Section 603. Effect of Member's Dissociation

(a) Upon a member's dissociation:

(1) in an at-will company, the company must cause the dissociated member's distributional interest to be purchased under [Article] 7; and

(2) in a term company:

(i) if the company dissolves and winds up its business on or before the expiration of its specified term, [Article] 8 applies to determine the dissociated member's rights to distributions; and

(ii) if the company does not dissolve and wind up its business on or before the expiration of its specified term, the company must cause the dissociated member's distributional interest to be purchased under [Article] 7 on the date of the expiration of the term specified at the time of the member's dissociation.

(b) Upon a member's dissociation from a limited liability company:

(1) the member's right to participate in the management and conduct of the company's business terminates, except as otherwise provided in Section 803, and the member ceases to be a member and is treated the same as a transferee of a member;

(2) the member's duty of loyalty under Section 409(b)(3) terminates; and

(3) the member's duty of loyalty under Section 409(b)(1) and (2) and duty of care under Section 409(c) continue only with regard to matters arising and events occurring before the member's dissociation, unless the member participates in winding up the company's business pursuant to Section 803.

Comment

Member dissociation is not an event of dissolution of a company unless otherwise specified in an operating agreement. See Section 801(a)(1). Dissociation from an at-will company that does not dissolve the company causes the dissociated member's distributional interest to be immediately purchased under Article 7. See Comments to Sections 602 and 603. Dissociation from a term company that does not dissolve the company does not cause the dissociated member's distributional interest to be purchased under Article 7 until the expiration of the specified term that existed on the date of dissociation.

Subsection (b)(1) provides that a dissociated member forfeits the right to participate in the future conduct of the company's business. Dissociation does not however forfeit that member's right to enforce the Article 7 rights that accrue by reason of the dissociation. Similarly, where dissociation occurs by death, the decedent member's successors in interest may enforce that member's Article 7 rights. See and compare Comments to Section 503(e).

Dissociation terminates the member's right to participate in management, including the member's actual authority to act for the company under Section 301, and begins the two-year period after which a member's apparent authority conclusively ends. See Comments to Section 703. Dissociation also terminates a member's continuing duties of loyalty and care, except with regard to continuing transactions, to the company and other members unless the member participates in winding up the company's business. See Comments to Section 409.