California Revised Uniform Limited Liability Company ActDissolution and Winding Up

Section § 17707.01

Explanation

This California law outlines when a limited liability company (LLC) must be dissolved and its operations wound up. Dissolution happens under any of these circumstances: if an event described in the LLC's operating agreement or articles of organization takes place; if 50% or more of the voting members agree, or if a higher percentage is specified; if the LLC goes 90 days without any members, unless the member's interest passes to an heir or successor; or if a court orders the LLC to dissolve.

A limited liability company is dissolved, and its activities shall be wound up, upon the happening of the first to occur of the following:
(a)CA Corporations Code § 17707.01(a) On the happening of an event set forth in a written operating agreement or the articles of organization.
(b)CA Corporations Code § 17707.01(b) By the vote of 50 percent or more of the voting interests of the members of the limited liability company or a greater percentage of the voting interests of members as may be specified in the articles of organization, or a written operating agreement.
(c)CA Corporations Code § 17707.01(c) The passage of 90 consecutive days during which the limited liability company has no members, except that, on the death of a natural person who is the sole member of a limited liability company, the status of the member, including a membership interest, may pass to one or more heirs, successors, and assigns of the member by will or applicable law. An heir, successor, or assign of the member’s interest becomes a substituted member pursuant to paragraph (4) of subdivision (c) of Section 17704.01, subject to administration as provided by applicable law, without the permission or consent of the heirs, successors, or assigns or those administering the estate of the deceased member.
(d)CA Corporations Code § 17707.01(d) Entry of a decree of judicial dissolution pursuant to Section 17707.03.
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Section § 17707.02

Explanation

This law describes the process for canceling a domestic limited liability company (LLC) in California that hasn't done any business. If more than half of the voting members, managers, or those who signed the original setup documents agree, they can file a cancellation within 12 months of forming the LLC. They must confirm the LLC has no debts, has filed necessary tax returns, and either has no assets or has properly distributed any remaining assets. Additionally, if the LLC took money from investors, it must return those funds. Once they file this cancellation, the company's powers and privileges will end, and the Secretary of State will inform the tax authorities.

(a)CA Corporations Code § 17707.02(a) Notwithstanding any other provision of this title, if a domestic limited liability company has not conducted any business, 50 percent or more of the voting interests of the members, or, if there are no members, 50 percent or more of the voting interests of the managers, if any, or if no members or managers, the person or 50 percent or more of the persons signing the articles of organization, may execute and acknowledge a certificate of cancellation of articles of organization, on a form prescribed by the Secretary of State, stating all of the following:
(1)CA Corporations Code § 17707.02(a)(1) The name of the domestic limited liability company and the Secretary of State’s file number.
(2)CA Corporations Code § 17707.02(a)(2) That the certificate of cancellation is being filed within 12 months from the date the articles of organization was filed.
(3)CA Corporations Code § 17707.02(a)(3) That the limited liability company does not have any debts or other liabilities, except as provided in paragraph (4).
(4)CA Corporations Code § 17707.02(a)(4) That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, or a final annual tax return, as described by Section 17947 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
(5)CA Corporations Code § 17707.02(a)(5) That the known assets of the limited liability company remaining after payment of, or adequately providing for, known debts and liabilities have been distributed to the persons entitled thereto or that the limited liability company acquired no known assets, as the case may be.
(6)CA Corporations Code § 17707.02(a)(6) That the limited liability company has not conducted any business from the time of the filing of the articles of organization.
(7)CA Corporations Code § 17707.02(a)(7) That 50 percent or more of the voting interests of the managers or members voted, or, if no managers or members, the person or 50 percent or more of the persons signing the articles of organization, voted to dissolve the limited liability company.
(8)CA Corporations Code § 17707.02(a)(8) If the limited liability company has received payments for interests from investors, that those payments have been returned to those investors.
(b)CA Corporations Code § 17707.02(b) A certificate of cancellation executed and acknowledged pursuant to subdivision (a) shall be filed with the Secretary of State within 12 months from the date that the articles of organization was filed. The Secretary of State shall notify the Franchise Tax Board of the cancellation.
(c)CA Corporations Code § 17707.02(c) Upon filing a certificate of cancellation pursuant to subdivision (a), a limited liability company shall be canceled and its powers, rights, and privileges shall cease.
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Section § 17707.03

