January 22, 2019

The Cancelled LLC - What Is Thy Power?

To call the California Revised Uniform Limited Liability Company Act "quirky" would be to pay it an unmerited compliment.  Take, for example, the provisions governing dissolution.

As enacted, Section 17707.06(a) provided that an LLC in dissolution 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 property, and collecting and dividing its assets.  Subdivision (b) of the same statute provided that no action or proceeding to which an LLC is a party abates by the dissolution of the LLC or by reason of proceedings for its winding up.  Section 17707.08(c) provided that upon filing a certificate of cancellation, an LLC "shall be cancelled and its powers, rights and privileges shall cease."  

Putting these statutes together, an LLC in dissolution could continue to prosecute and defend litigation but its powers to do so ceased upon filing a certificate of cancellation.  Best Tire & Service Centers, LLC v. Goodyear Tire & Rubber Co., 2017 U.S. Dist. LEXIS 39743 and Mirshafiei v. Legal Recovery Law Offices, Inc., 2016 U.S. Dist. LEXIS 143625.  This made some sense because a the LLC was required to file a certificate of cancellation upon completion of the winding up of its affairs pursuant to Section 17707.06. 

Things changed in 2015 when the legislature enacted AB 506 (effective January 1, 2016). That legislation replaced "in dissolution" with "that has filed a certificate of cancellation".  As a result, Section 17707.06(a) now provides that an LLC that has filed a certificate of cancellation nevertheless continues to exist while Section 17707.08(c) unequivocally provides that such an LLC is cancelled and its powers, rights and privileges must cease. 

So does a cancelled LLC have the power to continue litigation or not?

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...