STONE LLP
LLC Disputes · Corp. Code § 17707.03

LLC Dissolution & Member Buyout in California

When LLC members reach an impasse, Corporations Code section 17707.03 is the tool that lets a member force a dissolution — or a buyout.

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Under California Corporations Code § 17707.03, a member or manager can ask the court to dissolve an LLC when it’s not reasonably practicable to carry on the business, or when those in control act illegally, oppressively, or fraudulently. To avoid dissolution, the other members may buy out the moving member for cash at fair market value.

LLCs are the default vehicle for California real estate ventures, professional practices, and small businesses — and when the members fall out, the operating agreement often provides no clean exit. That’s where the Corporations Code steps in. Stone LLP represents LLC members throughout Southern California in deadlock, oppression, and exit disputes.

Grounds for judicial dissolution of an LLC

A member or manager may petition the superior court to dissolve the LLC. The most common grounds under section 17707.03 are:

  • It is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement — the classic deadlock scenario.
  • Those in control have engaged in conduct that is illegal, fraudulent, or oppressive toward the complaining member.
  • LLC property is being misapplied or wasted by those managing it.
  • The business cannot be conducted to the advantage of the members because of internal dissension.

A 50/50 deadlock over a single income-producing asset, a manager diverting funds or opportunities, or a controlling member freezing out a minority member are all situations that courts have found can justify dissolution.

The buyout off-ramp — fair market value

Corporations Code § 17707.03(c)

Once a member files for judicial dissolution, the other members may avoid the dissolution of the LLC by purchasing the moving member’s membership interest, in cash, at its fair market value. If the parties can’t agree on value, the court stays the case and appoints appraisers to determine it.

Note the language: in an LLC the buyout is at fair market value, which accounts for real-world market conditions — a different and often more favorable standard than the “fair value” used for corporate shares under section 2000. For a departing member, that distinction can meaningfully change the check you walk away with.

Strategic traps to avoid

Two appellate decisions shape how these cases are run. In Kennedy v. Kennedy, the court confirmed that once the buyout procedure is commenced, the member who filed for dissolution can’t back out by dismissing the lawsuit — the purchasing members can compel the sale. In Friend of Camden v. Brandt, the court allowed a majority of members to vote to dissolve the LLC under section 17707.01 before the buyout began, effectively sidestepping the buyout. The lesson for both sides: whoever moves first and most precisely controls the outcome. A member contemplating an exit, and a member trying to keep the company, each need a plan before anyone files.

Don’t overlook the operating agreement

Before invoking the statute, the operating agreement controls where it speaks — it may include buy-sell provisions, valuation formulas, mandatory mediation, or dissociation rights under sections 17706.02 and 17706.03 that change the analysis. We read the agreement against the statute to find the fastest, most valuable path out, whether that’s enforcing a contractual buyout or filing for judicial dissolution. Stone LLP has handled these LLC disputes for Southern California members for more than 45 years, from Irvine and Newport Beach to Los Angeles and the Inland Empire.

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Frequently asked questions

How do I dissolve an LLC in California when my partner won’t agree?

A single member or manager can petition the superior court for judicial dissolution under Corporations Code section 17707.03 on grounds such as deadlock or oppressive conduct. The other members’ agreement is not required to file.

What is the fair market value buyout under section 17707.03?

When a member files for dissolution, the remaining members can avoid it by buying that member’s interest for cash at fair market value. If the parties disagree on the number, the court appoints appraisers to determine it.

Is an LLC buyout at fair market value or fair value?

For LLCs under section 17707.03, the buyout is at fair market value, which considers market conditions. This differs from the “fair value” standard that applies to corporate shares under section 2000.

Can my fellow members avoid the buyout?

Sometimes. California courts have allowed a majority of members to vote to dissolve the LLC under section 17707.01 before the buyout procedure begins. Timing is decisive, which is why early legal strategy is important.

Talk to a California business divorce attorney

If you’re a California LLC member facing a deadlock or a freeze-out, section 17707.03 may be your path to a fair exit. Let’s look at your operating agreement and your options.

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Call 949-477-9100