Previously, I've written about the constitutional problem arising from the legislature's attempt to bring all existing LLCs under the newly enacted Revised Uniform Limited Liability Company Act (aka RULLCA). See California’s New LLC Act – Call Me Laocoon, But I Foresee A Mess! In today's post, I discuss just a few other reasons why practitioners would be well advised to avoid the act when it takes effect next year.
California's act is based on the the RULLCA promulgated by the National Conference of Commissioners on Uniform State Laws (aka NCCUSL). Since the RULLCA was promulgated in 2006, only six other states (Idaho, Iowa, Nebraska, New Jersey, Utah, Wyoming) and the District of Columbia have adopted. So far this year, the RULLCA has not been introduced in any other states. Since the purpose of the NCCUSL is to promote uniform state state laws, this lack of acceptance constitutes a fundamental failure of the RULLCA.
The late Professor Ribstein has written an extensive criticism of the RULLCA in which he concludes: "The new RULLCA provisions raise serious problems that . . . lawyers should consider carefully before deciding whether to advise a client to form an LLC under a RULLCA-based statute." Larry E. Ribstein, An Analysis of the Revised Uniform Limited Liability Company Act, 3 Va. Law & Bus. Rev. 35, 78 (2008). While California did not follow the RULLCA in every respect, it suffers from many of the problems discussed by Professor Ribstein.
Given the inescapable costs associated with the RULLCA and its evident flaws, the legislature should consider legislation delaying its effectiveness until some of its more significant problems can be worked out.