Article 7 - Dissolution and Winding Up

California Corporations Code — §§ 17707.01-17707.09

Sections (9)

Amended by Stats. 2016, Ch. 66, Sec. 1. (AB 1722) Effective January 1, 2017.

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 50 percent or more of the voting interests 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 that, 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 one or more heirs, successors, and assigns of the member by will or applicable law. An heir, successor, or assign of the member’s interest becomes a substituted member pursuant to paragraph (4) of subdivision (c) 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.

§ 17707.02

Amended by Stats. 2016, Ch. 66, Sec. 2. (AB 1722) Effective January 1, 2017.

(a)Notwithstanding any other provision of this title, if a domestic limited liability company has not conducted any business, 50 percent or more of the voting interests of the members, or, if there are no members, 50 percent or more of the voting interests of the managers, if any, or if no members or managers, the person or 50 percent or more of the persons signing the articles of organization, may execute and acknowledge a certificate of cancellation of

articles of organization, on a form prescribed by the Secretary of State, stating all of the following:

(1)The name of the domestic limited liability company and the Secretary of State’s file number.

(2)That the certificate of cancellation is being filed within 12 months from the date the articles of organization was filed.

(3)That the limited liability company does not have any debts or other liabilities, except as provided in paragraph (4).

(4)That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, or a final annual tax return, as described by Section 17947 of the Revenue and Taxation Code, has been or will be filed

with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.

(5)That the known assets of the limited liability company remaining after payment of, or adequately providing for, known debts and liabilities have been distributed to the persons entitled thereto or that the limited liability company acquired no known assets, as the case may be.

(6)That the limited liability company has not conducted any business from the time of the filing of the articles of organization.

(7)That 50 percent or more of the voting interests of the managers or members

voted, or, if no managers or members, the person or 50 percent or more of the persons signing the articles of organization, voted to dissolve the limited liability company.

(8)If the limited liability company has received payments for interests from investors, that those payments have been returned to those investors.

(b)A certificate of cancellation executed and acknowledged pursuant to subdivision (a) shall be filed with the Secretary of State within 12 months from the date that the articles of organization was filed. The Secretary of State shall notify the Franchise Tax Board of the cancellation.

(c)Upon filing a

certificate of cancellation pursuant to subdivision (a), a limited liability company shall be canceled and its powers, rights, and privileges shall cease.

§ 17707.03

Amended by Stats. 2015, Ch. 775, Sec. 14. (AB 506) Effective January 1, 2016.

(a)Pursuant to an action filed by any manager or by any member or members of a limited liability company, a court of competent jurisdiction may decree the dissolution of a limited liability company whenever any of the events specified in subdivision (b) occurs.

(b)(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 dissension.

(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.

(c)(1) In any suit for judicial dissolution, the other members may avoid the dissolution of the limited liability company by purchasing for cash the membership interests owned by the members so initiating the proceeding, the “moving parties,” at their fair market value. In fixing the value, the amount of any damages resulting if the initiation of the dissolution is a breach by any moving party or parties of an agreement with the purchasing party or parties, including, without limitation, the operating

agreement, may be deducted from the amount payable to the moving party or parties; provided, that no member who sues for dissolution on the grounds set forth in paragraph (3), (4), or (5) of subdivision (b) shall be liable for damages for breach of contract in bringing that action.

(2)If the purchasing parties elect to purchase the membership interests owned by the moving parties, are unable to agree with the moving parties upon the fair market value of the membership interests, and give bond with sufficient security to pay the estimated reasonable expenses, including attorney’s fees, of the moving parties if the expenses are recoverable under paragraph (3), the court, upon application of the purchasing parties, either in the pending action or in a proceeding initiated in the superior court of the proper county by the purchasing parties, shall stay the winding up and dissolution proceeding and shall proceed to ascertain and fix the fair market

value of the membership interests owned by the moving parties.

