A limited liability company (“LLC”) is a common form of doing business today. When members (meaning the owners) of an LLC are not getting along, the members usually agree to dissolve the LLC and distribute its assets. In certain circumstances, dissolution may not be an option. In that situation, a disgruntled member may elect to withdraw (or dissociate) from the LLC. The member will no longer be actively involved with the LLC but the LLC can continue to do business.
What Does it Mean to Dissociate?
If a member voluntarily withdraws from an LLC, it is called a “dissociation”. It can also occur involuntarily when the other members vote to expel a particular member. A member can voluntarily withdraw from an LLC at any time. So long as there is no prohibition in the operating agreement against withdrawal, then the withdrawal will be a proper dissociation. A member can still withdraw if there is a prohibition on withdrawal, but the other members will be able to take certain actions against the withdrawing member as detailed in the operating agreement.
Dissociating from an LLC typically requires:
- Notifying the other members of the company
- Determining how assets will be handled and/or distributed
- Adhering to any existing withdrawal provisions established by the company
A dissociated member does not have any right to participate in the management or operation of the LLC. The dissociated member does not have any voting rights in the LLC. A dissociated member no longer has any fiduciary duties to the LLC.
What Happens To The Dissociated Member If The Business Dissolves?
Once a member withdraws (or dissociates) from the LLC, the LLC remains in business and does not dissolve. A dissociated member continues to hold an economic interest in the LLC for the same ownership interest percentage as their former membership interest. A dissociated member has a right to share in the LLC’s profits and losses and if the LLC ever dissolves, the dissociated member will be entitled to their respective share of any assets distributed to the members.
Voluntary Withdrawal From an LLC
Whatever the reason, California law makes it simple to withdraw as a member of a limited liability company (LLC). California Corporations Code Section 17252 allows LLC members to withdraw, resign, or retire from the LLC despite any restrictions the LLC’s operating agreement may place on members. A member may do so by simply giving the other members written notice.
Reasons to Voluntarily Dissociate From an LLC
A member may want to dissociate from an LLC when:
- That individual strongly disagrees with the LLC’s management and operation
- When the member knows that they do not have enough of an ownership interest to force the dissolution of the LLC
- If the member is unable to negotiate an adequate buyout of their membership interest by the other members.
Although a dissociated member no longer has any management or control of the LLC, they also no longer have any fiduciary duties to the LLC. This may allow the dissociated member to pursue other avenues and interests and possibly even to compete with the LLC (which the member would not be able to do otherwise as it would likely breach their fiduciary duties to the LLC).
If an LLC member finds themselves in a situation where they cannot get along with the other members and strongly disagrees with the LLC’s actions, then dissociation is one of several remedies that the disgruntled member should consider.
How A Business Law Attorney At JRG Attorneys At Law Can Help
Need help expelling a member or voluntarily withdrawing from an LLC in California? Fill out an online form or call (831) 228-5619 to discuss your situation with a skilled business law attorney serving Montery County from JRG Attorneys at Law. We have locations in Salinas, Hollister, Monterey, Paso Robles, and Watsonville.