Explanation

This law allows a court to dissolve a limited liability company (LLC) if certain serious problems occur, such as the business being unable to operate as agreed, internal conflicts, abandonment of the business, fraud, mismanagement, or abuse by those in control. If a dissolution action is filed, other members of the LLC can stop it by buying out the membership interests of those filing for dissolution at a fair market value. If they can't agree on the price, the court will appoint appraisers to determine the value. The process includes options to avoid dissolution through payment, and any valuation date for the buyout is generally set to when the dissolution action started, unless the court decides otherwise. The section also clarifies that lawsuits for dissolution can be stopped, but this does not affect other members' rights to contest dissolutions under these rules.

(a)CA Corporations Code § 17707.03(a) Pursuant to an action filed by any manager or by any member or members of a limited liability company, a court of competent jurisdiction may decree the dissolution of a limited liability company whenever any of the events specified in subdivision (b) occurs.
(b)Copy CA Corporations Code § 17707.03(b)
(1)Copy CA Corporations Code § 17707.03(b)(1) It is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.
(2)CA Corporations Code § 17707.03(b)(2) Dissolution is reasonably necessary for the protection of the rights or interests of the complaining members.
(3)CA Corporations Code § 17707.03(b)(3) The business of the limited liability company has been abandoned.
(4)CA Corporations Code § 17707.03(b)(4) The management of the limited liability company is deadlocked or subject to internal dissension.
(5)CA Corporations Code § 17707.03(b)(5) Those in control of the limited liability company have been guilty of, or have knowingly countenanced, persistent and pervasive fraud, mismanagement, or abuse of authority.
(c)Copy CA Corporations Code § 17707.03(c)
(1)Copy CA Corporations Code § 17707.03(c)(1) In any suit for judicial dissolution, the other members may avoid the dissolution of the limited liability company by purchasing for cash the membership interests owned by the members so initiating the proceeding, the “moving parties,” at their fair market value. In fixing the value, the amount of any damages resulting if the initiation of the dissolution is a breach by any moving party or parties of an agreement with the purchasing party or parties, including, without limitation, the operating agreement, may be deducted from the amount payable to the moving party or parties; provided, that no member who sues for dissolution on the grounds set forth in paragraph (3), (4), or (5) of subdivision (b) shall be liable for damages for breach of contract in bringing that action.
(2)CA Corporations Code § 17707.03(c)(2) If the purchasing parties elect to purchase the membership interests owned by the moving parties, are unable to agree with the moving parties upon the fair market value of the membership interests, and give bond with sufficient security to pay the estimated reasonable expenses, including attorney’s fees, of the moving parties if the expenses are recoverable under paragraph (3), the court, upon application of the purchasing parties, either in the pending action or in a proceeding initiated in the superior court of the proper county by the purchasing parties, shall stay the winding up and dissolution proceeding and shall proceed to ascertain and fix the fair market value of the membership interests owned by the moving parties.
(3)CA Corporations Code § 17707.03(c)(3) The court shall appoint three disinterested appraisers to appraise the fair market value of the membership interests owned by the moving parties, and shall make an order referring the matter to the appraisers so appointed for the purpose of ascertaining that value. The order shall prescribe the time and manner of producing evidence, if evidence is required. The award of the appraisers or a majority of them, when confirmed by the court, shall be final and conclusive upon all parties. The court shall enter a decree that shall provide in the alternative for winding up and dissolution of the limited liability company, unless payment is made for the membership interests within the time specified by the decree. If the purchasing parties do not make payment for the membership interests within the time specified, judgment shall be entered against them and the surety or sureties on the bond for the amount of the expenses, including attorney’s fees, of the moving parties. Any member aggrieved by the action of the court may appeal therefrom.
(4)CA Corporations Code § 17707.03(c)(4) If the purchasing parties desire to prevent the winding up and dissolution of the limited liability company, they shall pay to the moving parties the value of their membership interests ascertained and decreed within the time specified pursuant to this section, or, in the case of an appeal, as fixed on appeal. On receiving that payment or the tender of payment, the moving parties shall transfer their membership interests to the purchasing parties.
(5)CA Corporations Code § 17707.03(c)(5) For the purposes of this section, the valuation date shall be the date upon which the action for judicial dissolution was commenced. However, the court may, upon the hearing of a motion by any party, and for good cause shown, designate some other date as the valuation date.
(6)CA Corporations Code § 17707.03(c)(6) A dismissal of any suit for judicial dissolution by a manager, member, or members shall not affect the other members’ rights to avoid dissolution pursuant to this section.
(d)CA Corporations Code § 17707.03(d) Nothing in this section shall be construed to limit the remedies otherwise available to a court of competent jurisdiction over the dissolution.
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Section § 17707.04

