If you’re a member of a California Limited Liability Company (LLC) considering a buy-out, do you know what the default provisions are under the Revised Uniform Limited Liability Company Act (RULLCA)? Did you agree to something different in the operating agreement?
This blog explores common buy-out options available for members of an LLC in California and stress the importance of seeking legal and financial advice before making any decisions.
Why does this matter?
If it’s been over 5 years since you formed your LLC, it is prudent to review the terms of the operating agreement and make sure it continues to meet your needs. Often, client’s ask about amending operating agreements to address what will happen in the event an owner (member) decides they want to sell their ownership or is no longer participating in the business. Let’s explore:
Buy-Out Options for Members of LLC in California
Members of an LLC in California may have the following buy-out options available to them:
- Redemption
The LLC can redeem the membership interest by buying it back from the member for a predetermined price. - Cross-Purchase
Other members of the LLC purchase the membership interest from the member who is leaving.
- Hybrid
The LLC and remaining members purchase the leaving member’s interest in a combination of redemption and cross-purchase.
- Right of First Refusal
The LLC or other members have the right to match any outside offer to purchase the leaving member’s interest.
- Buy-Sell Agreement
This is an agreement that sets the terms for buying out a member in certain events, such as death, disability, or retirement. This option can provide certainty and protection for all members, especially if the LLC has multiple members.
*It’s important to note that these options are not exhaustive, and there may be other options available depending on the circumstances of the buy-out. The operating agreement should be clear on the preferred options for a buy-out and reviewed to ensure that it continues to function as intended.
Importance of Legal Advice
In conclusion, before making any decisions about buying out an LLC member in California, it’s crucial to seek legal and financial advice. Consulting with an experienced attorney helps you understand the implications of each option and make the best decision for your situation. A financial advisor can also help you assess the financial impact of the buy-out and plan accordingly.
At our law firm, we can help you with the legal aspects of these decisions and connect you with the right advisor for related matters, if necessary.
This blog post is written by an attorney at Cooper & Huber, LLP. It is for general educational purposes only and is not intended as legal advice or a solicitation for services. We hope it helps you or empowers you to seek next steps in your legal matters. Cooper & Huber attorneys handle an array of personal and business law matters throughout California. You can contact us at www.chcounsel.com or 213.423.1163.