April 18, 2021

Volume XI, Number 108

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Court Rules That A Conversion May Be Actionable As Conversion

The California Revised Uniform Limited Liability Company Act authorizes the conversion of a limited liability company into various other types of entities, including a corporation.  Cal. Corp. Code § 17710.02.  Following conversion, the succeeding entity is for all purposes (with certain exceptions under the Revenue & Taxation Code) "the same entity that existed before the conversion and the conversion shall not be deemed a transfer of property".  Cal. Corp. Code § 17710.09(a).  If there is no transfer of property, could there nonetheless be a "theft" of property?

In Holistic Supplements, L.L.C. v. Stark, 2021 Cal. App. LEXIS 176, the defendant allegedly transferred his membership interest in a California limited liability company to the plaintiff but notwithstanding the alleged transfer later converted the limited liability company into a corporation.  The defendant persuaded the trial court that the plaintiff had no direct claim and lacked standing to bring derivative claims.  The Court of Appeal disagreed, holding that the plaintiff may pursue direct claims for the "theft" of her membership interest apart from any injury to the limited liability company. 

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© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 62
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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