17600-17613
CORPORATIONS CODE
SECTION 17600-17613
17600. (a) For purposes of this chapter, "reorganization" refers to any of the following: (1) A conversion pursuant to Chapter 11.5 (commencing with Section 17540.1). (2) A merger pursuant to Chapter 12 (commencing with Section 17550). (3) The acquisition by one limited liability company in exchange, in whole or in part, for its membership interests (or the membership interests or equity securities of a limited liability company or other business entity that is in control of the acquiring limited liability company), of membership interests or equity securities of another limited liability company or other business entity if, immediately after the acquisition, the acquiring limited liability company has control of the other limited liability company or other business entity. (4) The acquisition by one limited liability company in exchange in whole or in part for its membership interests (or the membership interests or equity securities of a limited liability company or other business entity that is in control of the acquiring limited liability company) or for its debt securities (or debt securities of a limited liability company or other business entity that is in control of the acquiring limited liability company) that are not adequately secured and that have a maturity date in excess of five years after the consummation of the acquisition, or both, of all or substantially all of the assets of another limited liability company or other business entity. (b) For purposes of this chapter, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a limited liability company or other business entity. 17601. (a) If the approval of outstanding membership interests is required for a limited liability company to participate in a reorganization, pursuant to the operating agreement of the limited liability company, or otherwise, then each member of the limited liability company holding those membership interests may, by complying with this chapter, 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, if the interest is a dissenting interest as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization, excluding any appreciation or depreciation in consequence of the proposed reorganization unless exclusion would be inequitable. (b) As used in this chapter, "dissenting interest" means a membership interest that satisfies all of the following conditions: (1) The membership interest was outstanding on the date for the determination of members entitled to vote on the reorganization. (2) (A) The membership interest was not voted in favor of the reorganization, or (B) the membership interest was voted against the reorganization; provided, however, that subparagraph (A) rather than subparagraph (B) of this paragraph applies in any event where the approval for the proposed reorganization is sought by written consent rather than at a meeting. (3) That the member has demanded that the limited liability company purchase at its fair market value in accordance with Section 17602. (4) That the member submits for endorsement, if applicable, in accordance with Section 17603. (c) As used in this chapter, "dissenting member" means the recordholder of a dissenting interest, and includes an assignee of record of that interest. 17602. (a) If members have a right under Section 17601, subject to compliance with paragraphs (4) and (5) of subdivision (b) thereof, to require the limited liability company to purchase their membership interests for cash, that limited liability company shall mail to each member a notice of the approval of the reorganization by the requisite vote or consent of the members. This notice shall be mailed within 10 days after the date of the approval, accompanied by a copy of this section and Sections 17601, 17603, 17604, and 17605, a statement of the price determined by the limited liability company to represent the fair market value of its outstanding interests, a statement of the method of valuation employed, the latest available balance sheet of the limited liability company, the latest available income statement of the limited liability company, and a brief description of the procedure to be followed if the member desires to exercise the member's rights under those sections. The statement of price constitutes an offer by the limited liability company to purchase at the price stated any dissenting interests as defined in subdivision (b) of Section 17601, unless they lose their status as dissenting interests under Section 17610. (b) Any member who has a right to require the limited liability company to purchase the member's interest for cash under Section 17601, subject to compliance with paragraphs (4) and (5) of subdivision (b) thereof, and who desires the limited liability company to purchase that interest, shall make written demand upon the limited liability company for the purchase of the 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 or any transfer agent thereof within 30 days after the date on which notice of the approval of the reorganization by the requisite vote or consent of the members is mailed by the limited liability company to the members. (c) The demand shall state the number or amount of the dissenting member's interest in the limited liability company and shall contain a statement of what that member claims to be the fair market value of that interest on the day before the announcement of the proposed reorganization. The statement of fair market value constitutes an offer by the dissenting member to sell the interest at that price. 17603. 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 dissenting member pursuant to subdivision (a) of Section 17602, the member shall submit to the limited liability company at its principal office or at the office of any transfer agent thereof, the following: (a) If the interest is evidenced by a certificate, the dissenting member's certificate representing the interest that the member demands that the limited liability company purchase, to be stamped or endorsed with a statement that the interest is a dissenting interest, or to be exchanged for certificates of appropriate denominations so stamped or endorsed. (b) If the interest is not evidenced by a certificate, written notice of the number or amount of interest that the dissenting member demands that the limited liability company purchase. Upon subsequent transfers of the dissenting interest on the books of the limited liability company, the new certificates or other written statement issued therefor shall bear a like statement, together with the name of the original holder of the dissenting interest. 17604. (a) 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. All agreements fixing the fair market value of any dissenting member's interest as between the limited liability company and the member shall be in writing and filed in the records of the limited liability company. (b) Subject to the provisions of Section 17607, payment of the fair market value for a dissenting interest shall be made within 30 days after the amount thereof has been agreed upon or within 30 days after any statutory or contractual conditions to the reorganization are satisfied, whichever is later. In the case of dissenting interests evidenced by certificates of interest, payment shall be subject to surrender of the certificates of interest, unless provided otherwise by agreement. 17605. (a) 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 on which notice of the approval of the reorganization by the requisite vote or consent of the members was mailed to the member, but not thereafter, may file a complaint in the superior court of the proper county to determine whether the interest is a dissenting interest, or the fair market value of the dissenting interest, or both, or to intervene in any action pending on such a complaint. (b) Two or more dissenting members may join as plaintiffs or be joined as defendants in any action and two or more actions may be consolidated. (c) On the trial of the action, the court shall determine the issues. If the status of the membership interest as a dissenting interest is an issue, the court shall first determine that issue. If the fair market value of the dissenting interest is an issue, the court shall determine, or shall appoint one or more impartial appraisers to determine, the fair market value of the dissenting interest. 