a manager to a manager-managed limited
liability company and to the members of the limited liability
company and of a member to a member-managed limited liability company
and to the members of such limited liability company shall only be
modified in a written operating agreement with the informed consent
of the members. Assenting to the operating agreement pursuant to
subdivision (b) of Section 17701.11 shall not constitute informed
consent.
   (f) To the extent the operating agreement of a member-managed
limited liability company expressly relieves a member of a
responsibility that the member would otherwise have under this title
and imposes the responsibility on one or more other members, the
operating agreement may, to the benefit of the member that the
operating agreement relieves of the responsibility, also eliminate or
limit any fiduciary duty that would have pertained to the
responsibility.
   (g) The operating agreement may alter or eliminate the
indemnification for a member or manager provided by subdivision (a)
of Section 17704.08 and may eliminate or limit a member or manager's
liability to the limited liability company and members for money
damages, except for the following:
   (1) Breach of the duty of loyalty.
   (2) A financial benefit received by the member or manager to which
the member or manager is not entitled.
   (3) A member's liability for excess distributions under Section
17704.06.
   (4) Intentional infliction of harm on the limited liability
company or a member.
   (5) An intentional violation of criminal law.
  SEC. 3.  Section 17701.12 of the Corporations Code is amended to
read:
   17701.12.  (a) An operating agreement may specify that its
amendment requires the approval of a person that is not a party to
the operating agreement or the satisfaction of a condition. An
amendment is ineffective if its adoption does not include the
required approval or satisfy the specified condition.
   (b) The obligations of a limited liability company and its members
to a person in the person's capacity as a transferee or dissociated
member are governed by the operating agreement. Subject only to any
court order issued under paragraph (2) of subdivision (b) of Section
17705.03 to effectuate a charging order, an amendment to the
operating agreement made after a person becomes a transferee or
dissociated member is effective with regard to any debt, obligation,
or other liability of the limited liability company or its members to
the person in the person's capacity as a transferee or dissociated
member.
   (c) If a record that has been delivered by a limited liability
company to the Secretary of State for filing and has become effective
under this title contains a provision that would be ineffective
under Section 17701.10 if contained in the operating agreement, the
provision is likewise ineffective in the record.
   (d) Subject to subdivision (c), if a record that has been
delivered by a limited liability company to the Secretary of State
for filing and has become effective under this title conflicts with a
provision of the operating agreement both of the following apply:
   (1) The operating agreement prevails as to members, dissociated
members, transferees, and managers.
   (2) The record prevails as to other persons to the extent they
reasonably rely on the record.
  SEC. 4.  Section 17701.13 of the Corporations Code is amended to
read:
   17701.13.  (a) A limited liability company shall designate and
continuously maintain in this state both of the following:
   (1) An office, which need not be a place of its activity in this
state.
   (2) An agent for service of process.
   (b) A foreign limited liability company that has a certificate of
registration under Section 17708.02 shall designate and continuously
maintain in this state an agent for service of process.
   (c) An agent for service of process of a limited liability company
or foreign limited liability company shall be an individual who is a
resident of this state or a corporation that has complied with
Section 1505 and whose capacity to act as an agent has not
terminated. If a limited liability company or foreign limited
liability company designates a corporation as its agent for service
of process in an instrument filed with the Secretary of State, no
address for that agent for service of process shall be set forth in
that instrument.
   (d) Each limited liability company shall maintain in writing or in
any other form capable of being converted into clearly legible
tangible form at the office referred to in subdivision (a) all of the
following:
   (1) A current list of the full name and last known business or
residence address of each member and of each transferee set forth in
alphabetical order, together with the contribution and the share in
profits and losses of each member and transferee.
   (2) If the limited liability company is a manager-managed limited
liability company, a current list of the full name and business or
residence address of each manager.
   (3) A copy of the articles of organization and all amendments
thereto, together with any powers of attorney pursuant to which the
articles of organization or any amendments thereto were executed.
   (4) Copies of the limited liability company's federal, state, and
local income tax or information returns and reports, if any, for the
six most recent fiscal years.
   (5) A copy of the limited liability company's operating agreement,
if in writing, and any amendments thereto, together with any powers
of attorney pursuant to which any written operating agreement or any
amendments thereto were executed.
   (6) Copies of the financial statement of the limited liability
company, if any, for the six most recent fiscal years.
   (7) The books and records of the limited liability company as they
relate to the internal affairs of the limited liability company for
at least the current and past four fiscal years.
   (e) Upon request of an assessor, a domestic or foreign limited
liability company owning, claiming, possessing, or controlling
property in this state subject to local assessment shall make
available at the limited liability company's principal office in this
state or at the office required to be kept pursuant to subdivision
(a) or at a place mutually acceptable to the assessor and the limited
liability company a true copy of the business records relevant to
the amount, cost, and value of all property that the limited
liability company owns, claims, possesses, or controls within the
county.
  SEC. 5.  Section 17704.01 of the Corporations Code is amended to
read:
   17704.01.  (a) If a limited liability company is to have only one
member upon formation, the person becomes a member as agreed by that
person and the organizer of the limited liability company. That
person and the organizer may be, but need not be, different persons.
If different, the organizer acts on behalf of the initial member.
   (b) If a limited liability company is to have more than one member
upon formation, those persons become members as agreed by the
persons before the formation of the limited liability company. The
organizer acts on behalf of the persons in forming the limited
liability company and may be, but need not be, one of the persons.
   (c) After formation of a limited liability company, a person
becomes a member as follows:
   (1) As provided in the operating agreement.
   (2) As the result of a transaction effective under Article 10
(commencing with Section 17710.01).
   (3) With the consent of all the members.
   (4) If, within 90 consecutive days after the limited liability
company ceases to have any members, the last person to have been a
member, or the legal representative of that person, designates a
person to become a member, and the designated person consents to
become a member.
   (d) A person may become a member without acquiring a transferable
interest and without making or being obligated to make a contribution
to the limited liability company.
   (e) Sections 406 and 407 of the Labor Code shall not apply to
membership interests issued by any limited liability company or
foreign limited liability company to the following persons:
   (1) Any employee of the limited liability company or foreign
limited liability company or of any parent or subsidiary of either,
pursuant to a membership interest purchase plan or agreement, or a
membership interest option plan or agreement.
   (2) In any transaction in connection with securing employment, a
person who is or is about to become an officer or a manager of the
limited liability company or the foreign limited liability company or
of any parent or subsidiary of either.
  SEC. 6.  Section 17704.04 of the Corporations Code is amended to
read:
   17704.04.  (a) Any distributions made by a limited liability
company before its dissolution and winding up shall be among the
members in accordance with the operating agreement. If the operating
agreement does not otherwise provide, distributions shall be on the
basis of the value, as stated in the required records when the
limited liability company decides to make the distribution, of the
contributions the limited liability company has received from each
member, except to the extent necessary to comply with any transfer
effective under Section 17705.02 and any charging order in effect
under Section 17705.03.
   (b) A person has a right to a distribution before the dissolution
and winding up of a limited liability company only if the limited
liability company decides to make an interim distribution. Unless the
articles of organization or written operating agreement provides
otherwise, a person's dissociation does not entitle the person to a
distribution, and, beginning on the date of dissociation, the
dissociated person shall have only the right of a transferee of a
transferable interest with respect to that person's interest in the
limited liability company, and then only with respect to
distributions, if any, to which a transferee is entitled under the
operating agreement. If the dissociation is in violation of the
operating agreement, the limited liability company shall have the
right to offset any damages for the breach of the operating agreement
from the amounts, if any, otherwise distributable to the dissociated
person with respect to that person's interest in the limited
liability company.
   (c) A person does not have a right to demand or receive a
distribution from a limited liability company in any form other than
money. A limited liability company may distribute an asset in kind if
each part of the asset is fungible with each other part and each
person receives a percentage of the asset equal in value to the
person's share of distributions.
   (d) If a member or transferee becomes entitled to receive a
distribution, the member or transferee has the status of, and is
entitled to all remedies available to, a creditor of the limited
liability company with respect to the distribution.
   (e) The profits and losses of a limited liability company shall be
allocated among the members, and among classes of members, in the
manner provided in the operating agreement. If the operating
agreement does not otherwise provide, profits and losses shall be
allocated in proportion to the value, as stated in the required
records, of the contributions the limited liability company has
received from each member.
  SEC. 7.  Section 17704.07 of the Corporations Code is amended to
read:
   17704.07.  (a) A limited liability company is a member-managed
limited liability company unless the articles of organization contain
the statement required by paragraph (5) of subdivision (b) of
Section 17702.01.
   (b) In a member-managed limited liability company, the following
rules apply:
   (1) The management and conduct of the limited liability company
are vested in the members.
   (2) Except as provided in subdivision (r), each member has equal
rights in the management and conduct of the limited liability company'
s activities including equal voting rights.
