A Member can Withdraw from an LLC, Despite the Operating Agreement

From time to time, I am asked how a member of a limited liability company (LLC) can stop being a member. In legal terms, this is referred to as a member wishing to withdraw from an LLC.

Section references below have 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).

Under this new law, the term “withdraw from a limited liability company” was changed to “dissociate as a member” or “withdraw as a member”.

A well-written Operating Agreement will address this question directly. It will specify the circumstances under which members may withdraw from an LLC, and the consequences of withdrawal.

However, irrespective of what the Operating Agreement says, California law gives every member the right to withdraw from an LLC.

Corporations Code Section 17706.01(a) states (emphasis added):

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.

Section 17706.02, in turn, states (emphasis added):

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….

Upon providing notice, the withdrawn member retains a right to any economic distributions from the LLC but is no longer a member. However, a member who wrongfully dissociates is liable to the LLC and to the other members for any damages caused by the dissociation.

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Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.