When you built your LLC with a co-member, you assumed a baseline of good faith. When that breaks down through self-dealing, financial misappropriation or deliberate exclusion from the business, California law gives you tools to fight back. Knowing where the law stands gives you the foundation to act decisively.
What duties LLC members owe each other
When all members share in running the business, each one owes the others two core obligations to the business and to each other.
The loyalty obligation requires members to act in the LLC’s interest, avoid competing with it and refrain from personal dealings that conflict with it. The care obligation requires members to act responsibly and avoid conduct that is reckless, intentionally harmful or in knowing violation of the law.
When a manager runs the business instead, only that manager carries these obligations by default. However, if your operating agreement specifically states that members owe these duties to each other, those terms are still enforceable under California law.
Common ways LLC partners breach those duties
Most breaches do not happen overnight. They develop over time as one member works to gain the upper hand. Common scenarios include:
- Self-dealing: Entering into transactions that personally enrich one member while shortchanging the company.
- Diverting business opportunities: Steering contracts or clients into a competing venture.
- Misappropriating funds: Making unauthorized withdrawals or using company assets for personal expenses.
- Blocking access: Refusing to share financial records or excluding a co-member from management decisions.
- Improper competition: Operating a competing business while still owing obligations to the LLC.
Recognizing these patterns early gives you a better chance of preventing the damage.
What legal remedies are available to you
California law provides several meaningful remedies when a co-member violates these obligations:
- Claim for financial harm: You can sue for damages, including profits the other member wrongfully obtained.
- Judicial dissolution: A court can order the LLC dissolved when a co-member’s conduct makes it unreasonable to continue operating.
- Court-ordered buyout: To avoid dissolution, the LLC or members holding 50% or more of the voting interests may elect to buy out the petitioning member at fair market value under court supervision. In practice, the threat of dissolution often forces a fair negotiation.
- Injunctive relief: If harmful conduct is ongoing, you can ask a court to step in and stop it immediately.
Which remedy makes the most sense depends on your goals, the severity of the breach and how quickly you need relief.
Taking action before the damage gets worse
Every day a breach continues, more assets can be diverted and more records can disappear. Preserve financial records and communications early and move before the other side has time to restructure assets or strengthen their position.
If you are an LLC member in California and a co-member is undermining the business, speaking with a business litigation attorney early in the process can make a significant difference in the outcome.