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Ask a Lawyer -- LLCs
LLC Question 146
Question:
I am forming an LLC in California and want to use an operating agreement that was drafted by my attorney for an LLC I have in Nevada so I wont have to expend the money on another attorney. Someone told me that operating agreements in California require an attorney to draft the operating agreement on behalf of all of the members and not just on behalf of one party. Is that true and are there any concerns I should be aware of with using the Nevada Operating Agreement?
Response: Couple of different issues presented. The first issue deals with an attorney's fiduciary duty owed to his or her client. An attorney can draft an operating agreement on behalf of only one member of the LLC so long as the attorney is paid by only that member (and not the LLC) and it is made clear to all other members that the attorney represents just one member while encouraging the other members to retain their own attorney to review the document on their behalf.
Are the LLC laws of Nevada and California materially different? No. The LLC laws of all states are remarkably the same ... but they do differ. There are certain default legal principals embedded in the laws of each state. Almost all of these default provisions can be altered through a written operating agreement. Is there a default provision in the LLC laws of California that your operating agreement does not address and you would rather not be subject to? No way to tell for certain without a list of the California default LLC laws and then cross checking these against the terms of your LLC operating agreement. Here is an example:Cali. Corporate Code Section 17156. Except as otherwise provided in the articles of organization or the operating agreement, if the members have appointed more than one manager, decisions of the managers shall be made by majority vote of the managers if at a meeting, or by unanimous written consent. Let's assume your LLC is to be managed by three managers and the operating agreement is silent on the issue of whether or not managers must act through unanimous consent. The default LLC law in California is that the managers act through majority vote. If you prefer unanimous vote of managers, this must be specifically provided for in the operating agreement. There are literally dozens of defaults laws such as this in the California LLC act. The more comprehensive your operating agreement, the less of an issue this is.
Could you go ahead and use the Nevada LLC operating agreement in California despite the problem outlined above? Yes but the the downside is that you are accepting the default provisions in the California LLC laws as effective against your LLC if your operating agreement fails to address the issue.
State LLC acts sometimes provide that certain default laws cannot be altered through the operating agreement. I did a quick scan of the California LLC act and did not find such a provision (which surprised me as this is typically the case). But the review was not thorough so I could have missed it. You would not want your LLC operating agreement to contain terms that contravened state law.
To sum up, there are issues involved in using a lawyer drafted LLC operating agreement that was specifically targeted for one state in another state. Any lawyer would advise having it reviewed before doing this. I've tried to set forth the risks that might exist in taking this course of action. Hope it helps.
Submitted: 11/16/2007; Bradley, Nevada
Response: 11/17/2007; JJR
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