   (3) A difference arising among members as to a matter in the
ordinary course of the activities of the limited liability company
shall be decided by a majority of the members.
   (4) Except as otherwise provided in Article 10 (commencing with
Section 17710.01), an act outside the ordinary course of the
activities of the limited liability company may be undertaken only
with the consent of all members.
   (5) The operating agreement may be amended only with the consent
of all members.
   (c) In a manager-managed limited liability company, the following
rules apply:
             (1) Except as otherwise expressly provided in this
title, any matter relating to the activities of the limited liability
company is decided exclusively by the managers.
   (2) Each manager has equal rights in the management and conduct of
the activities of the limited liability company.
   (3) A difference arising among managers as to a matter in the
ordinary course of the activities of the limited liability company
may be decided by a majority of the managers of the limited liability
company.
   (4) The consent of all members of the limited liability company is
required to do any of the following:
   (A) Sell, lease, exchange, or otherwise dispose of all, or
substantially all, of the limited liability company's property, with
or without the goodwill, outside the ordinary course of the limited
liability company's activities.
   (B) Except as otherwise provided in Article 10 (commencing with
Section 17710.01), any other act outside the ordinary course of the
limited liability company's activities.
   (5) A manager may be chosen at any time by the consent of a
majority of the members and remains a manager until a successor has
been chosen, unless the manager at an earlier time resigns, is
removed, or dies, or, in the case of a manager that is not an
individual, terminates. A manager may be removed at any time by the
consent of a majority of the members without cause, subject to the
rights, if any, of the manager under any service contract with the
limited liability company.
   (6) A person need not be a member to be a manager, but the
dissociation of a member that is also a manager removes the person as
a manager. If a person that is both a manager and a member ceases to
be a manager, that cessation does not by itself dissociate the
person as a member.
   (7) A person's ceasing to be a manager does not discharge any
debt, obligation, or other liability to the limited liability company
or members which the person incurred while a manager.
   (d) Except for such orders as may be made by a court of competent
jurisdiction over a dissolution under Section 17707.03, the
dissolution of a limited liability company does not affect the
applicability of this section. However, a person that wrongfully
causes dissolution of the limited liability company loses the right
to participate in management as a member and a manager.
   (e) This title does not entitle a member to remuneration for
services performed for a member-managed limited liability company,
except for reasonable compensation for services rendered in winding
up the activities of a limited liability company.
   (f) Meetings of members may be held at any place, by electronic
video screen communication or by electronic transmission by and to
the limited liability company pursuant to paragraphs (1) and (2) of
subdivision (i) of Section 17701.02, either within or without this
state, selected by the person or persons calling the meeting or as
may be stated in or fixed in accordance with the articles of
organization or a written operating agreement. If no other place is
stated or so fixed, all meetings shall be held at the principal
office of the limited liability company. Unless prohibited by the
articles of organization of the limited liability company, if
authorized by the operating agreement, members not physically present
in person or by proxy at a meeting of members may, by electronic
transmission by and to the limited liability company pursuant to
paragraphs (1) and (2) of subdivision (i) of Section 17701.02 or by
electronic video screen communication, participate in a meeting of
members, be deemed present in person or by proxy, and vote at a
meeting of members whether that meeting is to be held at a designated
place or in whole or in part by means of electronic transmission by
and to the limited liability company or by electronic video screen
communication, in accordance with subdivision (l).
   (g) A meeting of the members may be called by any manager or by
any member or members representing more than 10 percent of the
interests in current profits of members for the purpose of addressing
any matters on which the members may vote.
   (h) (1) Whenever members are required or permitted to take any
action at a meeting, a written notice of the meeting shall be given
not less than 10 days nor more than 60 days before the date of the
meeting to each member entitled to vote at the meeting. The notice
shall state the place, date, and hour of the meeting, the means of
electronic transmission by and to the limited liability company or
electronic video screen communication, if any, and the general nature
of the business to be transacted. No other business may be
transacted at that meeting.
   (2) Any report or any notice of a members' meeting shall be given
personally, by electronic transmission by the limited liability
company, or by mail or other means of written communication,
addressed to the member at the address of the member appearing on the
books of the limited liability company or given by the member to the
limited liability company for the purpose of notice, or, if no
address appears or is given, at the place where the principal office
of the limited liability company is located or by publication at
least once in a newspaper of general circulation in the county in
which the principal office is located. The notice or report shall be
deemed to have been given at the time when delivered personally,
delivered by electronic transmission by the limited liability
company, deposited in the mail, or sent by other means of written
communication. An affidavit of mailing or delivered by electronic
transmission by the limited liability company of any notice or report
in accordance with this article, executed by a manager, shall be
prima facie evidence of the giving of the notice or report.
   (3) If any notice or report addressed to the member at the address
of the member appearing on the books of the limited liability
company is returned to the limited liability company by the United
States Postal Service marked to indicate that the United States
Postal Service is unable to deliver the notice or report to the
member at the address, all future notices or reports shall be deemed
to have been duly given without further mailing if they are available
for the member at the principal office of the limited liability
company for a period of one year from the date of the giving of the
notice or report to all other members.
   (4) Notice given by electronic transmission by the limited
liability company under this subdivision shall be valid only if it
complies with paragraph (1) of subdivision (i) of Section 17701.02.
   Notwithstanding this condition, notice shall not be given by
electronic transmission by the limited liability company under this
subdivision after either of the following has occurred:
   (A) The limited liability company is unable to deliver two
consecutive notices to the member by that means.
   (B) The inability to so deliver the notices to the member becomes
known to the secretary, any assistant secretary, the transfer agent,
or any other person responsible for the giving of the notice.
   (5) Upon written request to a manager by any person entitled to
call a meeting of members, the manager shall immediately cause notice
to be given to the members entitled to vote that a meeting will be
held at a time requested by the person calling the meeting, not less
than 10 days nor more than 60 days after the receipt of the request.
If the notice is not given within 20 days after receipt of the
request, the person entitled to call the meeting may give the notice
or, upon the application of that person, the superior court of the
county in which the principal office of the limited liability company
is located, or if the principal office is not in this state, the
county in which the limited liability company's address in this state
is located, shall summarily order the giving of the notice, after
notice to the limited liability company affording it an opportunity
to be heard. The procedure provided in subdivision (c) of Section 305
shall apply to the application. The court may issue any order as may
be appropriate, including, without limitation, an order designating
the time and place of the meeting, the record date for determination
of members entitled to vote, and the form of notice.
   (i) When a members' meeting is adjourned to another time or place,
unless the articles of organization or a written operating agreement
otherwise require and except as provided in this subdivision, notice
need not be given of the adjourned meeting if the time and place
thereof or the means of electronic transmission by and to the limited
liability company or electronic video screen communication, if any,
are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the limited liability company may transact any
business that may have been transacted at the original meeting. If
the adjournment is for more than 45 days, or if after the adjournment
a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each member of record
entitled to vote at the meeting.
   (j) The actions taken at any meeting of members, however called
and noticed, and wherever held, have the same validity as if taken at
a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after
the meeting, each of the members entitled to vote, not present in
person or by proxy, provides a waiver of notice or consents to the
holding of the meeting or approves the minutes of the meeting in
writing. All waivers, consents, and approvals shall be filed with the
limited liability company records or made a part of the minutes of
the meeting after conversion to the form in which those records or
minutes are kept. Attendance of a person at a meeting shall
constitute a waiver of notice of the meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
Attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by this title to be included in
the notice but not so included, if the objection is expressly made at
the meeting. Neither the business to be transacted nor the purpose
of any meeting of members need be specified in any written waiver of
notice, unless otherwise provided in the articles of organization or
operating agreement, except as provided in subdivision (l).
   (k) Members may participate in a meeting of the limited liability
company through the use of conference telephones or electronic video
screen communication, as long as all members participating in the
meeting can hear one another, or by electronic transmission by and to
the limited liability company pursuant to paragraphs (1) and (2) of
subdivision (i) of Section 17701.02. Participation in a meeting
pursuant to this provision constitutes presence in person at that
meeting.
   (l) Any action approved at a meeting, other than by unanimous
approval of those entitled to vote, shall be valid only if the
general nature of the proposal so approved was stated in the notice
of meeting or in any written waiver of notice.
   (m) (1) A majority of the members represented in person or by
proxy shall constitute a quorum at a meeting of members.
   (2) The members present at a duly called or held meeting at which
a quorum is present may continue to transact business until
adjournment, notwithstanding the loss of a quorum, if any action
taken after loss of a quorum, other than adjournment, is approved by
the requisite percentage of interests of members specified in this
title or in the articles of organization or a written operating
agreement.
   (3) In the absence of a quorum, any meeting of members may be
adjourned from time to time by the vote of a majority of the
interests represented either in person or by proxy, but no other
business may be transacted, except as provided in paragraph (2).
   (n) (1) Any action that may be taken at any meeting of the members
may be taken without a meeting if a consent in writing, setting
forth the action so taken, is signed and delivered to the limited
liability company within 60 days of the record date for that action
by members having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at
which all members entitled to vote thereon were present and voted.
