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.
What is Dissociation?

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.
(more…)What Does “Amended and Restated” Mean?
“Amended and restated” is a term that lawyers use a lot. (A Google search produces approximately 792,000 results.) This post discusses that term’s meaning and why lawyers use it. This is part of Dana Shultz’s Canonical Questions on the Lawâ„¢ series of questions and answers about legal issues, concepts and terminology.
“Amended and restated” can apply to virtually any type of legal document. Examples:
- Certificate/articles of incorporation;
- Corporate bylaws;
- Limited liability company operating agreement;
- Any other type of agreement;
- etc.
How to Form an LLC
I am writing this post about how to form an LLC (limited liability company) because of a question that I answered on Quora. Please see What are the basic requirements for forming of a LLC in US?
The following is an overview of the steps required to form an LLC properly in the U.S.: (more…)
Units are to LLCs as Shares are to Corporations
I am writing this post about limited liability company (LLC) units because of a question that I answered on Quora. Please see Why would an operating agreement for an LLC have a Schedule A and also a quantity of Class A interests?
LLC Membership Interests: Percentages
We can specify LLC membership interests in either of two ways. (more…)
You Can’t Just Stop Being a Shareholder
This post explains why, in the U.S., one can’t just stop being a shareholder. I decided to write it after addressing this issue on Quora. Please see Corporate Law: What is the best method to abandon stock in a private company?
Ways to Stop Being a Shareholder
Corporate law does not permit a shareholder to unilaterally dispose of his or her shares. As a result: (more…)
CA-RULLCA Receives Corrections Two Years Later
In RULLCA Brings New LLC Laws to California in 2014 , I explained how California’s version of the Revised Uniform Limited Liability Company Act (“RULLCA” or “CA-RULLCA” – Corporations Code Sections 17701.01 – 17713.13 ) was to take effect January 1, 2014. This post describes changes to CA-RULLCA that took effect on January 1, 2016.
Most of the changes were minor clean-up of the sort that one expects when major new legislation is adopted. However, some of the changes are noteworthy. (more…)
Yes, a Stranger Can Cancel Your LLC!
This post discusses how (amazingly!) an unauthorized stranger can cancel your LLC (limited liability company) or corporation. It is based on a Quora question that I answered. See What prevents someone from filing a restated certificate of incorporation for a Delaware corporation in which they are not authorized to do so?
Unfortunately, the ease with which entity-formation documents can be filed in the U.S. – while facilitating business startups – does allow unauthorized filing of such documents. This means that, whether accidentally or intentionally, a stranger can cancel your LLC (or corporation). (more…)
How to Dissolve a Delaware Corporation or LLC
This post discusses how to dissolve a Delaware corporation or LLC (limited liability company) – i.e., how to terminate the entity’s existence.
For information about dissolving California entities, see How to Kill Your Company when that’s the Only Choice. (more…)
How Do We Issue LLC Membership Interests?
When one forms a limited liability company (LLC) without a lawyer, there is a high likelihood that LLC membership interests will not be issued properly. This post describes how to issue LLC membership interests. It is adapted from a Quora question about LLC membership vesting that I answered.
Properly-Issued LLC Membership Interests
If LLC membership interests are issued properly, one would expect to see several things. (more…)
RULLCA Brings New LLC Laws to California in 2014
RULLCA is an abbreviation for the California Revised Uniform Limited Liability Company Act. That Act will bring new LLC laws to the state starting January 1, 2014.
RULLCA – Up to Date and in the Mainstream
RULLCA is intended to reflect changes in LLC law during the past 20 years. Also, it will make California’s LLC law more similar to LLC law in other states.
Perhaps most interesting, the new law applies automatically to all California LLCs in existence as of the effective date. It will apply to all out-of-state LLCs that are registered in California, as of that date, as well. No new documents need be filed with the Secretary of State. The new law has neither opt-in nor opt-out procedures.
(more…)
Do LLC Officers Have a Fiduciary Duty?
Officers of a corporation have a fiduciary duty to both the corporation and its shareholders. (See California Officers Need to Be More Careful than Directors.) I recently had to consider, for a limited liability company in California, whether LLC officers have a similar duty.