(3)The court shall appoint three disinterested appraisers to appraise the fair market value of the membership interests owned by the moving parties, and shall make an order referring the matter to the appraisers so appointed for the purpose of ascertaining that value. The order shall prescribe the time and manner of producing evidence, if evidence is required. The award of the appraisers or a majority of them, when confirmed by the court, shall be final and conclusive upon all parties. The court shall enter a decree that shall provide in the alternative for winding up and dissolution of the limited liability company, unless payment is made for the membership interests within the time specified by the decree. If the purchasing parties do not make payment for the membership interests within the time specified, judgment shall be entered against them and the surety or sureties on the

bond for the amount of the expenses, including attorney’s fees, of the moving parties. Any member aggrieved by the action of the court may appeal therefrom.

(4)If the purchasing parties desire to prevent the winding up and dissolution of the limited liability company, they shall pay to the moving parties the value of their membership interests ascertained and decreed within the time specified pursuant to this section, or, in the case of an appeal, as fixed on appeal. On receiving that payment or the tender of payment, the moving parties shall transfer their membership interests to the purchasing parties.

(5)For the purposes of this section, the valuation date shall be the date upon which the action for judicial dissolution was commenced. However, the court may, upon the hearing of a motion by any party, and for good cause shown, designate some other date as the valuation

date.

(6)A dismissal of any suit for judicial dissolution by a manager, member, or members shall not affect the other members’ rights to avoid dissolution pursuant to this section.

(d)Nothing in this section shall be construed to limit the remedies otherwise available to a court of competent jurisdiction over the dissolution.

§ 17707.04

Added by Stats. 2012, Ch. 419, Sec. 20. (SB 323) Effective January 1, 2013. Operative January 1, 2014, by Sec. 32 of Ch. 419.

In the event of a dissolution of a limited liability company all of the following apply:

(a)The managers who have not wrongfully dissolved the limited liability company, or, if none, the members, or, if none, the person or a majority of the persons signing the articles of organization, may wind up the affairs of the limited liability company, unless the dissolution occurs pursuant to Section 17707.03, in which event the winding up shall be conducted in accordance with the decree of dissolution. The persons winding up the affairs of the limited liability company shall give written notice of the commencement of winding up by mail to all known creditors and claimants whose addresses

appear on the records of the limited liability company.

(b)Upon the petition of any manager or of any member or members, or three or more creditors of a limited liability company, a court of competent jurisdiction may enter a decree ordering the winding up of the limited liability company, if that appears necessary for the protection of any parties in interest. The decree shall designate the managers or members, or if good cause is shown, another person or persons, who are to wind up the affairs of the limited liability company.

(c)Except as otherwise provided in the articles of organization or a written operating agreement, the persons winding up the affairs of the limited liability company pursuant to this section shall be entitled to reasonable compensation.

§ 17707.05

Added by Stats. 2012, Ch. 419, Sec. 20. (SB 323) Effective January 1, 2013. Operative January 1, 2014, by Sec. 32 of Ch. 419.

(a)Except as otherwise provided in the articles of organization or the written operating agreement, after determining that all the known debts and liabilities of a limited liability company in the process of winding up, including, without limitation, debts and liabilities to members who are creditors of the limited liability company, have been paid or adequately provided for, the remaining assets shall be distributed among the members according to their respective rights and preferences as follows:

(1)To members in satisfaction of liabilities for distributions pursuant to Sections 17704.04, 17704.05, and 17704.06.

(2)To members of the limited liability company for the return of their contributions.

(3)To members in the proportions in which those members share in distributions.

(b)If the winding up is by court proceeding or subject to court supervision, the distribution shall not be made until after the expiration of any period for the presentation of claims that has been prescribed by order of the court.

(c)(1) The payment of a debt or liability, whether the whereabouts of the creditor is known or unknown, has been adequately provided for if the payment has been provided for by either of the following means:

(A) Payment for the

debt or liability has been assumed or guaranteed in good faith by one or more financially responsible persons or by the United States government or any agency of the

United States government, and the provision, including the financial responsibility of the person, was determined in good faith and with reasonable care by the members or managers of the limited liability company to be adequate at the time of any distribution of the assets pursuant to this section.

(B) The amount of the debt or liability has been deposited as provided in Section 2008 of the General Corporation Law.