   (2) Unless the consents of all members entitled to vote have been
solicited in writing, (A) notice of any member approval of an
amendment to the articles of organization or operating agreement, a
dissolution of the limited liability company as provided in Section
17707.01, or a merger of the limited liability company as provided in
Section 17710.10, without a meeting by less than unanimous written
consent shall be given at least 10 days before the consummation of
the action authorized by the approval, and (B) prompt notice shall be
given of the taking of any other action approved by members without
a meeting by less than unanimous written consent, to those members
entitled to vote who have not consented in writing.
   (3) Any member giving a written consent, or the member's
proxyholder, may revoke the consent personally or by proxy by a
writing received by the limited liability company prior to the time
that written consents of members having the minimum number of votes
that would be required to authorize the proposed action have been
filed with the limited liability company, but may not do so
thereafter. This revocation is effective upon its receipt at the
office of the limited liability company required to be maintained
pursuant to Section 17701.13.
   (o) The use of proxies in connection with this section shall be
governed in the same manner as in the case of corporations formed
under the General Corporation Law, Division 1 (commencing with
Section 100) of Title 1.
   (p) In order that the limited liability company may determine the
members of record entitled to notices of any meeting or to vote, or
entitled to receive any distribution or to exercise any rights in
respect of any other lawful action, a manager, or members
representing more than 10 percent of the interests of members, may
fix, in advance, a record date, that is not more than 60 days nor
less than 10 days prior to the date of the meeting and not more than
60 days prior to any other action. If no record date is fixed the
following shall apply:
   (1) The record date for determining members entitled to notice of
or to vote at a meeting of members shall be at the close of business
on the business day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the business day
next preceding the day on which the meeting is held.
   (2) The record date for determining members entitled to give
consent to limited liability company action in writing without a
meeting shall be the day on which the first written consent is given.

   (3) The record date for determining members for any other purpose
shall be at the close of business on the day on which the managers
adopt the resolution relating thereto, or the 60th day prior to the
date of the other action, whichever is later.
   (4) The determination of members of record entitled to notice of
or to vote at a meeting of members shall apply to any adjournment of
the meeting unless a manager or the members who called the meeting
fix a new record date for the adjourned meeting, but the manager or
the members who called the meeting shall fix a new record date if the
meeting is adjourned for more than 45 days from the date set for the
original meeting.
   (q) A meeting of the members may be conducted, in whole or in
part, by electronic transmission by and to the limited liability
company or by electronic video screen communication if both of the
following requirements are met:
   (1) The limited liability company implements reasonable measures
to provide members, in person or by proxy, a reasonable opportunity
to participate in the meeting and to vote on matters submitted to the
members, including an opportunity to read or hear the proceedings of
the meeting substantially concurrently with those proceedings.
   (2) When any member votes or takes other action at the meeting by
means of electronic transmission to the limited liability company or
electronic video screen communication, a record of that vote or
action shall be maintained by the limited liability company.
   (r) The articles of organization or a written operating agreement
may provide to all or certain identified members of a specified class
or group of members the right to vote separately or with all or any
class or group of members on any matter. Voting by members may be on
a per capita, number, financial interest, class, group, or any other
basis. If no voting provision is contained in the articles of
organization or written operating agreement, each of the following
shall apply:
   (1) The members of a limited liability company shall vote in
proportion to their interests in current profits of the limited
liability company or, in the case of a member who has assigned the
member's entire transferable interest in the limited liability
company to a person who has not been admitted as a member, in
proportion to the interest in current profits that the assigning
member would have, had the assignment not been made.
   (2) Any amendment to the articles of organization or operating
agreement shall require the unanimous vote of all members.
   (3) In all other matters in which a vote is required, except as
otherwise provided in this section, a vote of a majority of the
members shall be sufficient.
   (s) Notwithstanding any provision to the contrary in the articles
of organization or operating agreement, in no event shall the
articles of organization be amended by a vote of less than a majority
of the members.
   (t) Notwithstanding any provision to the contrary in the articles
of organization or operating agreement, members shall have the right
to vote on a dissolution of the limited liability company as provided
in subdivision (b) of Section 17707.01, on a conversion to another
business entity as provided in subdivision (b) of Section 17710.03,
and on a merger of the limited liability company as provided in
Section 17710.12.
   (u) A written operating agreement may provide for the appointment
of officers, including, but not limited to, a chairperson or a
president, or both a chairperson and a president, a secretary, a
chief financial officer, and any other officers with the titles,
powers, and duties as shall be specified in the articles of
organization or operating agreement or as determined by the managers
or members. An officer may, but does not need to, be a member or
manager of the limited liability company, and any number of offices
may be held by the same person.
   (v) Officers, if any, shall be appointed in accordance with the
written operating agreement or, if no such provision is made in the
operating agreement, any officers shall be appointed by the managers
and shall serve at the pleasure of the managers, subject to the
rights, if any, of an officer under any contract of employment. Any
officer may resign at any time upon written notice to the limited
liability company without prejudice to the rights, if any, of the
limited liability under any contract to which the officer is a party.

   (w) Subject to the provisions of the articles of organization, any
note, mortgage, evidence of indebtedness, contract, certificate,
statement, conveyance, or other instrument in writing, and any
assignment or endorsement thereof, executed or entered into between
any limited liability company and any other person, when signed by
the chairperson of the board, the president, or any vice president
and any secretary, any assistant secretary, the chief financial
officer, or any assistant treasurer of the limited liability company,
is not invalidated as to the limited liability company by any lack
of authority of the signing officers in the absence of actual
knowledge on the part of the other person that the signing officers
had no authority to execute the same.
  SEC. 8.  Section 17704.08 of the Corporations Code is amended to
read:
   17704.08.  (a) A limited liability company shall reimburse for any
payment made and indemnify for any debt, obligation, or other
liability incurred by a member of a member-managed limited liability
company or the manager of a manager-managed limited liability company
in the course of the member's or manager's activities on behalf of
the limited liability company, if, in making the payment or incurring
the debt, obligation, or other liability, the member or manager
complied with the duties stated in Section 17704.09.
   (b) Except as provided in subdivision (g) of Section 17701.10, a
limited liability company may reimburse for any payment made and may
indemnify for any debt, obligation, or other liability incurred by a
person not identified in subdivision (a), including, without
limitation, any officer, employee, or agent of the limited liability
company, in the course of that person's activities on behalf of the
limited liability company.
   (c) A limited liability company may purchase and maintain
insurance on behalf of any person against liability asserted against
or incurred by that person even if, under subdivision (g) of Section
17701.10, the operating agreement could not eliminate or limit the
person's liability to the limited liability company for the conduct
giving rise to the liability.
   (d) (1) Without limiting subdivision (a), to the extent that an
agent of a limited liability company has been successful on the
merits in defense or settlement of any claim, issue, or matter in any
proceeding in which the agent was or is a party or is threatened to
be made a party by reason of the fact that the person is or was an
agent of the limited liability company, if the agent acted in good
faith and in a manner that the agent reasonably believed to be in the
best interests of the limited liability company and its members, the
agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith.
   (2) For purposes of this subdivision, the following terms have the
following meanings:
   (A) "Agent" means any person who is or was a member of a
member-managed limited liability company, manager of a
manager-managed limited liability company, officer, employee, or
other agent of the limited liability company, or is or was serving at
the request of the limited liability company as a manager, director,
officer, employee, or agent of another foreign or domestic
corporation, limited liability company or foreign limited liability
company, partnership, joint venture, trust, or other enterprise, or
was a manager, director, officer, employee, or agent of a foreign or
domestic limited liability company, partnership, joint venture,
trust, or other enterprise that was a predecessor of the limited
liability company or of another enterprise at the request of the
predecessor entity or other enterprise.
   (B) "Expenses" include, without limitation, the attorney's fees
and any expenses of establishing a right to indemnification under
this subdivision.
   (C) "Proceeding" means any threatened, pending, or completed
action or proceeding, whether civil, criminal, administrative, or
investigative.
  SEC. 9.  Section 17704.09 of the Corporations Code is amended to
read:
   17704.09.  (a) The fiduciary duties that a member owes to a
member-managed limited liability company and the other members of the
limited liability company are the duties of loyalty and care under
subdivisions (b) and (c).
   (b) A member's duty of loyalty to the limited liability company
and the other members is limited to the following:
   (1) To account to the limited liability company and hold as
trustee for it any property, profit, or benefit derived by the member
in the conduct and winding up of the activities of a limited
liability company or derived from a use by the member of a limited
liability company property, including the appropriation of a limited
liability company opportunity.
   (2) To refrain from dealing with the limited liability company in
the conduct or winding up of the activities of the limited liability
company as or on behalf of a person having an interest adverse to the
limited liability company.
