Section 602. Member's Power to Dissociate;
Wrongful Dissociation

(a) Unless otherwise provided in the operating agreement, a member has the power to dissociate from a limited liability company at any time, rightfully or wrongfully, by express will pursuant to Section 601(1).

(b) If the operating agreement has not eliminated a member's power to dissociate, the member's dissociation from a limited liability company is wrongful only if:

(1) it is in breach of an express provision of the agreement; or

(2) before the expiration of the specified term of a term company:

(i) the member withdraws by express will;

(ii) the member is expelled by judicial determination under Section 601(6);

(iii) the member is dissociated by becoming a debtor in bankruptcy; or

(iv) in the case of a member who is not an individual, trust other than a business trust, or estate, the member is expelled or otherwise dissociated because it willfully dissolved or terminated its existence.

(c) A member who wrongfully dissociates from a limited liability company is liable to the company and to the other members for damages caused by the dissociation. The liability is in addition to any other obligation of the member to the company or to the other members.

(d) If a limited liability company does not dissolve and wind up its business as a result of a member's wrongful dissociation under subsection (b), damages sustained by the company for the wrongful dissociation must be offset against distributions otherwise due the member after the dissociation.

Comment

A member has the power to withdraw from both an at-will company and a term company although the effects of the withdrawal are remarkably different. See Comments to Section 601. At a minimum, the exercise of a power to withdraw enables members to terminate their continuing duties of loyalty and care. See Section 603(b)(2) to (3).

A member's power to withdraw by express will may be eliminated by an operating agreement. New and important Internal Revenue Service announcements clarify that alteration of a member's power to withdraw will not cause the limited liability company to be taxed like a corporation. An operating agreement may eliminate a member's power to withdraw by express will to promote the business continuity of an at-will company by removing member's right to force the company to purchase the member's distributional interest. See Section 701(a)(1). However, such a member retains the ability to seek a judicial dissolution of the company. See Section 801(a)(4).

If a member's power to withdraw by express will is not eliminated in an operating agreement, the withdrawal may nevertheless be made wrongful under subsection (b). All dissociations, including withdrawal by express will, may be made wrongful under subsection (b)(1) in both an at-will and term company by the inclusion of a provision in an operating agreement. Even where an operating agreement does not eliminate the power to withdraw by express will or make any dissociation wrongful, the dissociation of a member of a term company for the reasons specified under subsection (b)(2) is wrongful. The member is liable to the company and other members for damages caused by a wrongful dissociation under subsection (c) and, under subsection (d), the damages may be offset against all distributions otherwise due the member after the dissociation. Section 701(f) provides a similar rule permitting damages for wrongful dissociation to be offset against any company purchase of the member's distributional interest.