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Legal Memorandum: Disassociation of an LLC's member

Issue: When may a limited liability company provide for the disassociation of one of its members?

Area of Law: Business Organizations & Contracts, Corporate & Securities
Keywords: Limited liability company; Disassociation of a member
Jurisdiction: New Jersey
Cited Cases: 926 A.2d 869
Cited Statutes: N.J.S.A. § 42:2B-24(b)(1), (2), § 42:2B-24(b)(3), § 42:2B-24(b)(4)(a), (c)
Date: 09/01/2007

New Jersey’s Limited Liability Companies statute provides that there are certain occurrences upon which “[a] member shall be deemed disassociated,” including “the member’s expulsion pursuant to the operating agreement” or “the member’s expulsion by the unanimous vote of the other members.”  N.J.S.A. § 42:2B-24(b)(1), (2).  A member also can be disassociated based on his or her expulsion.   “[O]n application by the limited liability company or another member, [a member will be deemed disassociated upon] the member’s expulsion by judicial determination.”  Id. at § 42:2B-24(b)(3).  Or, a member can be disassociated by, among other things, his or her death or “a judicial determination that the member has become incapable of performing the member’s duties under the operating agreement.”  Id. at § 42:2B-24(b)(4)(a), (c).  

There is very little case law construing § 42:2B-24.  Of the few reported cases in which the courts have construed the statute, the focus has been pinpointing the valuation date for purposes of buying out a member; in none did a member seek involuntary expulsion of another.  See Denike v. Cupo, 394 N.J. Super. 357, 926 A.2d 869 (App. Div. 2007) (addressing the issue of valuation of a member’s portion of company, after the member resigned, the member deemed himself disassociated, and the court subsequently deemed the member disassociated); Actives Int’l, LLC v. Reitz (N.J. Super. Ct. Ch. Div. June 16, 2006) (addressing valuation after the court deemed the defendant member preliminarily disassociated based on the members’ agreement); Actives Int’l, LLC v. Reitz, No. BER-C-239-05 (N.J. Super. Ct. Ch. […]

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