New York Businesses (Entertainment/Tech/Etc) Should Beware of California Statutes Governing Partnership Contracts
Previously, we have discussed how California is an oasis (or dessert) of unique statutorily imposed rules that anyone creating a business partnership with a California resident should be aware of. First and foremost, if a partnership agreement is being drafted, where one of the potential partners is a CA resident, care should be taken to not run afoul of the California statues that give special protections to that resident.
Below is an example provision in an LLC operating agreement, whereby the CA resident is specifically waiving that statutory protection. Without such a waiver, even if the CA resident was represented by counsel, he or she may rely on the statute to have the CA court construe the language of the operating agreement in such a way that most benefits their position or interpretation.
That could be a disastrous outcome for any business venture, regardless of industry (e.g., Entertainment/Tech/Retail/Etc), when there is a partner dispute. If there is any ambiguity in the language (say for example on capital contributions or other mission critical partner issues), the court will read it in favor of the CA resident.
So NewYork businesses and others beware.
16.21 INDEPENDENT COUNSEL. Each Member acknowledges that he/she/it has been encouraged to retain his/her/its own counsel and has been represented by counsel of his/her/its own choice in connection with this Agreement. Each party and its counsel cooperated in the drafting and preparation of this Agreement and any and all drafts relating thereto shall be deemed the work product of the parties and may not be construed against any party by reason of its preparation. Accordingly, Section 1654 of the California Civil Code and any other rule of law or any legal decision that would require interpretations of any ambiguities in this Agreement against the party that drafted it, is of no application and is hereby expressly waived. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intentions of the parties and this Agreement.
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