   (3) To refrain from competing with the limited liability company
in the conduct or winding up of the activities of the limited
liability company.
   (c) A member's duty of care to a limited liability company and the
other members in the conduct and winding up of the activities of the
limited liability company is limited to refraining from engaging in
grossly negligent or reckless conduct, intentional misconduct, or a
knowing violation of law.
   (d) A member shall discharge the duties to a limited liability
company and the other members under this title or under the operating
agreement and exercise any rights consistent with the obligation of
good faith and fair dealing.
   (e) A member does not violate a duty or obligation under this
article or under the operating agreement merely because the member's
conduct furthers the member's own interest.
   (f) In a manager-managed limited liability company, all of the
following rules apply:
   (1) Subdivisions (a), (b), (c), and (e) apply to the manager or
managers and not the members.
   (2) Subdivision (d) applies to the members and managers.
   (3) Except as otherwise provided, a member does not have any
fiduciary duty to the limited liability company or to any other
member solely by reason of being a member.
  SEC. 10.  Section 17704.10 of the Corporations Code is amended to
read:
   17704.10.  (a) Upon the request of a member or transferee, for
purposes reasonably related to the interest of that person as a
member or a transferee, a manager or, if the limited liability
company is member-managed, a member in possession of the requested
information, shall promptly deliver, in writing, to the member or
transferee, at the expense of the limited liability company, a copy
of the information required to be maintained by paragraphs (1), (2),
and (4) of subdivision (d) of Section 17701.13, and any written
operating agreement of the limited liability company.
   (b) Each member, manager, and transferee has the right, upon
reasonable request, for purposes reasonably related to the interest
of that person as a member, manager, or transferee, to each of the
following:

     (1) To inspect and copy during normal business hours any of the
records required to be maintained pursuant to Section 17701.13.
   (2) To obtain in writing from the limited liability company,
promptly after becoming available, a copy of the limited liability
company's federal, state, and local income tax returns for each year.

   (c) In the case of a limited liability company with more than 35
members, each of the following shall apply:
   (1) A manager shall cause an annual report to be sent to each of
the members not later than 120 days after the close of the fiscal
year. The report, which may be sent by electronic transmission by the
limited liability company (paragraph (1) of subdivision (i) of
Section 17701.02) shall contain a balance sheet as of the end of the
fiscal year and an income statement and a statement of cashflows for
the fiscal year.
   (2) Members representing at least 5 percent of the voting
interests of members, or three or more members, may make a written
request to a manager for an income statement of the limited liability
company for the initial three-month, six-month, or nine-month period
of the current fiscal year ending more than 30 days prior to the
date of the request, and a balance sheet of the limited liability
company as of the end of that period. The statement shall be
delivered or mailed to the members within 30 days thereafter.
   (3) The financial statements referred to in this section shall be
accompanied by the report thereon, if any, of the independent
accountants engaged by the limited liability company or, if there is
no report, the certificate of the manager of the limited liability
company that the financial statements were prepared without audit
from the books and records of the limited liability company.
   (d) A manager shall promptly furnish to a member a copy of any
amendment to the articles of organization or operating agreement
executed by a manager pursuant to a power of attorney from the
member. The articles of organization or operating agreement may be
sent by electronic transmission by the limited liability company.
   (e) The limited liability company shall send or cause information
to be sent in writing to each member or holder of a transferable
interest within 90 days after the end of each taxable year the
information necessary to complete federal and state income tax or
information returns and, in the case of a limited liability company
with 35 or fewer members, a copy of the limited liability company's
federal, state, and local income tax or information returns for the
year.
   (f) In addition to the remedies provided in Sections 17713.06 and
17713.07 and any other remedies, a court of competent jurisdiction
may enforce the duty of making and mailing or delivering the
information and financial statements required by this section and,
for good cause shown, extend the time therefor.
   (g) In any action under this section or under Section 17713.07, if
the court finds the failure of the limited liability company to
comply with the requirements of this section is without
justification, the court may award an amount sufficient to reimburse
the person bringing the action for the reasonable expenses incurred
by that person, including attorney's fees, in connection with the
action or proceeding.
   (h) Any waiver of the rights provided in this section shall be
unenforceable.
   (i) Any request, inspection, or copying by a member or holder of a
transferable interest may be made by that person or by that person's
agent or attorney.
   (j) Upon complaint that a limited liability company is failing to
comply with the provisions of this section, or to afford to the
members rights given to them in the articles of organization or
operating agreement, the Attorney General may, in the name of the
people of the State of California, send to the office required to be
maintained pursuant to Section 17701.13, notice of the complaint.
   (k) If the answer of the limited liability company is not received
within 30 days of the date the notice was transmitted, or if the
answer is not satisfactory, and if the enforcement of the rights of
the aggrieved persons by private civil action, by class action, or
otherwise, would be so burdensome or expensive as to be
impracticable, the Attorney General may institute, maintain, or
intervene in any court of competent jurisdiction or before any
administrative agency for relief by way of injunction, the
dissolution of entities, the appointment of receivers, or any other
temporary, preliminary, provisional, or final remedies as may be
appropriate to protect the rights of members or to restore the
position of the members for the failure to comply with the
requirements of Section 17701.13 or the articles of organization or
the operating agreement. In any action, suit, or proceeding, there
may be joined as parties all persons and entities responsible for or
affected by the activity.
  SEC. 11.  Section 17705.02 of the Corporations Code is amended to
read:
   17705.02.  (a) With respect to a transfer, in whole or in part, of
a transferable interest, all of the following apply:
   (1) A transfer is permissible.
   (2) A transfer does not by itself cause a member's dissociation or
a dissolution and winding up of the activities of a limited
liability company.
   (3) Subject to Section 17705.04, a transfer does not entitle the
transferee to do any of the following:
   (A) Vote or otherwise participate in the management or conduct of
the activities of a limited liability company.
   (B) Except as otherwise provided in subdivision (c) and Section
17704.10, have access to records or other information concerning the
activities of a limited liability company.
   (b) A transferee has the right to receive, in accordance with the
transfer, distributions to which the transferor would otherwise be
entitled; provided, however, that the pledge or granting of a
security interest, lien, or other encumbrance in or against any or
all of the transferable interest of a transferor shall not cause the
transferor to cease to be a member or grant to the transferee or to
anyone else the power to exercise any rights or powers of a member,
including, without limitation, the right to receive distributions to
which the member is entitled.
   (c) In a dissolution and winding up of a limited liability
company, a transferee is entitled to an account of the limited
liability company's transactions only from the date of dissolution.
   (d) A transferable interest may be evidenced by a certificate of
the interest issued by the limited liability company in a record,
and, subject to this article, the interest represented by the
certificate may be transferred by a transfer of the certificate.
   (e) A limited liability company need not give effect to a
transferee's rights under this section until the limited liability
company has notice of the transfer.
   (f) A transfer of a transferable interest in violation of a
restriction on transfer contained in the operating agreement is
ineffective as to a person having notice of the restriction at the
time of transfer.
   (g) Except as otherwise provided in subdivision (b) of this
section and paragraph (2) of subdivision (d) of Section 17706.02,
when a member transfers a transferable interest, the transferor
retains the rights of a member, other than the interest in
distributions transferred, and retains all duties and obligations of
a member.
   (h) When a member transfers a transferable interest to a person
that becomes a member with respect to the transferred interest, the
transferee is liable for the member's obligations under Section
17704.03 and subdivision (c) of Section 17704.06 known to the
transferee when the transferee becomes a member.
  SEC. 12.  Section 17706.03 of the Corporations Code is amended to
read:
   17706.03.  (a) When a person is dissociated as a member of a
limited liability company all of the following apply:
   (1) The person's right to vote or participate as a member in the
management and conduct of the limited liability company's activities
terminates.
   (2) If the limited liability company is member-managed, the person'
s fiduciary duties as a member end with regard to matters arising
and events occurring after the person's dissociation.
   (3) Subject to Section 17705.04 and Article 10 (commencing with
Section 17710.01), any transferable interest owned by the person
immediately before dissociation in the person's capacity as a member
is owned by the person solely as a transferee.
   (b) A person's dissociation as a member of a limited liability
company does not of itself discharge the person from any debt,
obligation, or other liability to the limited liability company or
the other members that the person incurred while a member.
   (c) If a member dies, or a guardian or conservator of the estate
is appointed for the member, or a member's interest is being
administered by an attorney-in-fact under a valid power of attorney,
the member's executor, administrator, guardian, conservator,
attorney-in-fact, or other legal representative may exercise all of
the member's rights for the purpose of settling the member's estate
or administering the member's property, including any power the
member had under the articles of organization or an operating
agreement to give a transferee the right to become a member.
  SEC. 13.  Section 17707.01 of the Corporations Code is amended to
read:
   17707.01.  A limited liability company is dissolved, and its
activities shall be wound up, upon the happening of the first to
occur of the following:
   (a) On the happening of an event set forth in a written operating
agreement or the articles of organization.