Explanation

If a limited liability company (LLC) dissolves, certain people need to handle its final affairs. If there are managers who have not caused the dissolution improperly, they take charge. If not, any remaining members or the signers of the LLC's original documents do so. They must send a notice to all known creditors and claimants. Alternatively, a court can appoint someone to handle the process if needed for protection. The individuals involved in winding up the LLC can receive reasonable compensation for their work unless the LLC's rules say otherwise.

In the event of a dissolution of a limited liability company all of the following apply:
(a)CA Corporations Code § 17707.04(a) The managers who have not wrongfully dissolved the limited liability company, or, if none, the members, or, if none, the person or a majority of the persons signing the articles of organization, may wind up the affairs of the limited liability company, unless the dissolution occurs pursuant to Section 17707.03, in which event the winding up shall be conducted in accordance with the decree of dissolution. The persons winding up the affairs of the limited liability company shall give written notice of the commencement of winding up by mail to all known creditors and claimants whose addresses appear on the records of the limited liability company.
(b)CA Corporations Code § 17707.04(b) Upon the petition of any manager or of any member or members, or three or more creditors of a limited liability company, a court of competent jurisdiction may enter a decree ordering the winding up of the limited liability company, if that appears necessary for the protection of any parties in interest. The decree shall designate the managers or members, or if good cause is shown, another person or persons, who are to wind up the affairs of the limited liability company.
(c)CA Corporations Code § 17707.04(c) Except as otherwise provided in the articles of organization or a written operating agreement, the persons winding up the affairs of the limited liability company pursuant to this section shall be entitled to reasonable compensation.
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Section § 17707.05

Explanation

When a limited liability company (LLC) is closing down, it must first settle all known debts and liabilities, even those owed to its members, before distributing any leftover assets. These assets are divided among members based on specific rules unless otherwise stated in the LLC's governing documents. If the closure is under court supervision, distributions can only occur after a set claims period. Debts can be considered settled if they are taken up by a responsible entity or secured with a financial deposit, though this is not the only way to resolve them.

(a)CA Corporations Code § 17707.05(a) Except as otherwise provided in the articles of organization or the written operating agreement, after determining that all the known debts and liabilities of a limited liability company in the process of winding up, including, without limitation, debts and liabilities to members who are creditors of the limited liability company, have been paid or adequately provided for, the remaining assets shall be distributed among the members according to their respective rights and preferences as follows:
(1)CA Corporations Code § 17707.05(a)(1) To members in satisfaction of liabilities for distributions pursuant to Sections 17704.04, 17704.05, and 17704.06.
(2)CA Corporations Code § 17707.05(a)(2) To members of the limited liability company for the return of their contributions.
(3)CA Corporations Code § 17707.05(a)(3) To members in the proportions in which those members share in distributions.
(b)CA Corporations Code § 17707.05(b) If the winding up is by court proceeding or subject to court supervision, the distribution shall not be made until after the expiration of any period for the presentation of claims that has been prescribed by order of the court.
(c)Copy CA Corporations Code § 17707.05(c)
(1)Copy CA Corporations Code § 17707.05(c)(1) The payment of a debt or liability, whether the whereabouts of the creditor is known or unknown, has been adequately provided for if the payment has been provided for by either of the following means:
(A)CA Corporations Code § 17707.05(c)(1)(A) Payment for the debt or liability has been assumed or guaranteed in good faith by one or more financially responsible persons or by the United States government or any agency of the United States government, and the provision, including the financial responsibility of the person, was determined in good faith and with reasonable care by the members or managers of the limited liability company to be adequate at the time of any distribution of the assets pursuant to this section.
(B)CA Corporations Code § 17707.05(c)(1)(B) The amount of the debt or liability has been deposited as provided in Section 2008 of the General Corporation Law.
(2)CA Corporations Code § 17707.05(c)(2) This subdivision shall not prescribe the exclusive means of making adequate provision for debts and liabilities.
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Section § 17707.06