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).
I was preparing the operating agreement for a client’s LLC. The client was to be the sole member (equity owner) and manager. (more…)
Which Financial Information Must an LLC Provide to its Members?
Several months ago, I wrote “Which Financial Information Must a Corporation Provide to its Shareholders? “ This post – prompted by a client’s question – discusses the financial information that a California limited liability company must provide to its members. It also explains that such information cannot be waived by any member.
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). (more…)
How Much Does It Cost to Incorporate?
This post about the cost to incorporate in the U.S. is an Advertisement under Rule of Professional Conduct 1-400, Standard 5 (now subject to Chapter 7 of the Rules of Professional Conduct that took effect on November 1, 2018).
Recently I have seen a huge increase in the number of inquiries from prospective clients – especially foreign companies – interested in forming a corporation. One of their first questions usually is, “How much does it cost to incorporate?” This post answers that question.
First, though, I need to make a couple of points:
- The following is merely illustrative. While the services described below suffice for many clients, we can know whether they are right for you only after we discuss your specific requirements in detail.
- The only way we can agree that I will provide incorporation services is via an engagement letter signed by both of us. (The engagement process is discussed below).
Who Can Sign a Contract for an LLC?
Several months ago, I answered the question Who Can Sign Contracts for a Corporation? This post addresses who can sign a contract for a limited liability company (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).
The LLC’s Articles of Organization may address who can sign a contract, but this rarely occurs. The subject is more likely to be addressed in the Operating Agreement.
Forming an LLC: Figuring Out What’s Really Required
Here (slightly edited) are a LinkedIn question and my answer (which no longer are available at LinkedIn because it Q&A feature was discontinued). Q. I need to get an operating agreement for my Nevada LLC startup. I plan on selling membership in the future. There are online services that do this for cheap, but I’m unsure about doing that. This is a bootstrapped startup, so I have very little/no cash to pay for an attorney at this point in time. Plus I haven’t been able to find a good referral to a NV business attorney.
A. I’m afraid that I can’t provide a useful direct answer to your question (I don’t know how to get something – especially something good – for nothing), but I can provide some warnings because I see several red flags popping up.
Can an LLC have Members with a Non-ownership Economic Interest?
Today I answered a LinkedIn question about forming an LLC where some members have no ownership of the LLC but receive a share of cash resulting from the business’s profits (their economic interest). The question and answer are reproduced, in somewhat edited form, below. (Since I first wrote this post, LinkedIn has shut down its Q&A feature, so you no longer can find this question there.)
Q: Can you have a Manager Managed LLC where Members have zero ownership interest but receive a share of economic interest? So, the Operating agreement would look like this: 2 Manager Members w/ 50/50% ownership share and 25/25% economic share; 2 Additional Members w/ 0% ownership share and 25/25% economic share. (more…)
Can I Assign My LLC Membership?
Recently I have received several questions about assigning LLC (limited liability company) memberships. Here is a brief summary of California law on this topic.
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).
The applicable statutes are Corporations Code Sections 17705.01-17705.04. If assignment of membership interests (known as “transferable interests” under RULLCA) is not covered in the LLC’s Articles of Organization or Operating Agreement, the the following statutory provisions apply:
Can Personal Creditors Threaten My LLC?
I recently answered an Avvo question about whether personal financial problems would create trouble for the LLC that an individual was forming. The question and answer, substantially edited, are provided below.
Q. I am starting a new company. I wish to establish an LLC. I had a recent foreclosure and they are coming at me for 70k on a 3rd against the property. I also have a credit card judgment for 18k and 30k of other outstanding debt. Question is whether an LLC can protect me. I have investors placing 50-100k in this project and i cannot have any issues moving forward. [Emphasis added.] (more…)
Funding Your LLC: Avoiding Mistakes
I recently answered an Avvo question about capital contributions and loans to an LLC. The question and answer are reproduced, in somewhat edited form, below.
Q: I am the sole member of an LLC. What is the best way to make capital contributions? Can I do this in the form of a loan? (more…)
Should We Issue LLC Membership Certificates?
A friend recently asked whether his limited liability company, which was seeking investors, should issue LLC membership certificates.
