I recently ran across a situation where several members of a limited liability company wanted to get rid of a fellow member whose disruptive behavior was harming the LLC, but they did not know whether or how they could kick him out.
The section reference below has been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
California Corporations Code Sections 17706.02(b) and (c) say that an LLC operating agreement may provide for dissociation of a member. Upon dissociation, the member loses the right to participate in the LLC’s activities and holds any transferable interest in the LLC as a transferee.
Regrettably, the operating agreement in question did not address termination of memberships. As a result, the LLC was stuck with the trouble-maker.
The bottom line: At a minimum, an LLC operating agreement should include a provision for terminating memberships in the event of a serious breach, such as failure to make a required capital contribution.
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
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