Explanation

Even if a limited liability company (LLC) cancels its official status, it still exists to wrap up any unfinished business like paying off debts or handling lawsuits. It can't keep doing regular business, just what’s necessary to close things out. If there’s a court case involving the LLC, canceling it doesn’t stop the case from continuing. If the LLC didn’t distribute all its assets during this process, the remaining assets are used to pay off debts and then given to the members. After an LLC is canceled, certain people can still act on its behalf to finish winding up, especially if others don’t know about the cancellation.

(a)CA Corporations Code § 17707.06(a) A limited liability company that has filed a certificate of cancellation nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it in order to collect and discharge obligations, disposing of and conveying its property, and collecting and dividing its assets. A limited liability company shall not continue business except so far as necessary for its winding up.
(b)CA Corporations Code § 17707.06(b) No action or proceeding to which a limited liability company is a party abates by the filing of a certificate of cancellation for the limited liability company or by reason of proceedings for its winding up and dissolution.
(c)CA Corporations Code § 17707.06(c) Any assets inadvertently or otherwise omitted from the winding up continue in the canceled limited liability company for the benefit of the persons entitled to those assets upon cancellation and on realization shall be used to discharge unsatisfied liabilities, if any, known to the company, and any excess shall be distributed to the members. If assets are inadvertently or otherwise omitted from the winding up, any person authorized to wind up the affairs of a limited liability company that has filed a certificate of cancellation under Section 17707.04 may use the assets to discharge the liabilities of the limited liability company and may distribute to the members the assets not so used.
(d)CA Corporations Code § 17707.06(d) After cancellation of the limited liability company, the limited liability company is bound by both of the following:
(1)CA Corporations Code § 17707.06(d)(1) The act of a person authorized to wind up the affairs of the limited liability company, if the act is appropriate for winding up the activities of the limited liability company.
(2)CA Corporations Code § 17707.06(d)(2) The act of a person authorized to act on behalf of the limited liability company, if the act would have bound the limited liability company before cancellation, if the other party to the transaction did not have notice of the cancellation.
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Section § 17707.07

Explanation

This section deals with legal actions against a dissolved limited liability company (LLC). If someone has a claim against an LLC after it has dissolved, they can seek enforcement against the company's remaining assets or any distributed to members. Members may have to pay back if they received more than their fair share of the company's assets. However, you must act within the time limit—either the usual time allowed for the claim or four years after the company dissolved, whichever is first. You can also serve legal papers to a dissolved LLC by delivering them to certain people connected to the LLC or, if that fails, to the Secretary of State. Additionally, the dissolved LLC can still be sued in quiet title actions, which determine property ownership. Importantly, these rules do not change any existing rights the LLC's creditors may have.