17606. (a) If the court appoints an appraiser or appraisers, they shall 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, or a majority of them, shall make and file a report in the office of the clerk of the court. On the motion of any party, the report shall be submitted to the court and considered along with any additional evidence as the court considers relevant. If the court finds the report reasonable, the court may confirm it. (b) If a majority of the appraisers appointed fail to make and file a report within 30 days from the date of their appointment, or within such further time as may be allowed by the court, or the report is not confirmed by the court, the court shall determine the fair market value per interest of the outstanding membership interests of the limited liability company, by class if necessary. (c) Subject to Section 17607, judgment shall be rendered against the limited liability company for payment of an amount equal to the fair market value, as determined by the court, of each dissenting interest that any dissenting member who is a party, or has intervened, is entitled to require the limited liability company to purchase, with interest thereon at the legal rate on judgments from the date of consummation of the reorganization. (d) Any judgment shall be payable forthwith, provided, however, that with respect to membership interests evidenced by transferable certificates of interest, only upon the endorsement and delivery to the limited liability company of those certificates representing the interest described in the judgment. Any party may appeal from the judgment. (e) The costs of the action, including reasonable compensation for the appraisers, to be fixed by the court, shall be assessed or apportioned as the court considers equitable, but, if the appraisal exceeds the price offered by the limited liability company, the limited liability company shall pay the costs, including, in the discretion of the court, if the value awarded by the court for the dissenting interest is more than 125 percent of the price offered by the limited liability company under subdivision (a) of Section 17602, attorneys' fees and fees of expert witnesses. 17607. 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 that payment or a portion thereof by reason of subdivision (f) of Section 17254 or the Uniform Fraudulent Transfer Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code), then that payment or portion thereof shall not be made and the dissenting members shall become creditors of the limited liability company for the amount not paid, together with interest thereon at the legal rate on judgments until the date of payment. The dissenting members shall be subordinate to all other creditors in any proceeding relating to the winding up and dissolution of the limited liability company. 17608. 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 the dissenting member's interest, shall be credited against the total amount to be paid by the limited liability company for that dissenting interest. 17609. Except as expressly limited by this chapter, dissenting members shall 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. 17610. A dissenting interest loses its status as a dissenting interest and the holder thereof ceases to be a dissenting member and ceases to be entitled to require the limited liability company to purchase the interest upon the occurrence of any of the following: (a) The limited liability company abandons the reorganization. Upon abandonment of the reorganization, the limited liability company shall pay, on demand, to any dissenting member who has initiated proceedings in good faith under this chapter, all reasonable expenses incurred in those proceedings and reasonable attorneys' fees. (b) The interest is transferred prior to its submission for endorsement in accordance with Section 17603. (c) The dissenting member and the limited liability company do not agree upon the status of the interest as a dissenting interest or upon the purchase price of the dissenting interest, and neither files a complaint nor intervenes in a pending action, as provided in Section 17605, within six months after the date upon which notice of the approval of the reorganization by the requisite vote or consent of members was mailed to the member. (d) The dissenting member, with the consent of the limited liability company, withdraws that member's demand for purchase of the dissenting interest. 17611. If litigation is instituted to test the sufficiency or regularity of the vote of the members in authorizing a reorganization, any proceedings under Sections 17605 and 17606 shall be suspended until final determination of that litigation. 17612. (a) Subject to subdivisions (b) and (c), this chapter applies to the following: (1) A domestic limited liability company. (2) A foreign limited liability company if members holding more than 50 percent of the voting interests of the foreign limited liability company reside in this state. (b) This chapter does not apply to membership interests governed by operating agreements whose terms and provisions specifically set forth the amount to be paid in respect of those interests in the event of a reorganization of the limited liability company. (c) This chapter shall not apply to any limited liability company with 35 or fewer members if all the members have waived the application of this chapter in writing, whether in an operating agreement or otherwise, provided that if, at the time of the reorganization, the limited liability company had more than 35 members, any waiver shall be ineffective as to that reorganization. 17613. (a) No member of a limited liability company who has a right under this chapter to demand payment of cash for the interest owned by that member in a limited liability company shall have any right at law or in equity to attack the validity of the reorganization, or to have the reorganization set aside or rescinded, except (1) 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, or if there is no written operating agreement, this chapter, or (2) when the limited liability company action is fraudulent with respect to the complaining member or the limited liability company. (b) If one of the parties to a reorganization is directly or indirectly controlled by, or under common control with, another party to the reorganization, subdivision (a) shall not apply to any member of the controlled party who has not demanded payment of cash for the member's interest pursuant to this chapter; but if the member institutes any action to attack the validity of the reorganization or to have the reorganization set aside or rescinded, the member shall not thereafter have any right to demand payment of cash for that member's interest pursuant to this chapter. (c) If one of the parties to a reorganization is directly or indirectly controlled by, or under common control with, 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, (1) a party to a reorganization that controls another party to a reorganization shall have the burden of proving that the transaction is just and reasonable as to the members of the controlled party, and (2) a person who controls two or more parties to a reorganization shall have the burden of proving that the transaction is just and reasonable as to the members of any party so controlled. (d) Subdivisions (b) and (c) shall not apply if a majority in interest of the members other than members who are directly or indirectly controlled by, or under common control with, another party to the reorganization approve or consent to the reorganization. (e) This section shall not prevent a member of a limited liability company that is a party to a reorganization from bringing an action against the limited liability company or any manager, officer, employee, or agent of the limited liability company, at law or in equity, as to any matters, including, without limitation, an action for breach of fiduciary obligation or fraud, other than to attack the validity of the reorganization or to have the reorganization set aside or rescinded.