Dissolution of California LLCs Will Be Easier and More Common Sense Starting January 2017

Consider the following two situations:

  1.  Two people form a California corporation as equal owners.  One of the owners later decides he/she wants to dissolve the corporation but the other owner objects.
  2. Two people form a California limited liability company (LLC) as equal owners (members).  One of the members later decides he/she wants to dissolve the LLC but the other member objects.

Under current California law, the owner who wants to dissolve the corporation in the first scenario can do so without having to resort to court action because a voluntary corporation dissolution can be initiated by 50% voting power.  However, under current California law, the member who wants to dissolve the LLC in the second scenario must file a costly and potentially time consuming lawsuit to obtain a court order to dissolve the LLC since the vote a majority of the members of an LLC (not just 50%) must vote to initiate a voluntary dissolution of an LLC under Corporations Code sections 17707.01 and 17707.02.  Such an anomaly clearly makes no sense.

Fortunately, Governor Brown recently signed legislation to end this anomaly.  Effective January 1, 2017, the LLC dissolution law will be harmonized with the corporate dissolution law.  Consequently, starting January 1, an LLC member with 50% voting power can initiate a voluntary dissolution of an LLC just as can be done with corporations.  Of course, just as is true with most other aspects of LLC operation and management, the members of an LLC remain free to draft their articles of formation and operating agreements to require a higher voting percentage than 50% for a voluntary dissolution, to require judicial dissolution, or to have other terms and conditions for voluntary dissolution.

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