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).
Here are the points that I made in my response. (more…)
Assessing Personal Liability – Read Formation Documents Carefully!
A client, majority shareholder in a California corporation, asked whether there was any way to make a minority shareholder pay part of the corporation’s losses to date. In this particular case, the answer was “no” – but the question got me thinking about when a corporate shareholder or LLC member might be have personal liability beyond the amount payable for the ownership interest.
The LLC section reference and content 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).
A century ago, corporations routinely issued assessable shares, i.e., shares that carried an obligation for the shareholder to pay additional amounts to the corporation under certain circumstances, such as to cover losses or to buy property. Today, however, almost all shares are non-assessable.
Can I compete with my own LLC?
I recently had a Q-and-A dialogue on Avvo with an LLC member-manager who had a falling out with the other (50%) member and wanted to know whether he could form a separate business that would compete with the existing LLC. An edited version of our exchange appears below.
Q. I have an LLC with a partner. We each own 50% of the business (its an e-commerce store) and we’re member-managers. I’d like to buy him out, but his price is higher than I’m willing to pay. I have been pondering starting another e-commerce store selling kind of the same thing. Question is a) Would an e-commerce business out there competing for new customers constitute a breach of fiduciary duty? b) Would it be possible to rescind title as manager in the LLC which would eliminate that non compete fiduciary duty of a manager?
How to Kill Your Company when That’s the Only Choice
Yesterday I wrote about ways that businesses with two equal owners can avoid management deadlocks (Resolving Small-business Disputes: The 50-50 Deadlock). Today I am writing about dissolution, i.e., termination of a California entity’s existence – the only reasonable outcome if a serious deadlock cannot be resolved.
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).
The essence of the dissolution process for a California corporation is as follows: (more…)
Resolving Small-business Disputes: The 50-50 Deadlock
On occasion when I help a client form a new corporation or limited liability company (LLC), the company will have two owners, each owning 50% of the company.
A major risk with 50-50 ownership is that disagreement on an important issue can deadlock the company. In an extreme situation, the dispute might even put the company out of business!
Pre-formation Contracts: Avoiding Personal Liability
This post is based on my answer to a LinkedIn question [before the LinkedIn Answers feature was terminated] – the answer would be similar for a contract entered into before a corporation, rather than LLC, is formed:
I signed a lease for office space one day before my LLC became active. Am I personally responsible for the lease? (more…)
Negotiating Software Licenses – What Really Counts
This post addresses the most important issues that are raised in negotiating software licenses.
I will assume that parties have agreed on pricing. (Otherwise, there is no point negotiating license terms!) In addition, I will ignore the lengthy legal “boilerplate” that appears in most software license agreements.
Four Critical Issues in Negotiating Software Licenses
In my experience, there are four issues that must be examined closely, and often result in much discussion, when negotiating software licenses. (more…)
How Should I Use a Fictitious Business Name?
This post is adapted from my answer to a Quora question about use of a fictitious business name (FBN): Q. Must an LLC with a fictitious business name display the LLC name on its website?
A. In my opinion, an entity’s proper name and complete identification should be provided in every agreement. Agreements include website terms of service. Example showing how to include both the entity name and the FBN:
[Company Name], LLC, a California limited liability company doing business as [Fictitious Business Name], with a place of business at [address]
Legal Services
Dana Shultz retired from the practice of law in 2020. As a lawyer, Dana dispensed as much business advice as legal advice. Accordingly, although he no longer is practicing law, Dana occasionally provides business consulting services to owners of small businesses and mentoring services to business lawyers.
If you need legal representation, Dana provides referrals to experienced business lawyers.
The remainder of this page is being retained online for archival purposes.
This description of Dana Shultz’s legal services is an Advertisement under Rule of Professional Conduct 1-400, Standard 5 (now subject to Chapter 7 of the Rules of Professional Conduct that took effect on November 1, 2018).
Brief summary:Â I help clients to
- form their businesses,
- do their deals, and
- keep out of trouble.
Dana Shultz provides the essential legal services that startup and early-stage companies in the San Francisco (California) Bay Area typically need. You may read many Client Testimonials about Dana’s services. (more…)