   (b) By the vote of a majority of the members of the limited
liability company or a greater percentage of the voting interests of
members as may be specified in the articles of organization, or a
written operating agreement.
   (c) The passage of 90 consecutive days during which the limited
liability company has no members, except that, on the death of a
natural person who is the sole member of a limited liability company,
the status of the member, including a membership interest, may pass
to one or more heirs, successors, and assigns of the member by will
or applicable law. An heir, successor, or assign of the member's
interest becomes a substituted member pursuant to paragraph (4) of
subdivision (c) of Section 17704.01, subject to administration as
provided by applicable law, without the permission or consent of the
heirs, successors, or assigns or those administering the estate of
the deceased member.
   (d) Entry of a decree of judicial dissolution pursuant to Section
17707.03.
  SEC. 14.  Section 17707.03 of the Corporations Code is amended to
read:
   17707.03.  (a) Pursuant to an action filed by any manager or by
any member or members of a limited liability company, a court of
competent jurisdiction may decree the dissolution of a limited
liability company whenever any of the events specified in subdivision
(b) occurs.
   (b) (1) It is not reasonably practicable to carry on the business
in conformity with the articles of organization or operating
agreement.
   (2) Dissolution is reasonably necessary for the protection of the
rights or interests of the complaining members.
   (3) The business of the limited liability company has been
abandoned.
   (4) The management of the limited liability company is deadlocked
or subject to internal dissension.
   (5) Those in control of the limited liability company have been
guilty of, or have knowingly countenanced, persistent and pervasive
fraud, mismanagement, or abuse of authority.
   (c) (1) In any suit for judicial dissolution, the other members
may avoid the dissolution of the limited liability company by
purchasing for cash the membership interests owned by the members so
initiating the proceeding, the "moving parties," at their fair market
value. In fixing the value, the amount of any damages resulting if
the initiation of the dissolution is a breach by any moving party or
parties of an agreement with the purchasing party or parties,
including, without limitation, the operating agreement, may be
deducted from the amount payable to the moving party or parties;
provided, that no member who sues for dissolution on the grounds set
forth in paragraph (3), (4), or (5) of subdivision (b) shall be
liable for damages for breach of contract in bringing that action.
   (2) If the purchasing parties elect to purchase the membership
interests owned by the moving parties, are unable to agree with the
moving parties upon the fair market value of the membership
interests, and give bond with sufficient security to pay the
estimated reasonable expenses, including attorney's fees, of the
moving parties if the expenses are recoverable under paragraph (3),
the court, upon application of the purchasing parties, either in the
pending action or in a proceeding initiated in the superior court of
the proper county by the purchasing parties, shall stay the winding
up and dissolution proceeding and shall proceed to ascertain and fix
the fair market value of the membership interests owned by the moving
parties.
   (3) The court shall appoint three disinterested appraisers to
appraise the fair market value of the membership interests owned by
the moving parties, and shall make an order referring the matter to
the appraisers so appointed for the purpose of ascertaining that
value. The order shall prescribe the time and manner of producing
evidence, if evidence is required. The award of the appraisers or a
majority of them, when confirmed by the court, shall be final and
conclusive upon all parties. The court shall enter a decree that
shall provide in the alternative for winding up and dissolution of
the limited liability company, unless payment is made for the
membership interests within the time specified by the decree. If the
purchasing parties do not make payment for the membership interests
within the time specified, judgment shall be entered against them and
the surety or sureties on the bond for the amount of the expenses,
including attorney's fees, of the moving parties. Any member
aggrieved by the action of the court may appeal therefrom.
   (4) If the purchasing parties desire to prevent the winding up and
dissolution of the limited liability company, they shall pay to the
moving parties the value of their membership interests ascertained
and decreed within the time specified pursuant to this section, or,
in the case of an appeal, as fixed on appeal. On receiving that
payment or the tender of payment, the moving parties shall transfer
their membership interests to the purchasing parties.
   (5) For the purposes of this section, the valuation date shall be
the date upon which the action for judicial dissolution was
commenced. However, the court may, upon the hearing of a motion by
any party, and for good cause shown, designate some other date as the
valuation date.
   (6) A dismissal of any suit for judicial dissolution by a manager,
member, or members shall not affect the other members' rights to
avoid dissolution pursuant to this section.
   (d) Nothing in this section shall be construed to limit the
remedies otherwise available to a court of competent jurisdiction
over the dissolution.
  SEC. 15.  Section 17707.06 of the Corporations Code is amended to
read:
   17707.06.  (a) A limited liability company that has filed a
certificate of cancellation nevertheless 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. A limited liability company shall not continue business
except so far as necessary for its winding up.
   (b) No action or proceeding to which a limited liability company
is a party abates by the filing of a certificate of cancellation for
the limited liability company or by reason of proceedings for its
winding up and dissolution.
   (c) Any assets inadvertently or otherwise omitted from the winding
up continue in the canceled limited liability company for the
benefit of the persons entitled to those assets upon cancellation and
on realization shall be distributed accordingly.
   (d) After cancellation of the limited liability company, the
limited liability company is bound by both of the following:
   (1) The act of a person authorized to wind up the affairs of the
limited liability company, if the act is appropriate for winding up
the activities of the limited liability company.
   (2) The act of a person authorized to act on behalf of the limited
liability company, if the act would have bound the limited liability
company before cancellation, if the other party to the transaction
did not have notice of the cancellation.
  SEC. 16.  Section 17707.09 of the Corporations Code is amended to
read:
   17707.09.  (a) Notwithstanding the filing of a certificate of
dissolution, a majority of the members may cause to be filed, in the
office of, and on a form prescribed by, the Secretary of State, a
certificate of continuation, in any of the following circumstances:
   (1) The business of the limited liability company is to be
continued pursuant to a unanimous vote of the remaining members.
   (2) The dissolution of the limited liability company was by vote
of the members pursuant to subdivision (b) of Section 17707.01 and
each member who consented to the dissolution has agreed in writing to
revoke his or her vote in favor of or consent to the dissolution.
   (3) The limited liability company was not, in fact, dissolved.
   (b) The certificate of continuation shall set forth all of the
following:
   (1) The name of the limited liability company and the Secretary of
State's file number.
   (2) The grounds provided by subdivision (a) that are the basis for
filing the certificate of continuation.
   (c) Upon the filing of a certificate of continuation, the
certificate of dissolution shall be of no effect from the time of the
filing of the certificate of dissolution.
  SEC. 17.  Section 17708.07 of the Corporations Code is amended to
read:
   17708.07.  (a) A foreign limited liability company transacting
intrastate business in this state shall not maintain an action or
proceeding in this state unless it has a certificate of registration
to transact intrastate business in this state.
   (b) The failure of a foreign limited liability company to have a
certificate of registration to transact intrastate business in this
state does not prevent the foreign limited liability company from
defending an action or proceeding in this state.
   (c) A member or manager of a foreign limited liability company is
not liable for the debts, obligations, or other liabilities of the
foreign limited liability company solely because the foreign limited
liability company transacted intrastate business in this state
without a certificate of registration.
   (d) If a foreign limited liability company transacts intrastate
business in this state without a certificate of registration or
cancels its certificate of registration, it shall be deemed to have
appointed the Secretary of State as its agent for service of process
for rights of action arising out of the transaction of intrastate
business in this state.
  SEC. 18.  Section 17710.03 of the Corporations Code is amended to
read:
   17710.03.  (a) A limited liability company that desires to convert
to an other business entity or a foreign other business entity or a
foreign limited liability company shall approve a plan of conversion.

   The plan of conversion shall state all of the following:
   (1) The terms and conditions of the conversion.
   (2) The place of the organization of the converted entity and of
the converting limited liability company and the name of the
converted entity after conversion.
   (3) The manner of converting the membership interests of each of
the members into shares of, securities of, or interests in, the
converted entity.
   (4) The provisions of the governing documents for the converted
entity, including the limited liability company articles of
organization and operating agreement, or articles or certificate of
incorporation if the converted entity is a corporation, to which the
holders of interests in the converted entity are to be bound.
   (5) Any other details or provisions that are required by the laws
under which the converted entity is organized, or that are desired by
the parties.
   (b) (1) The plan of conversion shall be approved by all managers
and a majority of the members of each class of membership interest or
if there are no managers, a majority of the members of each class of
membership of the converting limited liability company, unless a
greater approval is required by the operating agreement of the
converting limited liability company.
   (2) However, if the members of the limited liability company would
become personally liable for any obligations of the converted entity
as a result of the conversion, the plan of conversion shall be
approved by all of the members of the converting limited liability
company, unless the plan of conversion provides that all members will
have dissenters' rights as provided in Article 11 (commencing with
Section 17711.01).
