You’re Out of Here: Expulsion of an LLC Member Under RULLCA
Phil Jelsma is a partner in the San Diego law Firm of Crosbie Gliner Schiffman Southard & Swanson LLP. He is a member of the Business Law Section’s Partnerships and LLCs Committee and worked on the passage of RULLCA and AB 506. He is the Executive Editor of the recent CEB Publication "Understanding Fiduciary Duties in Business Entities."
The adoption of the California Revised Uniform Limited Liability Company Act ("RULLCA") in 2014 codified judicial expulsion of a member of a limited liability company ("LLC"). Corporations Code section 17706.02 describes the events causing dissociation of a member and provides, among other things, the grounds under which a member may be expelled by judicial order. This article explores the process of judicial dissociation and the grounds for dissociation, and speculates on how business attorneys may want to address judicial dissolution in drafting operating agreements.
California’s predecessor LLC statute, the Beverly-Killea Limited Liability Company Act,1 did not have a provision describing dissociation or authorizing expulsion of a member. RULLCA not only addresses dissociation based on judicial order, but also permits dissociation to occur based on several grounds, including expulsion caused by the occurrence of an event in an LLC’s operating agreement,2 expulsion of a member pursuant to the operating agreement,3 and, if certain conditions apply, expulsion by unanimous vote of the other members.4