Short answer: Under California Corporations Code § 2000, when a shareholder petitions for involuntary dissolution, the corporation or holders of 50% or more of the voting power may avoid the dissolution by purchasing the petitioner’s shares for cash at their fair value. If the parties cannot agree on value, the court appoints three disinterested appraisers. Corporations Code § 17707.03(c) provides a parallel mechanism for LLCs at fair market value.
Key Takeaways
- Section 2000 converts a dissolution case into a valuation case and takes liquidation off the table.
- The corporation or holders of 50% or more of the voting power may invoke it (Corp. Code § 2000(a)).
- If value is disputed, the court appoints three disinterested appraisers (Corp. Code § 2000(c)).
- The petitioner cannot escape the buyout by dismissing the dissolution action (Corp. Code § 17707.03(c)(6); Kennedy v. Kennedy (2015) 235 Cal.App.4th 1474).
- Corporations use “fair value”; LLCs use “fair market value”, different standards that produce different numbers.
A co-owner files a verified complaint seeking involuntary dissolution of the company. The instinctive response is to fight the grounds, to argue there is no deadlock, no mismanagement, no basis for winding up a functioning business.
That is often the wrong first move. California provides a mechanism that removes the dissolution question entirely and replaces it with a single question: what is the petitioner's interest worth?
What section 2000 does
When a shareholder petitions for involuntary dissolution of a California corporation under Corporations Code section 1800, the corporation, or the holders of fifty percent or more of the voting power, may avoid the dissolution by purchasing for cash the shares owned by the moving party at their fair value (Corp. Code § 2000(a)).
If the parties cannot agree on fair value, the court appoints three disinterested appraisers to ascertain it (Corp. Code § 2000(c)). The court makes an order referring the matter to the appraisers, and where the appraisers do not agree, the court reviews their reports and determines value.
The proceeding is typically initiated by a motion to stay the dissolution and appoint appraisers.
The equivalent for LLCs
Corporations Code section 17707.03(c) provides a closely parallel mechanism for limited liability companies. In any suit for judicial dissolution, the other members may avoid dissolution by purchasing for cash the membership interests owned by the moving parties at their fair market value, with three disinterested appraisers appointed if the parties do not agree.
The difference in language between the two statutes is meaningful. “Fair value” under section 2000 and “fair market value” under section 17707.03 are distinct valuation standards, and the choice of entity form therefore affects the price. Anyone approaching one of these proceedings on the assumption that they are interchangeable is starting from the wrong premise.
Why this changes the strategic picture
It takes liquidation off the table. The petitioner sought to wind up the company. Invoking the buyout means the company continues and the petitioner is cashed out. For an owner who wants to keep operating the business, this converts an existential threat into a financing problem.
The petitioner cannot retreat. A plaintiff ordinarily has the right to dismiss a case voluntarily before trial (Code Civ. Proc. § 581). That does not apply here. Once the buyout procedure is commenced, the moving party cannot prevent it from going forward by dismissing the dissolution action. Section 17707.03(c)(6) states expressly that dismissal of a suit for judicial dissolution does not affect the other members' rights to avoid dissolution under the section, and California courts have applied the same principle in the corporate context (see Kennedy v. Kennedy (2015) 235 Cal.App.4th 1474).
The practical consequence is that filing a dissolution petition is close to an irrevocable offer to sell at a court-determined price. A petitioner who files to create settlement pressure, expecting to withdraw if the valuation comes back low, may find the exit closed.
The valuation is neutral, not negotiated. For the party who believes the other side's price demand is inflated, three court-appointed disinterested appraisers are an attractive alternative to a negotiation with someone who is not moving.
The valuation is where the case actually is
Once the buyout is invoked, the dispute is a valuation dispute. The variables that determine the number:
The applicable standard. Fair value under section 2000 is a statutory standard that differs from fair market value, and the California case law addressing how it is measured, including the treatment of the business as a going concern and the availability of discounts, is where much of the litigation happens.
