The statutory buyout that resolves member-dissolution petitions.

The statute#

California Corporations Code §17707.03 is the LLC dissolution statute. It allows a member (or in some circumstances, a manager) to petition the Superior Court to judicially dissolve the LLC on enumerated grounds. Once a petition is filed, the remaining members have a statutory option: buy out the petitioning member at fair value, and dissolution is averted.

The buyout election is what makes §17707.03 so widely used. The petitioning member gets an exit; the remaining members keep the business; the court sets fair value if the parties can't agree. The statute supplies a structured mechanism for situations where the operating agreement doesn't — or where the operating agreement's mechanism has broken down.

Grounds for dissolution#

§17707.03(b) lists the grounds on which a member can petition for judicial dissolution:

(1) Unable to conduct business in conformity with the operating agreement#

When the operating agreement requires actions that are no longer feasible — voting structures that produce deadlock, capital-call mechanisms that aren't working, governance procedures that members refuse to follow.

(2) Internal dissension and inability to manage#

The most-cited dissolution ground in practice. Members can't agree on management decisions; meetings produce stalemate; the LLC's affairs aren't being conducted. Internal dissension covers both formal deadlock and dysfunctional ongoing relationships that prevent effective management.

(3) Liquidating reasonably necessary#

When continued operation isn't viable financially or strategically — the business has lost its purpose, the market has changed, or the original venture has run its course. Less commonly cited than dissension because dissension tends to be the operative cause.

(4) Material fraud, abuse, or wrongdoing#

When one or more members or managers have engaged in fraud, abuse of authority, or other wrongdoing that materially impairs the LLC's purpose or the petitioning member's interests.

(5) Acquisition fraud / failure of original purpose#

Catch-all ground covering circumstances where continuing the LLC would no longer serve the purpose for which it was formed.

The buyout election#

The mechanic that defines §17707.03 in practice: under §17707.03(c), the members not joining the dissolution petition can avoid dissolution by electing to purchase the petitioning member's interest at fair value, with payment terms determined by the court if not agreed.

The election is exclusive — once made, the petitioning member's exit price is set by court-ordered fair-value determination if the parties don't agree. The petitioning member doesn't get to walk away from the buyout once the election is made; the petitioning member gets fair value, not whatever number they originally hoped for.

Strategic implications#

The buyout election shifts the strategic posture immediately. The petitioning member's leverage ceiling is fair value; the remaining members' floor is the fair-value determination they're willing to defend in court. Negotiations after election usually focus on (a) what fair value actually is and (b) payment-terms structure.

Fair-value determination#

If the parties can't agree on fair value, the court determines it. California's fair-value framework typically considers:

Asset-based methodology#

What would the LLC's assets be worth in liquidation, less liabilities? Useful for asset-heavy businesses (real estate, equipment, inventory) where the asset base drives value. Less useful for service businesses where intangibles dominate.

Income-based methodology#

What's the present value of the LLC's expected cash flows? Discounted-cash-flow analysis or capitalized-earnings methodology, applied to projected free cash flow with appropriate discount rate. Often the dominant methodology for going concerns with stable earnings.

Market-based methodology#

Comparable transactions or market multiples for similar businesses. Most reliable when comparable data exists; often unreliable for unique closely-held entities.

Marketability and minority discounts#

California courts in §17707.03 fair-value proceedings typically reject (or limit) marketability and minority discounts. The rationale: the fair-value determination protects the petitioning member from being squeezed at a discounted price, and applying discounts would defeat that protection. Fair value is not the same as fair market value — and the difference often matters by tens or hundreds of thousands of dollars.

Payment terms#

Even after fair value is determined, payment terms remain negotiable (or court-ordered if disputed). Patterns:

Lump-sum payment#

Cleanest exit. Petitioning member receives full fair value at closing; releases all interests in the LLC. Requires the remaining members to fund the buyout in cash — often through a combination of LLC cash, remaining-member contributions, and external financing.

Installment payment#

Common when the lump-sum amount exceeds available liquidity. Schedule typically 3–7 years with interest at market rates. Petitioning member becomes a secured creditor of the LLC for the remaining balance — typically with the LLC's assets serving as collateral.

Earn-out / contingent payment#

Less common in §17707.03 contexts but possible by negotiation. Some portion of the buyout price is contingent on future LLC performance. Used when the parties disagree about the LLC's future prospects and want to share the risk and reward.

Security and protection#

When payment is structured over time, the petitioning member typically requires security: lien on LLC assets, personal guarantees from remaining members, restrictions on distributions until the buyout is paid, acceleration on default. The protection package matters as much as the headline number.

Strategy on each side#

The petitioning member's playbook#

Document the dissension or other ground for dissolution thoroughly before filing — meetings, communications, decisions made or blocked, financial impacts. Establish the value position with credible expert support. Prepare for the buyout election as the most likely outcome, not for actual dissolution. Negotiate payment-terms protections aggressively.

The remaining members' playbook#

Decide quickly whether to elect buyout or contest dissolution. Election preserves the business; non-election risks judicial dissolution and forced sale. Develop the value position carefully — too low produces protracted litigation; too high overpays. Structure payment terms to match the LLC's actual cash flow rather than the petitioning member's preferred timing.

When §17707.03 isn't the right tool#

Not every member dispute fits §17707.03. The statute requires LLC structure (not corporations or partnerships, which have their own dissolution statutes). The grounds have to be met — bad-faith dissolution petitions on weak grounds risk dismissal and fee exposure. And the operating agreement may have its own buy-sell mechanism that supersedes statutory dissolution — typically through arbitration provisions, structured buyout triggers, or unanimous-vote-required dissolution clauses.

Cases where §17707.03 is the wrong tool typically resolve through (a) operating-agreement buy-sell mechanics, (b) negotiated voluntary buyout, (c) sale of the LLC to a third party, or (d) ordinary contract or fiduciary-duty litigation focused on damages rather than exit.

Cost and timeline#

§17707.03 petitions typically take 12–18 months from filing to resolution if the buyout election is made and contested at fair value. Faster if the parties agree on value early; slower if the value-determination phase is heavily contested with expert reports and a separate trial. Phase pricing aligns with the petition phases: petition and election (phase 1), value-determination preparation (phase 2), value trial (phase 3), payment-terms negotiation and closing (phase 4).