This post explains what dissociation is. This is part of Dana Shultz’s Canonical Questions on the Law® series of questions and answers about legal issues, concepts and terminology.
Definition of Dissociation
Dissociation is the process by which one:
- Stops being a member of a limited liability company (LLC); or
- Stops being a partner in a partnership.
Alternatively, this process sometimes is called withdrawal.
How One Dissociates
This process is governed by applicable state law and, if it exists, the LLC’s Operating Agreement or the partnership’s Partnership Agreement.
For example, in California, a member can dissociate from an LLC pursuant to Corporations Code Sections 17706.01 – 17706.03, and a partner can dissociate pursuant to Corporations Code Sections 16601 – 16603.
How one can dissociate differs somewhat between LLCs and partnerships. There are, however, some common bases for dissociation. These include:
- The member/partner providing notice of dissociation to the LLC/partnership.
- Occurrence of an event that, pursuant to the relevant agreement, results in dissociation.
- Expulsion of the member/partner in accordance with the applicable agreement.
- Pursuant to a judicial order.
Effects of Dissociation
In California, there are differing consequences depending on whether a member or a partner dissociates. Simplifying, a bit:
- In each case, the dissociating member/partner loses any voting or management rights.
- However, a dissociating member retains an economic interest in the LLC, whereas a dissociating partner has the right to have his or her partnership interest purchased pursuant to a statutorily defined procedure.
Check out all posts about dissociation.
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.