(2)This subdivision shall not prescribe the exclusive means of making adequate provision for debts and liabilities.

§ 17707.06

Amended by Stats. 2022, Ch. 31, Sec. 1. (AB 1802) Effective January 1, 2023.

(a)A limited liability company that has filed a certificate of cancellation nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it in order to collect and discharge obligations, disposing of and conveying its property, and collecting and dividing its assets. A limited liability company shall not continue business except so far as necessary for its winding up.

(b)No action or proceeding to which a limited liability company is a party abates by the filing of a certificate of cancellation for the limited liability company or by reason of proceedings for its winding up and dissolution.

(c)Any assets inadvertently or otherwise

omitted from the winding up continue in the canceled limited liability company for the benefit of the persons entitled to those assets upon cancellation and on realization shall be used to discharge unsatisfied liabilities, if any, known to the company, and any excess shall be distributed to the members. If assets are inadvertently or otherwise omitted from the winding up, any person authorized to wind up the affairs of a limited liability company that has filed a certificate of cancellation under Section 17707.04 may use the assets to discharge the liabilities of the limited liability company and may distribute to the members the assets not so used.

(d)After cancellation of the limited liability company, the limited liability

company is bound by both of the following:

(1)The act of a person authorized to wind up the affairs of the limited liability company, if the act is appropriate for winding up the activities of the limited liability company.

(2)The act of a person authorized to act on behalf of the limited liability company, if the act would have bound the limited liability company before cancellation, if the other party to the transaction did not have notice of the cancellation.

§ 17707.07

Amended by Stats. 2019, Ch. 143, Sec. 39. (SB 251) Effective January 1, 2020.

(a)(1) Causes of action against a dissolved limited liability company, whether arising before or after the dissolution of the limited liability company, may be enforced against any of the following:

(A) Against the dissolved limited liability company to the extent of its undistributed assets, including, without limitation, any insurance assets held by the limited liability company that may be available to satisfy claims.

(B) If any of the assets of the dissolved limited liability company have been distributed to members, against members of the dissolved limited liability company to the extent of the limited liability company assets distributed to them upon dissolution of the

limited liability company.

Any member compelled to return distributed assets in an amount that exceeds the sum of the member’s pro rata share of the claim and the amount for which the member could otherwise be held liable under Section 17704.05 or 17704.06 may seek contribution for the excess from any other member or manager, up to the sum of that other person’s pro rata share of the claim and that other person’s liabilities under Section 17704.05 or 17704.06.

(2)Except as set forth in subdivision (c), all causes of action against a member of a dissolved limited liability company arising under this section are extinguished unless the claimant commences a proceeding to enforce the cause of action against that member of a dissolved limited liability company prior to the earlier of the following:

(A)The expiration of the statute of

limitations applicable to the cause of action.

(B)Four years after the effective date of the dissolution of the limited liability company.

(3)As a matter of procedure only, and not for purposes of determining liability, members of the dissolved limited liability company may be sued in the name of the limited liability company upon any cause of action against the limited liability company. This section does not affect the rights of the limited liability company or its creditors under Sections 17704.05 and 17704.06, or the rights, if any, of creditors under the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code), that may arise against the member of a limited liability company.

(b)Summons or other process against a limited liability

company may be served by delivering a copy thereof to a manager, member, officer, or person having charge of its assets or, if none of these persons can be found, to any agent upon whom process might be served at the time of dissolution. If none of those persons can be found with due diligence and it is so shown by affidavit to the satisfaction of the court, then the court may make an order that summons or other process be served upon the dissolved limited liability company by personally delivering a copy of the summons or other process, together with a copy of the order, to the Secretary of State or an assistant or Deputy Secretary of State. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State. Upon receipt of process and the fee therefor, the Secretary of State shall give notice to the limited liability company as provided in Section 17701.16.