   (c) Upon the effectiveness of the conversion, all members of the
converting limited liability company, except those that exercise
dissenters' rights as provided in Article 11 (commencing with Section
17711.01), shall be deemed parties to any governing documents for
the converted entity adopted as part of the plan of conversion,
regardless of whether or not the member has executed the plan of
conversion or the governing documents for the converted entity. Any
adoption of governing documents made pursuant to the conversion shall
be effective at the effective time or date of the conversion.
   (d) Notwithstanding its prior approval, a plan of conversion may
be amended before the conversion takes effect if the amendment is
approved by all managers and a majority of the members or if there
are no managers, a majority of the members of the converting limited
liability company and, if the amendment changes any of the principal
terms of the plan of conversion, the amendment is approved by the
managers and members of the converting limited liability company in
the same manner and to the same extent as required for the approval
of the original plan of conversion.
   (e) The managers by unanimous approval and the members of a
converting limited liability company may, by majority approval at any
time before the conversion is effective, in their discretion,
abandon a conversion, without further approval by the managers or
members, subject to the contractual rights of third parties other
than managers or members.
   (f) The converted entity shall keep the plan of conversion at the
principal place of business of the converted entity if the converted
entity is a domestic limited liability company or foreign other
business entity, at the principal office of, or registrar or transfer
agent of, the converted entity, if the converted entity is a
domestic corporation, or at the office where records are to be kept
pursuant to Section 17701.13 if the converted entity is a domestic
limited liability company. Upon the request of a member of a
converting limited liability company, the authorized person on behalf
of the converted entity shall promptly deliver to the member or the
holder of shares, interests, or other securities, at the expense of
the converted entity, a copy of the plan of conversion. A waiver by a
member of the rights provided in this subdivision shall be
unenforceable.
  SEC. 19.  Section 17710.06 of the Corporations Code is amended to
read:
   17710.06.  (a) Upon conversion of a limited liability company, one
of the following applies:
   (1) If the limited liability company is converting into a domestic
limited partnership, a statement of conversion shall be completed on
a certificate of limited partnership for the converted entity and
shall be filed with the Secretary of State.
   (2) If the limited liability company is converting into a domestic
partnership, a statement of conversion shall be completed on the
statement of partnership authority for the converted entity. If no
statement of partnership authority is filed, a certificate of
conversion shall be filed separately with the Secretary of State.
   (3) If the limited liability company is converting into a domestic
corporation, a statement of conversion shall be completed on the
articles of incorporation for the converted entity and shall be filed
with the Secretary of State.
   (4) If the limited liability company is converting to a foreign
limited liability company or foreign other business entity, a
certificate of conversion shall be filed with the Secretary of State.

   (b) Any certificate or statement of conversion shall be executed
and acknowledged by all members of a member-managed limited liability
company or all managers of a manager-managed limited liability
company, unless a lesser number is provided in the articles of
organization or operating agreement, and shall set forth all of the
following:
   (1) The name of the converting limited liability company and the
Secretary of State's file number of the converting limited liability
company.
   (2) A statement that the principal terms of the plan of conversion
were approved by a vote of the members, that equaled or exceeded the
vote required under Section 17710.03, specifying each class entitled
to vote and the percentage vote required of each class.
   (c) A certificate of conversion shall set forth all of the
following:
   (1) The name, form, and jurisdiction of organization of the
converted entity.
   (2) The name, street, and mailing address of the converted entity'
s agent for service of process.
   (3) The street address of the converted entity's chief executive
office.
   (d) The filing with the Secretary of State of a certificate of
conversion, a certificate of limited partnership, a statement of
partnership authority, or articles of incorporation containing a
statement of conversion as set forth in subdivision (a) shall have
the effect of the filing of a certificate of cancellation by the
converting limited liability company, and no converting limited
liability company that has made the filing is required to take any
action under Article 7 (commencing with Section 17707.01) as a result
of that conversion.
   (e) For the purposes of this title, the certificate of conversion
shall be on a form prescribed by the Secretary of State.
  SEC. 19.5.  Section 17710.06 of the Corporations Code is amended to
read:
                                                17710.06.  (a) Upon
conversion of a limited liability company, one of the following
applies:
   (1) If the limited liability company is converting into a domestic
limited partnership, a statement of conversion shall be completed on
a certificate of limited partnership for the converted entity and
shall be filed with the Secretary of State.
   (2) If the limited liability company is converting into a domestic
partnership, a statement of conversion shall be completed on the
statement of partnership authority for the converted entity. If no
statement of partnership authority is filed, a certificate of
conversion shall be filed separately with the Secretary of State.
   (3) If the limited liability company is converting into a domestic
corporation, a statement of conversion shall be completed on the
articles of incorporation for the converted entity and shall be filed
with the Secretary of State.
   (4) If the limited liability company is converting to a foreign
limited liability company or foreign other business entity, a
certificate of conversion shall be filed with the Secretary of State.

   (b) Any certificate or statement of conversion shall be executed
and acknowledged by all members of a member-managed limited liability
company or all managers of a manager-managed limited liability
company, unless a lesser number is provided in the articles of
organization or operating agreement, and shall set forth all of the
following:
   (1) The name of the converting limited liability company and the
Secretary of State's file number of the converting limited liability
company.
   (2) A statement that the principal terms of the plan of conversion
were approved by a vote of the members, that equaled or exceeded the
vote required under Section 17710.03, specifying each class entitled
to vote and the percentage vote required of each class.
   (c) A certificate of conversion shall set forth all of the
following:
   (1) The name, form, and jurisdiction of organization of the
converted entity.
   (2) The name, street address, and mailing address of the converted
entity's agent for service of process. If a corporation qualified
under Section 1505 is designated as the agent, no address for it
shall be set forth.
   (3) The street address of the converted entity's chief executive
office.
   (d) The filing with the Secretary of State of a certificate of
conversion, a certificate of limited partnership, a statement of
partnership authority, or articles of incorporation containing a
statement of conversion as set forth in subdivision (a) shall have
the effect of the filing of a certificate of cancellation by the
converting limited liability company, and no converting limited
liability company that has made the filing is required to take any
action under Article 7 (commencing with Section 17707.01) as a result
of that conversion.
   (e) For the purposes of this title, the certificate of conversion
shall be on a form prescribed by the Secretary of State.
  SEC. 20.  Section 17710.12 of the Corporations Code is amended to
read:
   17710.12.  (a) Each limited liability company and other business
entity that desires to merge shall approve an agreement of merger.
   The agreement of merger shall be approved by all managers and a
majority of the members of each class of membership interests of each
constituent limited liability company, unless a greater approval is
required by the operating agreement of the constituent limited
liability company. Notwithstanding the previous sentence, if the
members of any constituent limited liability company become
personally liable for any obligations of a constituent limited
liability company or constituent other business entity as a result of
the merger, the principal terms of the agreement of merger shall be
approved by all of the members of the constituent limited liability
company, unless the agreement of merger provides that all members
shall have the dissenters' rights provided in Article 11 (commencing
with Section 17711.01). The agreement of merger shall be approved on
behalf of each constituent other business entity by those persons
required to approve the merger by the laws under which it is
organized. Other persons, including a parent of a constituent limited
liability company, may be parties to the agreement of merger. The
agreement of merger shall state all of the following:
   (1) The terms and conditions of the merger.
   (2) The name and place of the organization of the surviving
limited liability company or surviving other business entity, and of
each disappearing limited liability company and disappearing other
business entity, and the agreement of merger may change the name of
the surviving limited liability company, the new name may be the same
as or similar to the name of a disappearing domestic or foreign
limited liability company, subject to Section 17701.08.
   (3) The manner of converting the membership interests of each of
the constituent limited liability companies into interests, shares,
or other securities of the surviving limited liability company or
surviving other business entity, and if limited liability company
interests of any of the constituent limited liability companies are
not to be converted solely into interests, shares, or other
securities of the surviving limited liability company or surviving
other business entity, the cash, property, rights, interests, or
securities that the holders of the limited liability company
interests are to receive in exchange for the membership interests,
the cash, property, rights, interests, or securities that may be in
addition to or in lieu of interests, shares, or other securities of
the surviving limited liability company or surviving other business
entity, or that the limited liability company interests are canceled
without consideration.
   (4) The amendments to the articles of organization of the
surviving limited liability company, if applicable, to be effected by
the merger, if any.
   (5) Any other details or provisions that are required by the laws
under which any constituent other business entity is organized,
including, if a domestic corporation is a party to the merger, as
provided in subdivision (b) of Section 1113.
   (6) Any other details or provisions that are desired, including,
without limitation, a provision for the treatment of fractional
membership interests.
   (b) (1) Each membership interest of the same class of any
constituent limited liability company, other than a membership
interest in another constituent limited liability company that is
being canceled and that is held by a constituent limited liability
company or its parent or a limited liability company of which the
constituent limited liability company is a parent shall, unless all
members of the class consent, be treated equally with respect to any
distribution of cash, property, rights, interests, or securities.
