Dissolving an LLC
The California Corporations Code Section 17707.01 summarizes the mechanisms needed to dissolve a Limited Liability Company (LLC). The Code section helps you define and determine these mechanisms, but the implementation can be tedious and difficult without profound knowledge and foresight. Below, we highlight what events might influence the dissolution of LLCs in California and how LLCs can be effected without any business.
A No Business LLC
A streamlined dissolution or cancellation of an LLC can be executed by filing proper documents with the California Secretary of State. Once filed, The California Secretary of State provides a roadmap for you to follow. This streamlined course of action is only available if:
● The LLC has not conducted any business since formation
● The LLC Articles of Organization were filled within the same 12 months of filing for dissolution.
● The LLC has no debts of liabilities
Dissolution Events in The Statue
“A limited liability company is dissolved, and its activities shall be wound up, upon the happening of the first to occur of the following:
(a) On the happening of an event set forth in a written operating agreement or the articles of organization.
(b) By the vote of a majority of the members of the limited liability company or a greater percentage of the voting interests of members as may be specified in the articles of organization, or a written operating agreement.
(c) The passage of 90 consecutive days during which the limited liability company has no members, except on the death of a natural person who is the sole member of a limited liability company, the status of the member, including a membership interest, may pass to the heirs, successors, and assigns of the member by will or applicable law. The heir, successor, or assign of the member’s interest becomes a substituted member pursuant to subdivision (d) of Section 17704.01, subject to administration as provided by applicable law, without the permission or consent of the heirs, successors, or assigns or, those administering the estate of the deceased member.
(d) Entry of a decree of judicial dissolution pursuant to Section 17707.03.”
Dissolution: Event Specified in the Articles or Operating Agreement
When an event happens in the LLC’s Articles of Organization or Operating Agreement, such as a conclusion of a joint venture) or failure to meet sales or profit threshold, an LLC can be dissolved.
Dissolution: By Majority Vote
Dissolution can happen by majority vote.“Majority of the Members” is defined in Corporations Code Section 17701.02 as “unless otherwise provided in the operating agreement, means more than 50 percent of the membership interests of members in current profits of the limited liability company.”
Dissolution by Judicial Decree
Dissolution can happen by an initiation in court. The grounds for Judicial Dissolution is set forth in CA Corporations Code Section 17707.3:
“(1) It is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.
(2) Dissolution is reasonably necessary for the protection of the rights or interests of the complaining members.
(3) The business of the limited liability company has been abandoned.
(4) The management of the limited liability company is deadlocked or subject to internal dissention.
(5) Those in control of the limited liability company have been guilty of, or have knowingly countenanced persistent and pervasive fraud, mismanagement, or abuse of authority.”