(a)Copy CA Corporations Code § 17707.07(a)
(1)Copy CA Corporations Code § 17707.07(a)(1) Causes of action against a dissolved limited liability company, whether arising before or after the dissolution of the limited liability company, may be enforced against any of the following:
(A)CA Corporations Code § 17707.07(a)(1)(A) Against the dissolved limited liability company to the extent of its undistributed assets, including, without limitation, any insurance assets held by the limited liability company that may be available to satisfy claims.
(B)CA Corporations Code § 17707.07(a)(1)(B) If any of the assets of the dissolved limited liability company have been distributed to members, against members of the dissolved limited liability company to the extent of the limited liability company assets distributed to them upon dissolution of the limited liability company.
Any member compelled to return distributed assets in an amount that exceeds the sum of the member’s pro rata share of the claim and the amount for which the member could otherwise be held liable under Section 17704.05 or 17704.06 may seek contribution for the excess from any other member or manager, up to the sum of that other person’s pro rata share of the claim and that other person’s liabilities under Section 17704.05 or 17704.06.
(2)CA Corporations Code § 17707.07(2) Except as set forth in subdivision (c), all causes of action against a member of a dissolved limited liability company arising under this section are extinguished unless the claimant commences a proceeding to enforce the cause of action against that member of a dissolved limited liability company prior to the earlier of the following:
(A)CA Corporations Code § 17707.07(2)(A) The expiration of the statute of limitations applicable to the cause of action.
(B)CA Corporations Code § 17707.07(2)(B) Four years after the effective date of the dissolution of the limited liability company.
(3)CA Corporations Code § 17707.07(3) As a matter of procedure only, and not for purposes of determining liability, members of the dissolved limited liability company may be sued in the name of the limited liability company upon any cause of action against the limited liability company. This section does not affect the rights of the limited liability company or its creditors under Sections 17704.05 and 17704.06, or the rights, if any, of creditors under the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code), that may arise against the member of a limited liability company.
(b)CA Corporations Code § 17707.07(b) Summons or other process against a limited liability company may be served by delivering a copy thereof to a manager, member, officer, or person having charge of its assets or, if none of these persons can be found, to any agent upon whom process might be served at the time of dissolution. If none of those persons can be found with due diligence and it is so shown by affidavit to the satisfaction of the court, then the court may make an order that summons or other process be served upon the dissolved limited liability company by personally delivering a copy of the summons or other process, together with a copy of the order, to the Secretary of State or an assistant or Deputy Secretary of State. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State. Upon receipt of process and the fee therefor, the Secretary of State shall give notice to the limited liability company as provided in Section 17701.16.
(c)CA Corporations Code § 17707.07(c) Every limited liability company shall survive and continue to exist indefinitely for the purpose of being sued in any quiet title action. Any judgment rendered in that action shall bind each and all of its members or other persons having any equity or other interest in the limited liability company to the extent of that interest and the action shall have the same force and effect as an action brought under the provisions of Sections 410.50 and 410.60 of the Code of Civil Procedure. Service of summons or other process in any action may be made as provided in Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure or as provided in subdivision (b).
(d)CA Corporations Code § 17707.07(d) For purposes of Article 4 (commencing with Section 19071) of Chapter 4 of Part 10.2 of Division 2 of the Revenue and Taxation Code, the liability described in this section shall be considered a liability at law with respect to a dissolved limited liability company.
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Section § 17707.08

Explanation

This law explains the steps required for officially dissolving a limited liability company (LLC) in California. When an LLC is dissolved, the managers or those handling the winding up must file a certificate of dissolution with the Secretary of State, containing specific details like the company's name and dissolution cause. If all members agree on dissolution, a separate certificate may not be needed. After finishing business and distributing assets, they must also file a certificate of cancellation. This certificate confirms that tax returns have been filed and states that the LLC will cease operations. The Secretary of State informs the Franchise Tax Board once this is done, and the LLC's powers, rights, and privileges will end, except in certain cases specified elsewhere.