   (2) Notwithstanding paragraph (1), except in a merger of a limited
liability company with a limited liability company that controls at
least 90 percent of the membership interests entitled to vote with
respect to the merger, the unredeemable membership interests of a
constituent limited liability company may be converted only into
unredeemable interests or securities of the surviving limited
liability company or other business entity, or a parent if a
constituent limited liability company or a constituent other business
entity or its parent owns, directly or indirectly, prior to the
merger, membership interests of another constituent limited liability
company or interests or securities of a constituent other business
entity representing more than 50 percent of the interests or
securities entitled to vote with respect to the merger of the other
constituent limited liability company or constituent other business
entity or more than 50 percent of the voting power, as defined in
Section 194.5, of a constituent other business entity that is a
domestic corporation, unless all of the members of the class consent.

   (3) The provisions of this subdivision do not apply to any
transaction if the commissioner has approved the terms and conditions
of the transaction and the fairness of those terms pursuant to
Section 25142.
   (c) Notwithstanding its prior approval, an agreement of merger may
be amended prior to the filing of the certificate of merger or the
agreement of merger, as provided in Section 17710.14, if the
amendment is approved by the managers and members of each constituent
limited liability company in the same manner as required for
approval of the original agreement of merger and, if the amendment
changes any of the principal terms of the agreement of merger, the
amendment is approved by the managers and members of each constituent
limited liability company in the same manner and to the same extent
as required for the approval of the original agreement of merger, and
by each of the constituent other business entities.
   (d) The managers and members of a constituent limited liability
company may, in their discretion, abandon a merger, subject to the
contractual rights, if any, of third parties, including other
constituent limited liability companies and constituent other
business entities, without further approval by the membership
interests, at any time before the merger is effective.
   (e) An agreement of merger approved in accordance with subdivision
(a) may do the following:
   (1) Effect any amendment to the operating agreement of any
constituent limited liability company.
   (2) Effect the adoption of a new operating agreement for a
constituent limited liability company if it is the surviving limited
liability company in the merger. Any amendment to an operating
agreement or adoption of a new operating agreement made pursuant to
the foregoing sentence shall be effective at the effective time or
date of the merger. Notwithstanding the above provisions of this
subdivision, if a greater number of members is required to approve an
amendment to the operating agreement of a constituent limited
liability company than is required to approve the agreement of merger
pursuant to subdivision (a), and the number of members that approve
the agreement of merger is less than the number of members required
to approve an amendment to the operating agreement of the constituent
limited liability company, any amendment to the operating agreement
or adoption of a new operating agreement of that constituent limited
liability company made pursuant to the first sentence of this
subdivision shall be effective only if the agreement of merger
provides that all of the members shall have the dissenters' rights
provided in Article 11 (commencing with Section 17711.01).
   (f) The surviving limited liability company or surviving other
business entity shall keep the agreement of merger at its designated
office or at the business address specified in paragraph (5) of
subdivision (a) of Section 17710.14, as applicable, and, upon the
request of a member of a constituent limited liability company or a
holder of shares, interests, or other securities of a constituent
other business entity, the managers or members of the surviving
limited liability company or the authorized person of the surviving
other business entity shall promptly deliver to the member or the
holder of shares, interests, or other securities, at the expense of
the surviving limited liability company or surviving other business
entity, a copy of the agreement of merger. A waiver by a member or
holder of shares, interests, or other securities of the rights
provided in this subdivision shall be unenforceable.
  SEC. 21.  Section 17713.04 of the Corporations Code is amended to
read:
   17713.04.  (a) Except as otherwise provided in subdivisions (b)
and (c), this title shall apply to all domestic limited liability
companies existing on or after January 1, 2014, to all foreign
limited liability companies registered with the Secretary of State
prior to January 1, 2014, whose registrations have not been canceled
as of January 1, 2014, to all foreign limited liability companies
registered with the Secretary of State on or after January 1, 2014,
and to all actions taken by the managers or members of a limited
liability company on or after that date.
   (b) Except as otherwise specified in this title, this title
applies only to the acts or transactions by a limited liability
company or by the members or managers of the limited liability
company occurring, or an operating agreement or other contracts
entered into by the limited liability company or by the members or
managers of the limited liability company, on or after January 1,
2014. The prior law governs all acts or transactions by a limited
liability company or by the members or managers of the limited
liability company occurring, and any operating agreement or other
contracts entered into by the limited liability company or by the
members or managers of the limited liability company, prior to
January 1, 2014.
   (c) Any vote or consent by the managers or members of a limited
liability company prior to January 1, 2014, shall be governed by
prior law. If a certificate or document is required to be filed in a
public office of this state relating to a vote or consent by the
managers or members of the limited liability company prior to January
1, 2014, it may be filed after that date pursuant to the filing
requirements of this title, even though the vote or consent is
governed by prior law.
   (d) This title does not cancel or otherwise affect the status of,
or create a new filing requirement with the Secretary of State or any
other agency, board, commission, or department for, any domestic
limited liability company in existence on December 31, 2013, or any
foreign limited liability company registered to transact intrastate
business in this state prior to January 1, 2014.
   (e) For the purposes of this section, "prior law" means Title 2.5
(commencing with Section 17000) as it read on December 31, 2013.
  SEC. 22.  Section 17713.12 of the Corporations Code is amended to
read:
   17713.12.  (a) A limited liability company is liable for a civil
penalty in an amount not exceeding one million dollars ($1,000,000)
if the limited liability company does both of the following:
   (1) Has actual knowledge that a member, officer, manager, or agent
of the limited liability company does any of the following:
   (A) Makes, publishes, or posts, or has made, published, or posted,
either generally or privately to the members or other persons,
either of the following:
   (i) An oral, written, or electronically transmitted report,
exhibit, notice, or statement of its affairs or pecuniary condition
that contains a material statement or omission that is false and
intended to give membership shares in the limited liability company a
materially greater or a materially less apparent market value than
they really possess.
   (ii) An oral, written, or electronically transmitted report,
prospectus, account, or statement of operations, values, business,
profits, or expenditures that includes a material false statement or
omission intended to give membership shares in the limited liability
company a materially greater or a materially less apparent market
value than they really possess.
   (B) Refuses or has refused to make any book entry or post any
notice required by law in the manner required by law.
   (C) Misstates or conceals or has misstated or concealed from a
regulatory body a material fact in order to deceive a regulatory body
to avoid a statutory or regulatory duty, or to avoid a statutory or
regulatory limit or prohibition.
   (2) Within 30 days after actual knowledge is acquired of the
actions described in paragraph (1), the limited liability company
knowingly fails to do both of the following:
   (A) Notify the Attorney General or appropriate government agency
in writing, unless the limited liability company has actual knowledge
that the Attorney General or appropriate government agency has been
notified.
   (B) Notify its members and investors in writing, unless the
limited liability company has actual knowledge that the members and
investors have been notified.
   (b) The requirement for notification under this section is not
applicable if the action taken or about to be taken by the limited
liability company, or by a member, officer, manager, or agent of the
limited liability company under paragraph (1) of subdivision (a), is
abated within the time prescribed for reporting, unless the
appropriate government agency requires disclosure by regulation.
   (c) If the action reported to the Attorney General pursuant to
this section implicates the government authority of an agency other
than the Attorney General, the Attorney General shall promptly
forward the written notice to that agency.
   (d) If the Attorney General was not notified pursuant to
subparagraph (A) of paragraph (2) of subdivision (a), but the limited
liability company reasonably and in good faith believed that it had
complied with the notification requirements of this section by
notifying a government agency listed in paragraph (5) of subdivision
(e), no penalties shall apply.
   (e) For purposes of this section:
   (1) "Manager" means a person defined by subdivision (m) of Section
17701.01 having both of the following:
   (A) Management authority over the limited liability company.
   (B) Significant responsibility for an aspect of the limited
liability company that includes actual authority for the financial
operations or financial transactions of the limited liability
company.
   (2) "Agent" means a person or entity authorized by the limited
liability company to make representations to the public about the
limited liability company's financial condition and who is acting
within the scope of the agency when the representations are made.
   (3) "Member" means a person as defined by subdivision (o) of
Section 17701.01 that is a member of the limited liability company at
the time the disclosure is required pursuant to subparagraph (B) of
paragraph (2) of subdivision (a).
   (4) "Notify its members" means to give sufficient description of
an action taken or about to be taken that would constitute acts or
omissions as described in paragraph (1) of subdivision (a). A notice
or report filed by a limited liability company with the United States
Securities and Exchange Commission that relates to the facts and
circumstances giving rise to an obligation under paragraph (1) of
subdivision (a) shall satisfy all notice requirements arising under
paragraph (2) of subdivision (a) but shall not be the exclusive means
of satisfying the notice requirements, provided that the Attorney
General or appropriate agency is informed in writing that the filing
has been made together with a copy of the filing or an electronic
link where it is available online without charge.
   (5) "Appropriate government agency" means an agency on the
following list that has regulatory authority with respect to the
financial operations of a limited liability company:
   (A) Department of Corporations.
