Legal Question in Business Law in California

Re: revocable power of attorney

Do you have an Operating Agreement for the LLC? Many times the Operating Agreement will stipulate that the LLC interest is not assignable and will also contain various other restrictions on alienability. Let us know if you would like us to get involved.

Re: revocable power of attorney

I can see how that could cause a lot of inconsistency. Typically, with a power of attorney, either the principal or the attorney-in-fact may act. Perhaps the other partners should pass some kind of bylaw that states that if a partner has an attorney-in-fact, only that person may attend for the period of ___ year(s), so as to avoid a change in stance or other unpredictable behavior.

Re: revocable power of attorney

After about an hour of researching the question of whether, and to what extent, a member of an LLC can substitute an attorney-in-fact for his or her personal participation, I conclude that this issue hasn't been directly addressed, either in appellate decisions or in statutes.

This does not leave us clueless, however, as to what the law is.

First, LLCs are, by intention, a very flexible form of business entity, and the founders of an LLC have wide latitude to write the required "operating agreement" with whatever provisions they foresee as needed as to member voting and management authority. The LLC laws limit this flexibility in the area of economic interests in the LLC -- you can't take away or unreasonably limit the transferability of someone's investment; but LLCs can limit the rights of heirs, buyers, assignees, eyc. to participate in management.

An attorney-in-fact (as holders of powers of attorney are called) is a kind of agent. An LLC member can appoint an agent to do those things that do not require the member's personal attention. See Civil Code section 2304. There are also old California Supreme Court cases saying that a partner in a general partnership may use an attorney-if-fact to do certain acts required of the partnership, such as filing fictitious business name certificates, or even selling partnership assets.

However, I'm sure that if a partner in a law firm decided to appoint me as his attorney-in-fact to handle his daily responsibilities as a member of his firm, I would be thrown out the door by the other partners. That's because the day-to-day conduct of a partnership's business requires the "personal attention" of the principal, and is trherefore non-delegable to an agent under CC 2304.

The same principles would apply to an LLC, I believe. The attorney-in-fact probably cannot participate in day-to-day management. The question of voting is tougher to answer, and could bil down to (a) what does the LLC operating agreement say about voting, or even (b) what are the issues to be voted upon? If they are major economic questions, like whether to merge, dissolve or file bankruptcy, it's more likely that the attorney-in-fact may vote. If the issues are routine, and do not involve the member's economic interest, they could be items requiring personal attention such that the attorney-in-fact could be precluded from voting.

These opinios are little better than guesses. The LLC could, perhaps, modify its voting rules to increase or decrease the A-I-F's right to vote. Past votes would probably not be invalid due to principles of waiver, unless a protest were made at the time.

This is an issue the courts may have to decide at some future date. Perhaps if a spent eight hours or a week researching it, I would find an answer. So far, I didn't.