Member’s Dissociation - California Revised Uniform Limited Liability Company Act - Corporations - CA

Section § 17706.01

A member of a limited liability company (LLC) in California can leave the company anytime, either in the right way or the wrong way. Leaving is considered wrongful if it goes against the LLC's operating agreement or if it happens before the company ends, under certain conditions like withdrawing willingly or being removed due to legal issues or bankruptcy. If you leave incorrectly, you are responsible for any harm your departure causes to the LLC and its other members, on top of any existing debts or obligations you have with them.

(a) A person has the power to dissociate as a member at any time, rightfully or wrongfully, by withdrawing as a member by express will pursuant to subdivision (a) of Section 17706.02.

(b) A person’s dissociation from a limited liability company is wrongful only if either of the following apply to the dissociation:

(1) The dissociation is in breach of an express provision of the operating agreement.

(2) The dissociation occurs before the termination of the limited liability company and any of the following:

(A) The person withdraws as a member by express will.

(B) The person is expelled as a member by judicial order under subdivision (e) of Section 17706.02.

(D) In the case of a person that is not a trust other than a business trust, an estate, or an individual, the person is expelled or otherwise dissociated as a member because it dissolved or terminated.

(c) A person that wrongfully dissociates as a member is liable to the limited liability company and to the other members for any damages caused by the dissociation. The liability is in addition to any other debt, obligation, or other liability of the member to the limited liability company or the other members.

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Section § 17706.02

This law explains when someone stops being a member of a limited liability company (LLC). A person can leave by telling the LLC they want to withdraw, and the LLC acknowledges it. Other reasons include events mentioned in the operating agreement, got kicked out by other members, legal issues like bankruptcy, or if it's not practical for them to stay. A corporation or entity may be removed if their ability to conduct business is revoked or suspended. If the LLC ends or merges with another and the person no longer fits as a member, they are also dissociated. Death or incapacity of an individual member, or the distribution of interests for trusts and estates, can also cause dissociation.

A person is dissociated as a member from a limited liability company when any of the following occur:

(a) The limited liability company has notice of the person’s express will to withdraw as a member, but, if the person specified a withdrawal date later than the date the limited liability company had notice, on that later date.

(b) An event stated in the operating agreement as causing the person’s dissociation to occur.

(d) The person is expelled as a member by the unanimous consent of the other members because any of the following applies:

(1) It is unlawful to carry on the limited liability company’s activities with the person as a member.

(2) There has been a transfer of all of the person’s transferable interest in the limited liability company, other than either of the following:

(A) A transfer for security purposes.

(B) A charging order in effect under Section 17705.03 that has not been foreclosed.

(3) The person is a corporation and, within 90 days after the limited liability company notifies the person that it will be expelled as a member because the person has filed a certificate of dissolution or the equivalent, its charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation and the certificate of dissolution has not been revoked or its charter or right to conduct business has not been reinstated.

(4) The person is a limited liability company or partnership that has been dissolved and whose business is being wound up.

(e) On application by the limited liability company, the person is expelled as a member by judicial order because the person has done any of the following:

(1) Engaged, or is engaging, in wrongful conduct that has adversely and materially affected, or will adversely and materially affect, the limited liability company’s activities.

(2) Willfully or persistently committed, or is willfully and persistently committing, a material breach of the operating agreement or the person’s duties or obligations under Section 17704.09.

(3) Engaged, or is engaging, in conduct relating to the limited liability company’s activities that makes it not reasonably practicable to carry on the activities with the person as a member.

(f) In the case of a person who is an individual, if either of the following applies:

(1) The person dies.

(2) In a member-managed limited liability company if either of the following applies:

(A) A guardian or general conservator for the person is appointed.

(B) There is a judicial order that the person has otherwise become incapable of performing the person’s duties as a member under this title or the operating agreement.

(g) In a member-managed limited liability company, the person becomes a debtor in bankruptcy.

(h) In the case of a person that is a trust or is acting as a member by virtue of being a trustee of a trust, the trust’s entire transferable interest in the limited liability company is distributed but not solely by reason of a substitution of a successor trustee.

(i) In the case of a person that is an estate or is acting as a member by virtue of being a personal representative of an estate, the estate’s entire transferable interest in the limited liability company is distributed but not solely by reason of a substitution of a successor personal representative.

(j) In the case of a member that is not an individual, partnership, limited liability company, corporation, trust, or estate, the termination of the member.

(k) The limited liability company participates in a merger under Article 10 (commencing with Section 17710.01), and either of the following applies:

(1) The limited liability company is not the surviving entity.

(2) Otherwise as a result of the merger, the person ceases to be a member.

(l) The limited liability company terminates.

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Section § 17706.03

When someone leaves a limited liability company (LLC) as a member, they lose their voting and management rights. If the LLC is managed by its members, any special duties they had also end for future matters. Their ownership stake becomes just a transferrable interest. However, leaving doesn't free them from any responsibilities or debts they had while they were a member. If a member dies or is unable to manage their affairs, a legal representative can manage their rights like settling their estate or appointing a new member.

(a) When a person is dissociated as a member of a limited liability company all of the following apply:

(1) The person’s right to vote or participate as a member in the management and conduct of the limited liability company’s activities terminates.

(2) If the limited liability company is member-managed, the person’ s fiduciary duties as a member end with regard to matters arising and events occurring after the person’s dissociation.

(3) Subject to Section 17705.04 and Article 10 (commencing with Section 17710.01), any transferable interest owned by the person immediately before dissociation in the person’s capacity as a member is owned by the person solely as a transferee.

(b) A person’s dissociation as a member of a limited liability company does not of itself discharge the person from any debt, obligation, or other liability to the limited liability company or the other members that the person incurred while a member.

(c) If a member dies, or a guardian or conservator of the estate is appointed for the member, or a member’s interest is being administered by an attorney-in-fact under a valid power of attorney, the member’s executor, administrator, guardian, conservator, attorney-in-fact, or other legal representative may exercise all of the member’s rights for the purpose of settling the member’s estate or administering the member’s property, including any power the member had under the articles of organization or an operating agreement to give a transferee the right to become a member.

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