Member Dissociation from a California LLC
California LLC Act
Member Dissociation from a California LLC
October 16, 2026 · R|R Insights · CA Business Law Brief
Core Concept
Dissociation is the event by which a person ceases to be a member of a California LLC. Under the California Revised Uniform Limited Liability Company Act (Corp. Code § 17706.01 et seq.), dissociation does not itself dissolve the LLC—the entity continues, and the dissociated member loses membership rights but retains an economic interest in the form of a transferable interest. This distinction is foundational: the dissociated member no longer has governance rights (voting, management participation, information access) but remains an economic interest holder entitled to distributions.
Dissociation occurs by a broad range of events, including voluntary withdrawal, expulsion by unanimous consent or court order, bankruptcy, death or incompetency (for individual members), and dissolution of an entity member. The operating agreement may expand or restrict the events of dissociation and may restrict the right to withdraw voluntarily—but it cannot eliminate the consequences of dissociation once it occurs.
Upon dissociation, the LLC must generally purchase the dissociated member’s transferable interest at fair value as of the dissociation date. This buyout right is a statutory protection that exists even without a provision in the operating agreement, though the agreement typically governs the valuation process and payment terms. If the parties cannot agree on fair value, either side may petition the court for a determination.
Key Rules
| Dissociation ≠ Dissolution | Retained economic interest |
| A member’s dissociation ends membership rights but the LLC continues; the entity dissolves only if the operating agreement so provides or the remaining members vote to dissolve (§ 17706.01). | A dissociated member retains a transferable interest—the right to receive distributions—but loses all governance rights: no voting, no management, no inspection rights as a member (§ 17706.02). |
| Statutory buyout right | Operating agreement controls valuation |
| The LLC must purchase the dissociated member’s interest at fair value as of dissociation, unless the operating agreement provides otherwise (§ 17706.02(b)). | Operating agreements routinely specify valuation methodology (book value, EBITDA multiple, agreed formula) and payment terms (lump sum, installments). Courts enforce these provisions unless unconscionable. |
| Wrongful dissociation | Post-dissociation fiduciary duties |
| Voluntary withdrawal in breach of the operating agreement is wrongful; the LLC may offset damages against the buyout amount (§ 17706.01(b)). | Fiduciary duties to the LLC end at dissociation for a member who becomes merely an economic interest holder—but pre-dissociation breaches remain actionable. |
Applies / Does Not Apply
| ✓ Applies When | ✗ Does Not Apply When |
| Member voluntarily withdraws from a manager-managed LLC—dissociation is effective even if the operating agreement tries to prevent it, though it may be wrongful | A member transfers their transferable interest to a third party—the transferee does not become a member without consent; this is an assignment, not dissociation |
| LLC expels a member by unanimous consent of the remaining members under a provision in the operating agreement | An LLC dissolves and winds up—the dissociation framework governs departures of a going concern, not the liquidation waterfall on dissolution |
| Individual member files bankruptcy—triggers automatic dissociation under § 17706.01(a)(6) | A member is removed from day-to-day management—removal from a management role does not constitute dissociation from membership |
In Practice
| Transactional | Litigation |
| Every LLC operating agreement should address: (1) permitted and prohibited grounds for dissociation; (2) a clear valuation formula or process; (3) a payment timeline; and (4) restrictive covenants post-dissociation (non-compete, non-solicit) tied to the buyout. Absent a formula, “fair value” litigation is expensive and disruptive. Consider cross-purchase insurance to fund the buyout of a deceased or disabled member. | Dissociation disputes often center on valuation—a dissociated member claims fair value is high; the LLC claims it is low. Courts apply the operating agreement formula if clear; if absent or ambiguous, they appoint experts. A second common issue is whether dissociation was wrongful, which shifts damages. Preserve evidence of the member’s conduct and the circumstances of departure before litigation begins. |
This brief is for informational purposes only and does not constitute legal advice. For counsel on specific matters, consult qualified legal counsel. © 2026 Reden | Riddell LLP.