Contact us with your California corporate & securities law questions (949) 353-6347 or Contact us here

The Memberless LLC And Diversity

When faced with someone who is blowing things out of proportion, one response might be "Don't make a federal case out of this!"  Sometimes, it may not even be possible to make a federal case.  The reason is that federal courts are courts of limited jurisdiction.  The power of the federal judiciary is circumscribed by Article III, Section 2 of the United States Constitution which permits federal courts to hear only certain controversies such as those between citizens of different states.  The diversity jurisdiction of the U.S. District Courts is codified at 28 U.S.C. § 1332. 

When a non-natural person is a party to a lawsuit, federal courts must determine where that person is a citizen.  See Court Rules California Unincorporated Association Is A South Dakota Citizen and Where Is A Holding Company's Principal Place Of Business?

In Hellerstein v. Desert Lifestyles, 2018 U.S. Dist. LEXIS 55532, Judge Richard F. Boulware II considered the citizenship of a limited liability company formed under California's Revised Uniform Limited Liability Company Act.  In analyzing the situation, Judge Boulware observed the following:

The CRULLCA does not expressly or impliedly establish a procedure for creating a memberless LLC. While an LLC may be dissolved pursuant to Section 17707.02 after losing members, presumably to death, inactivity or abandonment, the CRULLCA has no procedure for creating a manager-managed LLC without members.

Initially, I was inclined to disagree.  After all, a California corporation can come into existence without shareholders.  Cal. Corp. Code § 200(c).  A similar provision can be found in California's LLC law.  Cal. Corp. Code §17702.01(d) ("A limited liability company is formed when the Secretary of State has filed the articles of organization.") 

Although Judge Boulware didn't cite the statute, I believe that his conclusion finds some support in Corporations Code Section 17704.01(a) which refers to an LLC that is to have "only one member upon formation" and Section 17704.01(b) which refers to an LLC that is to have "more than one member on formation".  Both provisions therefore contemplate that there will be a member or members upon formation.  

Share on:

Limited Liability Companies

ANY QUESTIONS REGARDING CALIFORNIA CORPORATE AND SECURITIES LAW? CONTACT US DIRECTLY

We offer expert advice with the intricacies of California law.

Our years of experience and expertise allow us to help clients navigate the business laws in California.

CONTACT US

Get the latest news and analysis about California Corporate & Securities law. Subscribe to our newsletter today!

We respect your email privacy

ABOUT OUR AUTHOR

30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
(949) 353-6328
 Contact me
Learn More About Keith

RECOGNITION

JDSupra 2018

nominee-badge

Get the latest news and analysis about California Corporate & Securities law. Subscribe to our newsletter today!

We respect your email privacy

CATEGORIES

see all

YOUTUBE

FACEBOOK