California LLC Member Dissenter Rights in Reorganizations

Authored by Bryan Springmeyer Bryan Springmeyer is a California corporate attorney who represents startup companies. The information on this page should not be construed as legal advice.

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Whenever the members and, if applicable, the managers of a California limited liability company (LLC) are contemplating a significant corporate transaction impacting ownership, they'll need to give consideration to the dissenting members' rights outlined in California Corporations Code §§17600-17613. The sections apply to any "reorganization" which the Code defines as a conversion, merger, acquisition, or change of control.

During a reorganization, the members that do not vote for the transaction, whether they fail to vote or explicitly vote against it, are entitled to demand a cash payment based on the fair market value of their interest in the LLC if the transaction is approved. The fair market value is determined as of the day before the proposed terms of the reorganization were offered, unless it would be inequitable to exclude the later appreciation/depreciation. The LLC must mail to all such members a notification of the approval of the reorganization, the fair market value calculations of the LLC, how to make the demand for payment, and the member's rights under §§17601-17605.

In order to be valid, the dissenting member's demand for cash payment must be made in writing within 30 days of the notice of the approval. The fair market value of the company that the LLC provides constitutes an offer to satisfy the demand at that price. However, the dissenting member may challenge that price in court within six months. If the dissenting member achieves a higher valuation by the court appointed appraisers, the LLC may be subjected to pay for the costs of the action, including the attorney's fees if the court appointed appraiser's determine that the valuation is >125% of what the LLC offered the dissenting member.

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