Miscellaneous

How Does the Agent for Service of Process of a CA LLC Resign?

Question:  I am the agent for service of process for a California limited liability company.  How do I resign the position of the LLC’s agent for service of process?

Answer:  You must prepare, sign and file a California Secretary of State Form RA-100, Resignation of Agent Upon Whom Process May Be Served, with the California Secretary of State.  There is no fee to file the form.  Mail the form to Secretary of State, Document Filing Support Unit, 1500 11th Street, 3rdFloor, Sacramento, CA 9581. Upon filing Form RA-100, the authority of the agent for service of process to act in that capacity will cease,and the Secretary of State will give written notice of the resignation to the entity.

A non-refundable $15.00 special handling fee is applicable for processing documents delivered in person (drop off) at the Sacramento office. To get a copy of the filed document, include a separate request and payment for copy fees when the document is submitted. Copy fees are $1.00 for the first page and $.50 for each additional page. For certified copies, there is an additional $5.00 certification fee, per copy.
By | 2016-12-13T21:20:13+00:00 April 30th, 2015|Categories: FAQs, How Do I, Miscellaneous|0 Comments

LLC Lawsuits- Direct or Derivative

Prior to the creation of the first limited liability company (LLC), shareholders were able to sue the corporation through a direct or derivative lawsuit.  Classifying the claim as direct or derivative would determine the procedure of the complaint, in addition to determining the remedy and likely outcome.  Now, with the popularity of the LLC, the derivative and direct classifications are applying to members’ complaints about the operation of the LLC.  Since LLC law does not have too many of these cases, it is beneficial to look at the corporate law (especially because LLC law often borrows from corporate law).  In fact, as seen in several states, it is often corporate case law which determines the outcome of LLC disputes between a member and the LLC itself.  For these reasons, a brief description of the differences between a direct and derivative lawsuit would be beneficial not only to a shareholder, but also to a member or manager of an LLC.

Direct

A direct claim allows the member or members to pursue the lawsuit in their own name(s).  This is allowed only if the member or group of members were injured by the actions of the LLC, and it is those members (not the LLC) who would receive the benefit of recovery.  However, if the entire LLC was injured by the action of a manager, the claim does not classify as direct.  An example of a direct claim would be if the voting rights or interests of a certain member were lost.  Here, it is not the entire LLC that is harmed, but only that member.

Furthermore, for a direct claim, the remedy sought is usually equitable, or non-monetary.  In the example above, the proper remedy would not be money damages, but an injunction to prevent the LLC from harming the voting interest of the particular member.  Overall, if a member is injured (not the LLC), and the remedy is equitable, then the claim is direct.

Derivative

A derivative claim is much more complicated than a direct claim.  A derivative lawsuit is one in which the entire LLC is harmed (by the LLC), rather than a specific member bring injured.  In other words, the lawsuit is brought by a member on behalf of the entire LLC, against the LLC itself.  An example of a derivative law suit would be if the LLC engaged in an agreement to pay an extraordinary amount of money to an individual who is not performing.  Here, a law suit would benefit the entire LLC, and the remedy would be the money lost on the violated agreement.

A key difference between a derivative and direct lawsuit is that the concept of “demand.”  Under a derivative lawsuit, the plaintiff is required to either make demand of the company, or prove that demand of the company is futile.  Demand refers to demanding the LLC take on the case.  Since the lawsuit is meant to benefit the entire LLC, courts have mentioned that the LLC should have the ability to investigate and determine the validity of the case itself.  However, it is apparent that if an LLC hears about the complaint and chooses to investigate, a conflict of interest could result in the LLC dismissing a valid claim, rather than bringing the suit.  Furthermore, since courts often defer to the business judgment of business entities like the LLC, there is a low likelihood that a plaintiff will be able to show that the LLC wrongfully dismissed the suit.

For all of the problems associated with making demand of the company, the plaintiff in this type of suit usually chooses to show demand futility.  To show demand futility, the plaintiff usually has to show that there is reasonable doubt that the managers and directors are independent, or that there is doubt that the agreement/transaction was a valid business decision.  In California, however, there is not a specific test to show demand futility.  If demand futility is shown, then the suit proceeds.  If not, then the suit is dismissed because demand should have been made.

The next step in a derivative lawsuit is based on whether the LLC has hired a special litigation committee (SLC).  An SLC is a committee often employed by the LLC to settle these types of disputes.  A court will defer to the decision of the SLC, as long as the SLC is independent.  To test this, courts analyze how the SLC came to it’s conclusion, evaluating whether the SLC used good faith in it’s reasonable investigation.  If the SLC was not independent, the court could apply it’s own business judgment to determine the value of the suit.  After this, the derivative suit has taken all possible steps, and the suit either proceeds, settles, or has been dismissed along the way.

As one can easily imagine, the direct law suit is much easier for a plaintiff to bring than the derivative suit.  On the other hand, the LLC would prefer a suit to be classified as derivative, because of the multiple opportunities to dismiss the suit, through the demand doctrine or an SLC.  Therefore, if an issue arises in your LLC, be sure to investigate the complaint to determine what steps can and should be taken to protect yourself and the LLC.

