California limited liability company disputes | Courtroom war stories and lessons learned

A Curb on LLC Form Filing Shenanigans?

In California, all LLCs are required to periodically file a Statement of Information with the Secretary of State.  The Statement of Information is posted to the Secretary of State’s website, and can be accessed by the public by searching for the name of the LLC.

The Statement of Information

The Statement of Information contains important information regarding the LLC, including its business address, the identity of its appointed manager(s) (or, if member-managed, its members), and its agent for service of process.

Form Filing Shenanigans

In LLC disputes, this simple form-filing process is prone to abuse.

For example, a disgruntled LLC member might file a Statement of Information: (1) declaring himself/herself as the “new manager;” (2) omitting a rival member from the membership roster; or (3) changing the business address.

A recent LLC Jungle post — LLC Membership Interests Are “Personal Property” — covered a case featuring such form filing gamesmanship.

While such form filing maneuvers rarely succeed in accomplishing substantive, unauthorized changes to roles within the LLC, they are annoying and often create challenges in the LLC’s dealings with third parties who are outsiders to the LLC.  Those outsiders often react with understandable distrust regarding who “speaks for” the LLC.

AB 1381

A new bill in the California Assembly — AB 1381 — would potentially curb these form filing abuses to some degree.

AB 1381 would amend California Corporations Code section 17702.09 to require the Secretary of State, by January 1, 2023, to “create and implement a procedure to transmit a notice to a limited liability company … stating that an updated statement of information has been filed for that limited liability company….”

As long as the notification procedure goes as planned, this would give the LLC a “head’s up” in the event of a rogue filing that needs to be promptly corrected.