   (B) Department of Insurance.
   (C) Department of Financial Institutions.
   (D) Department of Managed Health Care.
   (E) United States Securities and Exchange Commission.
   (6) "Actual knowledge of the limited liability company" means the
knowledge a member, officer, or manager of a limited liability
company actually possesses or does not consciously avoid possessing,
based on an evaluation of information provided pursuant to the
limited liability company's disclosure controls and procedures.
   (7) "Refuse to make a book entry" means the intentional decision
not to record an accounting transaction when all of the following
conditions are satisfied:
   (A) The independent auditors required recordation of an accounting
transaction during the course of an audit.
   (B) The audit committee of the limited liability company has not
approved the independent auditor's recommendation.
   (C) The decision is made for the primary purpose of rendering the
financial statements materially false or misleading.
   (8) "Refuse to post any notice required by law" means an
intentional decision not to post a notice required by law when all of
the following conditions exist:
   (A) The decision not to post the notice has not been approved by
the limited liability company's audit committee.
   (B) The decision is intended to give the membership shares in the
limited liability company a materially greater or a materially less
apparent market value than they really possess.
   (9) "Misstate or conceal material facts from a regulatory body"
means an intentional decision not to disclose material facts when all
of the following conditions exist:
   (A) The decision not to disclose material facts has not been
approved by the limited liability company's audit committee.
   (B) The decision is intended to give the membership shares in the
limited liability company a materially greater or a materially less
apparent market value than they really possess.
   (10) "Material false statement or omission" means an untrue
statement of material fact or an omission to state a material fact
necessary in order to make the statements made under the
circumstances under which they were made not misleading.
   (11) "Officer" means a person appointed pursuant to Section
17703.02, except an officer of a specified subsidiary limited
liability company who is not also an officer of the parent limited
liability company.
   (f) This section only applies to limited liability companies that
are issuers, as defined in Section 2 of the federal Sarbanes-Oxley
Act of 2002 (15 U.S.C. Sec. 7201 et seq.).
   (g) An action to enforce this section may only be brought by the
Attorney General or a district attorney or city attorney in the name
of the people of the State of California.
  SEC. 22.5.  Section 17713.12 of the Corporations Code is amended to
read:
   17713.12.  (a) A limited liability company is liable for a civil
penalty in an amount not exceeding one million dollars ($1,000,000)
if the limited liability company does both of the following:
   (1) Has actual knowledge that a member, officer, manager, or agent
of the limited liability company does any of the following:
   (A) Makes, publishes, or posts, or has made, published, or posted,
either generally or privately to the members or other persons,
either of the following:
   (i) An oral, written, or electronically transmitted report,
exhibit, notice, or statement of its affairs or pecuniary condition
that contains a material statement or omission that is false and
intended to give membership shares in the limited liability company a
materially greater or a materially less apparent market value than
they really possess.
   (ii) An oral, written, or electronically transmitted report,
prospectus, account, or statement of operations, values, business,
profits, or expenditures that includes a material false statement or
omission intended to give membership shares in the limited liability
company a materially greater or a materially less apparent market
value than they really possess.
   (B) Refuses or has refused to make any book entry or post any
notice required by law in the manner required by law.
   (C) Misstates or conceals or has misstated or concealed from a
regulatory body a material fact in order to deceive a regulatory body
to avoid a statutory or regulatory duty, or to avoid a statutory or
regulatory limit or prohibition.
   (2) Within 30 days after actual knowledge is acquired of the
actions described in paragraph (1), the limited liability company
knowingly fails to do both of the following:
   (A) Notify the Attorney General or appropriate government agency
in writing, unless the limited liability company has actual knowledge
that the Attorney General or appropriate government agency has been
notified.
   (B) Notify its members and investors in writing, unless the
limited liability company has actual knowledge that the members and
investors have been notified.
   (b) The requirement for notification under this section is not
applicable if the action taken or about to be taken by the limited
liability company, or by a member, officer, manager, or agent of the
limited liability company under paragraph (1) of subdivision (a), is
abated within the time prescribed for reporting, unless the
appropriate government agency requires disclosure by regulation.
   (c) If the action reported to the Attorney General pursuant to
this section implicates the government authority of an agency other
than the Attorney General, the Attorney General shall promptly
forward the written notice to that agency.
   (d) If the Attorney General was not notified pursuant to
subparagraph (A) of paragraph (2) of subdivision (a), but the limited
liability company reasonably and in good faith believed that it had
complied with the notification requirements of this section by
notifying a government agency listed in paragraph (5) of subdivision
(e), no penalties shall apply.
   (e) For purposes of this section:
   (1) "Manager" means a person defined by subdivision (m) of Section
17701.01 having both of the following:
   (A) Management authority over the limited liability company.
   (B) Significant responsibility for an aspect of the limited
liability company that includes actual authority for the financial
operations or financial transactions of the limited liability
company.
   (2) "Agent" means a person or entity authorized by the limited
liability company to make representations to the public about the
limited liability company's financial condition and who is acting
within the scope of the agency when the representations are made.
   (3) "Member" means a person as defined by subdivision (o) of
Section 17701.01 that is a member of the limited liability company at
the time the disclosure is required pursuant to subparagraph (B) of
paragraph (2) of subdivision (a).
   (4) "Notify its members" means to give sufficient description of
an action taken or about to be taken that would constitute acts or
omissions as described in paragraph (1) of subdivision (a). A notice
or report filed by a limited liability company with the United States
Securities and Exchange Commission that relates to the facts and
circumstances giving rise to an obligation under paragraph (1) of
subdivision (a) shall satisfy all notice requirements arising under
paragraph (2) of subdivision (a) but shall not be the exclusive means
of satisfying the notice requirements, provided that the Attorney
General or appropriate agency is informed in writing that the filing
has been made together with a copy of the filing or an electronic
link where it is available online without charge.
                                                         (5)
"Appropriate government agency" means an agency on the following list
that has regulatory authority with respect to the financial
operations of a limited liability company:
   (A) Department of Business Oversight.
   (B) Department of Insurance.
   (C) Department of Managed Health Care.
   (D) United States Securities and Exchange Commission.
   (6) "Actual knowledge of the limited liability company" means the
knowledge a member, officer, or manager of a limited liability
company actually possesses or does not consciously avoid possessing,
based on an evaluation of information provided pursuant to the
limited liability company's disclosure controls and procedures.
   (7) "Refuse to make a book entry" means the intentional decision
not to record an accounting transaction when all of the following
conditions are satisfied:
   (A) The independent auditors required recordation of an accounting
transaction during the course of an audit.
   (B) The audit committee of the limited liability company has not
approved the independent auditor's recommendation.
   (C) The decision is made for the primary purpose of rendering the
financial statements materially false or misleading.
   (8) "Refuse to post any notice required by law" means an
intentional decision not to post a notice required by law when all of
the following conditions exist:
   (A) The decision not to post the notice has not been approved by
the limited liability company's audit committee.
   (B) The decision is intended to give the membership shares in the
limited liability company a materially greater or a materially less
apparent market value than they really possess.
   (9) "Misstate or conceal material facts from a regulatory body"
means an intentional decision not to disclose material facts when all
of the following conditions exist:
   (A) The decision not to disclose material facts has not been
approved by the limited liability company's audit committee.
   (B) The decision is intended to give the membership shares in the
limited liability company a materially greater or a materially less
apparent market value than they really possess.
   (10) "Material false statement or omission" means an untrue
statement of material fact or an omission to state a material fact
necessary in order to make the statements made under the
circumstances under which they were made not misleading.
   (11) "Officer" means a person appointed pursuant to Section
17703.02, except an officer of a specified subsidiary limited
liability company who is not also an officer of the parent limited
liability company.
   (f) This section only applies to limited liability companies that
are issuers, as defined in Section 2 of the federal Sarbanes-Oxley
Act of 2002 (15 U.S.C. Sec. 7201 et seq.).
   (g) An action to enforce this section may only be brought by the
Attorney General or a district attorney or city attorney in the name
of the people of the State of California.
  SEC. 23.  Section 19.5 of this bill incorporates amendments to
Section 17710.06 of the Corporations Code proposed by both this bill
and Assembly Bill 1471. It shall only become operative if (1) both
bills are enacted and become effective on or before January 1, 2016,
(2) each bill amends Section 17710.06 of the Corporations Code, and
(3) this bill is enacted after Assembly Bill 1471, in which case
Section 19 of this bill shall not become operative.
  SEC. 24.  Section 22.5 of this bill incorporates amendments to
Section 17713.12 of the Corporations Code proposed by both this bill
and Assembly Bill 1517. It shall only become operative if (1) both
bills are enacted and become effective on or before January 1, 2016,
(2) each bill amends Section 17713.12 of the Corporations Code, and
(3) this bill is enacted after Assembly Bill 1517, in which case
Section 22 of this bill shall not become operative.