(a)Copy CA Corporations Code § 17707.08(a)
(1)Copy CA Corporations Code § 17707.08(a)(1) The managers shall sign and cause to be filed in the office of, and on a form prescribed by, the Secretary of State, a certificate of dissolution upon the dissolution of the limited liability company pursuant to this article unless the event causing the dissolution is that specified in subdivision (c) of Section 17707.01, in which case the persons conducting the winding up of the limited liability company’s affairs pursuant to Section 17707.04 shall have the obligation to sign and cause to be filed the certificate of dissolution.
(2)CA Corporations Code § 17707.08(a)(2) The certificate of dissolution shall set forth all of the following:
(A)CA Corporations Code § 17707.08(a)(2)(A) The name of the limited liability company and the Secretary of State’s file number.
(B)CA Corporations Code § 17707.08(a)(2)(B) Any other information the persons filing the certificate of dissolution determine to include.
(C)CA Corporations Code § 17707.08(a)(2)(C) The event listed in Section 17707.01 causing dissolution.
(3)CA Corporations Code § 17707.08(a)(3) If a dissolution pursuant to subdivision (b) of Section 17707.01 is made by the vote of all of the members and a statement to that effect is added to the certificate of cancellation of articles of organization pursuant to subdivision (b), the separate filing of a certificate of dissolution pursuant to this subdivision is not required.
(b)Copy CA Corporations Code § 17707.08(b)
(1)Copy CA Corporations Code § 17707.08(b)(1) The managers shall sign and cause to be filed in the office of, and on a form prescribed by, the Secretary of State, a certificate of cancellation of articles of organization upon the completion of the winding up of the affairs of the limited liability company pursuant to Section 17707.04 and distribution of its assets pursuant to Section 17707.05, unless the event causing the dissolution is that specified in subdivision (c) of Section 17707.01, in that case the persons conducting the winding up of the limited liability company’s affairs pursuant to Section 17707.04 shall have the obligation to sign and cause to be filed the certificate of cancellation of articles of organization.
(2)CA Corporations Code § 17707.08(b)(2) The certificate of cancellation of articles of organization shall set forth all of the following:
(A)CA Corporations Code § 17707.08(b)(2)(A) The name of the limited liability company and the Secretary of State’s file number.
(B)CA Corporations Code § 17707.08(b)(2)(B) That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, or a final annual tax return, as described by Section 17947 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.
(C)CA Corporations Code § 17707.08(b)(2)(C) That upon the filing of the certificate of cancellation, except as provided in Section 17707.06, the limited liability company shall be canceled and its powers, rights, and privileges shall cease.
(D)CA Corporations Code § 17707.08(b)(2)(D) Any other information the persons filing the certificate of cancellation of articles of organization determine to include.
(3)CA Corporations Code § 17707.08(b)(3) The Secretary of State shall notify the Franchise Tax Board of the filing.
(c)CA Corporations Code § 17707.08(c) Upon filing a certificate of cancellation pursuant to subdivision (b), except as provided in Section 17707.06, a limited liability company shall be canceled and its powers, rights, and privileges shall cease.
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Section § 17707.09

Explanation

This law in California explains that even after filing paperwork to dissolve an LLC, a majority of its members can choose to keep the business going by submitting a form called a certificate of continuation. This can happen if the remaining members unanimously agree to keep the business, the original decision to dissolve is revoked by those who wanted it, or if it turns out the company was never actually dissolved. This certificate must include the LLC’s name, its file number, and reasons for continuing based on specific conditions. Once the continuation form is filed, the previous dissolution paperwork is nullified.

(a)CA Corporations Code § 17707.09(a) Notwithstanding the filing of a certificate of dissolution, a majority of the members may cause to be filed, in the office of, and on a form prescribed by, the Secretary of State, a certificate of continuation, in any of the following circumstances:
(1)CA Corporations Code § 17707.09(a)(1) The business of the limited liability company is to be continued pursuant to a unanimous vote of the remaining members.
(2)CA Corporations Code § 17707.09(a)(2) The dissolution of the limited liability company was by vote of the members pursuant to subdivision (b) of Section 17707.01 and each member who consented to the dissolution has agreed in writing to revoke his or her vote in favor of or consent to the dissolution.
(3)CA Corporations Code § 17707.09(a)(3) The limited liability company was not, in fact, dissolved.
(b)CA Corporations Code § 17707.09(b) The certificate of continuation shall set forth all of the following:
(1)CA Corporations Code § 17707.09(b)(1) The name of the limited liability company and the Secretary of State’s file number.
(2)CA Corporations Code § 17707.09(b)(2) The grounds provided by subdivision (a) that are the basis for filing the certificate of continuation.
(c)CA Corporations Code § 17707.09(c) Upon the filing of a certificate of continuation, the certificate of dissolution shall be of no effect from the time of the filing of the certificate of dissolution.
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