Minority and marketability discounts. Whether a minority interest is discounted for lack of control or lack of marketability can change the result by a large margin. This is contested and standard-dependent.
The valuation date. Value is measured as of a specific date, and in a business whose performance changed materially before or after the falling-out, the date selection is worth as much as the methodology.
Normalizing adjustments. Owner compensation above or below market, related-party transactions, personal expenses run through the company, and non-recurring items all require adjustment. In closely held businesses these adjustments are frequently the largest single component of the analysis.
Pending claims. Where the petitioner also asserts breach of fiduciary duty, self-dealing, or diversion of opportunity, those claims interact with the valuation. Amounts improperly taken from the company may need to be restored before value is measured.
The bond and the mechanics
Section 2000 contemplates that the purchasing parties may be required to post bond, and addresses the payment of costs including appraiser fees. The purchasing side needs a realistic financing plan before invoking the procedure, the obligation is to purchase for cash, and a party that triggers the mechanism and then cannot perform has made its position considerably worse.
Considerations for the petitioning owner
An owner contemplating a dissolution petition should assume the buyout will be invoked and should model that outcome before filing.
Would you accept a court-determined price? If not, the petition may be the wrong instrument. Direct negotiation, a books and records proceeding, or fiduciary duty claims may serve better.
Is the other side able to fund a purchase? If not, the buyout threat is hollow and the dissolution path is real.
Are there independent claims worth preserving? Fiduciary duty, compensation, and employment claims are not automatically resolved by a buyout, and the sequencing matters.
For LLCs, watch the dissolution vote. In Friend of Camden, Inc. v. Brandt (2022) 81 Cal.App.5th 1054, members holding fifty percent voted to dissolve under section 17707.01 while a section 17707.03 buyout was pending, terminating the buyout and sending the entity to wind-up. The interaction between the vote and the buyout is a live tactical question in LLC disputes.
Considerations for the responding owner
Move promptly. The mechanism is available in the dissolution suit, and delay complicates it.
Confirm who has standing to purchase. The statute identifies the corporation or holders of fifty percent or more of the voting power.
Line up financing and valuation support first. Invoking the buyout without a funding plan and a credible valuation position is how a defensive tool becomes a liability.
Consider whether you want the company at any price. The buyout obligates a purchase at a number determined by others. For a business with uncertain prospects, allowing the dissolution and bidding at the wind-up may occasionally be the better economic choice.
Frequently Asked Questions
What is a Corporations Code section 2000 buyout?
It is a statutory mechanism allowing a California corporation, or holders of 50% or more of the voting power, to avoid an involuntary dissolution by purchasing the petitioning shareholder’s shares for cash at fair value, with three court-appointed appraisers determining value if the parties disagree.
Can a shareholder dismiss a dissolution suit to stop a buyout?
No. Once the buyout procedure is commenced, dismissal of the dissolution action does not defeat it. Section 17707.03(c)(6) states this expressly for LLCs, and California courts have applied the same principle in the corporate context (Kennedy v. Kennedy (2015) 235 Cal.App.4th 1474).
What is the difference between fair value and fair market value in a California buyout?
Corporations Code § 2000 uses “fair value” while § 17707.03 uses “fair market value” for LLCs. They are distinct valuation standards, and the difference, including the treatment of minority and marketability discounts, can move the purchase price substantially.
Is filing for dissolution risky for the petitioning shareholder?
It can be. Filing is effectively an irrevocable offer to sell at a court-determined price. A shareholder who files expecting to force liquidation or acquire the business cheaply may instead be cashed out at a valuation they did not choose.
Speak with a business litigation attorney
The statutory buyout is among the most consequential procedural mechanisms in California business divorce litigation, and it rewards the side that understands it before filing. Stone LLP represents California business owners in shareholder and member disputes, involuntary dissolution proceedings, and statutory buyout valuations, with offices in Irvine, Century City, and San Jose.
To discuss a dissolution petition or buyout, contact Stone LLP or call 949-477-9100.
This article is provided for general informational purposes and does not constitute legal advice. No attorney-client relationship is created by reading this article.