Thus, under the statute, if a manager engages in an “unauthorized” transaction - say, selling the LLC’s property without member approval - the members cannot automatically invalidate the transaction. (Section 17703.01(c)-(d), emphasis added.) A manager’s “unauthorized” acts can’t always be invalidated (d) Notwithstanding the provisions of subdivision (c), any note, mortgage, evidence of indebtedness, contract, certificate, statement, conveyance, or other instrument in writing, and any assignment of endorsement thereof, executed or entered into between any limited liability company and any other person, when signed by, is not invalidated as to the limited liability company by any lack of authority of the signing in the absence of actual knowledge on the part of the other person that the signing … manager had no authority to execute the same. (c) No act of a manager … in contravention of a restriction on authority shall bind the limited liability company to persons having actual knowledge of the restriction. Subdivisions (c) and (d) of the statute shed further light: The manager, on the other hand, is an agent of the LLC “for the purpose of its business or affairs,” and the manager’s signature on any instrument on behalf of the LLC will bind the LLC “unless the manager so acting has, in fact, no authority to act for the limited liability company in the particular matter and the person with whom the manager is dealing has actual knowledge of the fact that the manager had no such authority.” (Section 17703.01(b)(2).) In Title 2.6 of the California Corporations Code, otherwise known as the Revised Uniform Limited Liability Company Act (“RULLCA”), section 17703.01 sets forth the ground rules for a manager acting as an “agent” for the LLC in the LLC’s dealings with third parties.įor manager-managed LLCs (as opposed to member-managed LLCs), the members are not agents of the LLC, and cannot “bind or execute any instrument on behalf of” the LLC. One key California statute provides critical guidance. What happens when the LLC manager oversteps his/her authority and makes an “unauthorized” deal with a third party? Most say something to the effect of: the manager has authority over the LLC’s day to day operations, but LLC member approval is required for extraordinary transactions, like selling the LLC’s property, encumbering the LLC’s property as security for a loan, or dissolving the LLC. LLC operating agreements generally contain some limits on the manager’s authority. One of the recurring issues I see in my litigation practice is LLC managers engaging in “questionable conduct” with third parties - outsiders to the LLC.īy “questionable conduct,” I generally mean binding the LLC to transactions and obligations that might be beyond the manager’s authority to enter into without the consent of the majority of the LLC’s members. LLC Managerial Authority and Dealings with Third Parties
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