Partnership Dissenters

Corporations Code Title 2.6, Article 11 deals with dissenters’ rights under the California Revised Uniform Limited Liability Company Act.

Section 17711.01 defines the terms “reorganization” and “control.”

Section 17711.02 provides that, if the approval of outstanding membership interests is required for a limited liability company to participate in a reorganization, pursuant to the limited liability company agreement, then each member of the limited liability company holding those interests may, by complying with this article, require the limited liability company to purchase for cash, at its fair market value, the interest owned by the member in the limited liability company. The terms “dissenting interest” and “dissenting member” are defined.

Section 17711.03 explains that, if members have a right to require the limited liability company to purchase their membership interests for cash, the limited liability company is required to mail to each member a notice of the approval of the reorganization by the requisite vote or consent of the members, within 10 days after the date of the approval, accompanied by a number of required documents.

Any member who has a right to require the limited liability company to purchase the member’s interest for cash, but must make a written demand upon the limited liability company for the purchase of that interest and the payment to the member in cash of its fair market value. The demand is not effective for any purpose unless it is received by the limited liability company.

Section 17711.04 provides that, within 30 days after the date on which notice of the approval of the outstanding interests of the limited liability company is mailed to the member, the member is required to submit to the limited liability company at its principal office or at the office of any transfer agent thereof, the member’s certificate representing the interest which the member demands that the limited liability company purchase, written notice of the number or amount of interest which the member demands that the limited liability company purchase.

Section 17711.05 specifies that, if the limited liability company and the dissenting member agree that the member’s interest is a dissenting interest and agree upon the price to be paid for the dissenting interest, the dissenting member is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of consummation of the reorganization.

Section 17711.06 states that, if the limited liability company denies that a membership interest is a dissenting interest, or the limited liability company and a dissenting member fail to agree upon the fair market value of a dissenting interest, then the member or any interested limited liability company, within six months after the date when notice of the approval of the reorganization by the requisite vote or consent of the members was mailed to the member may file a complaint in the superior court of the proper county to determine whether the interest is a dissenting interest.

Section 17711.07 provides that, if the court appoints an appraiser or appraisers, they proceed forthwith to determine the fair market value per interest of the outstanding membership interests of the limited liability company, by class if necessary. Within the time fixed by the court, the appraisers make and file a report in the office of the clerk of the court.

Section 17711.08 provides that, to the extent that the payment to dissenting members of the fair market value of their dissenting interests would require the dissenting members to return payment or a portion of the payment, then that payment or portion cannot be made and the dissenting members become creditors of the limited liability company for the amount not paid, but subordinate to all other creditors in any proceeding relating to the winding up and dissolution of the limited liability company, such debt to be payable when permissible.

Section 17711.09 states that any cash distributions made by a limited liability company to a dissenting member after the date of consummation of the reorganization, but prior to any payment by the limited liability company for that dissenting member’s interest, must be credited against the total amount to be paid by the limited liability company for the dissenting interest.

Section 17711.10 requires dissenting members to continue to have all the rights and privileges incident to their interests immediately prior to the reorganization, including limited liability, until payment by the limited liability company for their dissenting interests. A dissenting member may not withdraw a demand for payment unless the limited liability company consents thereto.

Section 17711.11 provides that a dissenting interest loses its status as a dissenting interest and the holder ceases to be a dissenting member and ceases to be entitled to require the limited liability company to purchase the interest upon the happening of any of four specified events.

Section 17711.12 provides that, if litigation is instituted to test the sufficiency or regularity of the vote or consent of the members in authorizing a reorganization, any proceedings must be suspended until final determination of that litigation.

Section 17711.13 specifies that this article applies to three specified types of limited liability companies. This article does not apply to membership interests governed by operating agreements whose terms and provisions specifically set forth specified items.

Section 17711.14 states that no member of a limited liability company who has a right under this article to demand payment of cash for the interest owned by a member in a limited liability company has any right at law or in equity to attack the validity of the reorganization, except in an action to test whether the vote or consent of members required to authorize or approve the reorganization has been obtained in accordance with the procedures established therefor by the operating agreement of the limited liability company.

If one of the parties to a reorganization is directly or indirectly controlled by another party to the reorganization, then, in any action to attack the validity of the reorganization or to have the reorganization set aside or rescinded, both of the specified requirements apply.