(c)Every limited liability company

shall survive and continue to exist indefinitely for the purpose of being sued in any quiet title action. Any judgment rendered in that action shall bind each and all of its members or other persons having any equity or other interest in the limited liability company to the extent of that interest and the action shall have the same force and effect as an action brought under the provisions of Sections 410.50 and 410.60 of the Code of Civil Procedure. Service of summons or other process in any action may be made as provided in Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure or as provided in subdivision (b).

(d)For purposes of Article 4 (commencing with Section 19071) of Chapter 4 of Part 10.2 of Division 2 of the Revenue and Taxation Code, the liability described in this section shall be considered a liability at law with respect to a dissolved limited liability

company.

§ 17707.08

Amended by Stats. 2022, Ch. 31, Sec. 2. (AB 1802) Effective January 1, 2023.

(a)(1) The managers shall sign and cause to be filed in the office of, and on a form prescribed by, the Secretary of State, a certificate of dissolution upon the dissolution of the limited liability company pursuant to this article unless the event causing the dissolution is that specified in subdivision (c) of Section 17707.01, in which case the persons conducting the winding up of the limited liability company’s affairs pursuant to Section 17707.04 shall have the obligation to sign and cause to be filed the certificate of dissolution.

(2)The certificate of dissolution shall set forth all of the following:

(A)The name of the limited liability company and the Secretary of State’s file number.

(B)Any other information the persons filing the certificate of dissolution determine to include.

(C)The event listed in Section 17707.01 causing dissolution.

(3)If a dissolution pursuant to subdivision (b) of Section 17707.01 is made by the vote of all of the members and a statement to that effect is added to the certificate of cancellation of articles of organization pursuant to subdivision (b), the separate filing of a certificate of dissolution pursuant to this subdivision is not required.

(b)(1) The managers shall sign and cause to be filed in the office of, and on a form prescribed by, the Secretary of State, a certificate of cancellation of articles of organization upon the completion of the winding up of the affairs of the limited liability company pursuant to Section 17707.04 and distribution of its assets pursuant to Section 17707.05, unless the event causing the dissolution is that specified in subdivision (c) of Section 17707.01, in that case the persons conducting the winding up of the limited liability company’s affairs pursuant to Section 17707.04 shall have the obligation to sign and cause to be filed the certificate of cancellation of articles of organization.

(2)The certificate of cancellation of articles of organization shall set forth all of the following:

(A)The name of the limited liability company and the Secretary of State’s file number.

(B)That a final franchise tax return, as described by Section 23332 of the Revenue and Taxation Code, or a final annual tax return, as described by Section 17947 of the Revenue and Taxation Code, has been or will be filed with the Franchise Tax Board, as required under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code.

(C)That upon the filing of the certificate of cancellation, except

as provided in Section 17707.06, the limited liability company shall be canceled and its powers, rights, and privileges shall cease.

(D)Any other information the persons filing the certificate of cancellation of articles of organization determine to include.

(3)The Secretary of State shall notify the Franchise Tax Board of the filing.

(c)Upon filing a certificate of cancellation pursuant to subdivision (b), except as provided in Section 17707.06, a limited liability company shall be canceled and its powers, rights, and privileges shall cease.

§ 17707.09

Amended by Stats. 2015, Ch. 775, Sec. 16. (AB 506) Effective January 1, 2016.

(a)Notwithstanding the filing of a certificate of dissolution, a majority of the members may cause to be filed, in the office of, and on a form prescribed by, the Secretary of State, a certificate of continuation, in any of the following circumstances:

(1)The business of the limited liability company is to be continued pursuant to a unanimous vote of the remaining members.

(2)The dissolution of the limited liability company was by vote of the members pursuant to subdivision (b) of Section 17707.01 and each member who consented to the dissolution has agreed in writing to revoke his or her vote in favor of or consent to the dissolution.

(3)The limited liability company was not, in fact, dissolved.

(b)The certificate of continuation shall set forth all of the following:

(1)The name of the limited liability company and the Secretary of State’s file number.

(2)The grounds provided by subdivision (a) that are the basis for filing the certificate of continuation.

(c)Upon the filing of a certificate of continuation, the certificate of dissolution shall be of no effect from the time of the filing of the certificate of dissolution.