Wednesday, May 18, 2016

Dear California: LLCs are Not Corporations. Or Are They?

California is the back on my short list for the state's inability to successfully differentiate between corporations and limited liability companies (LLCs).  Last week, an "unpublished/noncitable" decision that was published on Westlaw provided a good example.

The opinion states: 

A corporation—including a limited liability corporation—may be served by effecting service on its agent for service of process. (Code Civ. Proc., § 416.10, subd. (a); see also Corp.Code, § 17701.16, subd. (a) [allowing service on limited liability corporations under Code Civ. Proc., § 413.10 et seq.].)7
*12 One of the ways a limited liability corporation can be served is by substituted service. (1 Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2015) ¶ 4:172, p. 4–26.) This requires that a copy of the summons and complaint be left at the office of the person to be served (or, in some cases, at the mailing address of the person to be served), in the presence of a person who is apparently in charge, “and by thereafter mailing a copy of the summons and complaint by first-class mail, postage prepaid to the person to be served at the place where a copy of the summons and complaint were left.” (Code Civ. Proc., § 415.20, subd. (a).)
City of Fontana v. Bani, LLC, No. E062018, 2016 WL 2864971, at *11-12 (Cal. Ct. App. May 12, 2016).

No, no, no.  First, even in California, an LLC is a "limited liability company." It says so right in the act. Cal. Corp. Code § 17701.01 (West) ("This title may be cited as the California Revised Uniform Limited Liability Company Act.").

And, yet, I have to admit, if you note the cite to the LLC act, California lawmakers have made this less clear than in other states. Yes, that's right. In California, the LLC Act is part of the California Corporations Code.  Cal. Corp. Code §§ 17701.16 - 17713.13 (West).  For that matter, so are partnerships, under Title 2.  Sigh.   

Would it be so terrible if the Corporations Code were called what it is: the Business Entities Code? As currently structured, LLCs and partnerships are arguably types of corporations under California law, as the above cases suggests. One could argue the headings don't change the meaning or intent of the laws. See Cal. Corp. Code § 6 (West) ("Title, division, part, chapter, article, and section headings contained herein do not in any manner affect the scope, meaning, or intent of the provisions of this code.").  The problem with that is that the code text says otherwise: "This act shall be known as the Corporations Code." Cal. Corp. Code § 1 (West).  

To reinforce that notion, the Code Commission notes from the 2014 main volume explain: 

This code was listed in the appendices of Code Commission reports showing code classification as the “Corporations, Partnerships, and Associations Code.” The 14 syllables of that title appear to make it impractical, but no shorter phrase indicative of the full subject-scope has been found. Therefore, resort has been had to the rhetorical device of synecdoche, and the entire code designated by the name of longest part.

I admit I had to look up synecdoche to be sure I was on the right track, but the term supports, I think, my point that California is treating LLCs and partnerships as corporations (or some subset thereof).  See, for example, this explanation

Synecdoche is a literary device in which a part of something represents the whole or it may use a whole to represent a part.

Synecdoche may also use larger groups to refer to smaller groups or vice versa. It may also call a thing by the name of the material it is made of or it may refer to a thing in a container or packing by the name of that container or packing.

Still, even if it were accurate to says LLCs and partnerships are "types" of corporations under the California code, one thing is still clear: an LLC is a limited liability company, which is, at a minimum, a specific type of "limited liability corporation." 

I suppose I can see how "14 syllables" might be deemed "impractical," but not at the cost of imprecision.  The "Business Entities" -- or even just "Entities" or "Associations" -- Code would seem like a better, more accurate, option.  

Oh well.  At least the court cited the part of the California code for service of an LLC.  That much, they got right.  

https://lawprofessors.typepad.com/business_law/2016/05/dear-california-llcs-are-not-corporations-or-are-they-.html

Corporate Personality, Corporations, Joshua P. Fershee, LLCs, Partnership, Unincorporated Entities | Permalink

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