 

 

By | 2016-12-13T21:20:14+00:00 February 25th, 2015|Categories: Lawsuits, Member Disputes, Miscellaneous|0 Comments

Administrative Dissolution for Failing to File a Statement of Information

Administrative dissolution of an LLC occurs when an LLC fails to follow the state’s requirements, resulting in the state agency penalizing or dissolving the LLC.  In California, these requirements include payment of the annual tax and fee, in addition to filing the initial and biennial Statement of Information.  When an administrative dissolution occurs, the LLC must act in a timely manner to correct the deficiency.

There are many instances when an LLC is administratively dissolved, yet it continues to operate.  This often occurs when the LLC is not aware of the administrative dissolution.  An issue then arises as to who is liable for acts when an administratively dissolved LLC enters into a contract and subsequently is unable to pay or perform.  This issue was dealt with in Pannell v. Shannon, when a single-member Kentucky LLC was dissolved, but continued to enter into a lease agreement.  When the dissolved LLC defaulted on the lease, the other party sued not only the dissolved LLC, but also the single member.  The LLC responded by immediately taking steps for reinstatement, which was granted by the Kentucky Secretary of State.  Still, the issue remained whether or not the single member was personally liable.

The Supreme Court of Kentucky affirmed the lower courts’ decision in holding that the member was not personally liable for the administratively dissolved LLC’s lease.  By relying on the Kentucky LLC Act, the court determined that since the reinstatement related back to the date of the dissolution,  the LLC was essentially never dissolved in the first place.  The court emphasized the absurdity of limiting an unintentionally dissolved LLC to only winding-up activities.  This limit on activities, if taken literally, would prevent the LLC from filing the necessary paperwork to be reinstated.  Also, the court highlighted the purpose of the LLC Act: to limit personal liability.  A missed LLC fee or tax payment does not justify disregarding the most important principle behind why people form LLCs.

The opinion reveals that despite a complicated scenario, an understanding of the basic reason behind a limited liability company is not to be ignored: An LLC is meant to protect owners and members from personal liability.  The opinion also shows that the normal requirements for a winding-up LLC do not apply for LLCs which are unintentionally dissolved.  By protecting managers and remembering the purpose of an LLC, this ruling should be regarded as a victory.

 

 

 

By | 2016-12-13T21:20:14+00:00 September 25th, 2014|Categories: Lawsuits, LLCs & Corporations, Miscellaneous, Operating LLCs|0 Comments

California’s LLC Law Lists Events that Do Not Cause a Foreign LLC to Do Business in CA

California’s Revised Uniform Limited Liability Company Act Section 17708-03(b) expressly states that none of the following activities of an LLC formed outside California do not constitute doing business in California:

1. Suing or defending a lawsuit, being a party of an arbitration or an or an administrative proceeding or settling a dispute or claim.

2. Conducting internal affairs activities such as holding meetings of managers or members.

3. Having a bank account or investment account in a California institution.

4. Having an office or agency in California for the purpose of transferring, exchanging and registering the LLC’s securities.

5. Selling products or services using independent contractors located in California.

6. Soliciting orders from customers inside California by electronic methods, by mail, by agents or employees if the order must be accepted outside California before the order become a legally binding contract.

7.  Incurring a debt, acquiring a debt or evidence of indebtedness or obtaining a lien, security interest or mortgage in personal property or real property.

8. Collecting a debt, enforcing a lien or mortgage and holding property acquired from a foreclosure.

9. Consummating a one-time transaction within 180 days that is not part of a series of transactions of a similar nature.

10. Engaging in interstate commerce business.

California RULLCA Section 17708-03(d) states that you are not transacting business in California merely because you are a member or manager of a California limited liability company or a foreign LLC that is registered to do business in California.

By | 2016-12-13T21:20:15+00:00 June 15th, 2014|Categories: CA Law, CA LLC Statutes, Miscellaneous|0 Comments

RULLCA Continues to Gain Momentum

On April 11th, Minnesota signed into law the “New Act,” replacing the Minnesota Limited Liability Company Act.  This New Act was largely based the Revised Uniform Limited Liability Company Act (RULLCA) provided by the National Conference of Commissioners on Uniform State Laws (NCCUSL).  By passing the New Act, many of the default rules which governed Minnesota LLCs were modified or changed completely.  These changes are to take place on August 1, 2015, but do not affect LLCs formed prior to that date, unless the LLC requests otherwise.  For access to the entire text of the New Act, visit the Minnesota State Legislature’s website.

With Minnesota’s enactment, RULLCA has now been adopted in 9 states (including California) and the District of Columbia.  Additionally, South Carolina introduced their version of RULLCA this year.  When first passed in 2006, RULLCA was criticized for having awkward phrasing, in addition to creating uncertainty regarding fiduciary duties and remedies.  However, after  a slow start, RULLCA seems to be picking up steam.  In the past two years, four states have enacted RULLCA, and other states, like South Carolina, may not be far behind.

For information on California’s Revised Uniform Limited Liability Company Act, click here.  The article provides access to all provisions of California’s version of RULLCA.

By | 2015-05-21T20:30:29+00:00 May 16th, 2014|Categories: LLCs & Corporations, Miscellaneous|0 Comments