Breach of an LLC Operating Agreement in California

Last updated: November 2026

A breach of an LLC operating agreement in California is a contract claim between members, or between a member and the company, for failing to do what the agreement requires. The operating agreement governs relations among the members and the rights and duties of a manager; where it is silent, the Corporations Code governs. (Corp. Code, § 17701.10, subds. (a), (b).) Kolmogorov Law, P.C. litigates operating agreement disputes for members and managers in Orange County, Los Angeles, and across California.

Call (909) 235-6116 or contact us online to discuss a co-member or manager who is ignoring the operating agreement.

What the operating agreement controls

The statute lists four subjects the agreement governs: relations among the members and with the company, a manager's rights and duties, the company's activities, and how the agreement is amended. (Corp. Code, § 17701.10, subd. (a)(1)-(4).) When the agreement does not address a question, the default statutory rules apply. (Corp. Code, § 17701.10, subd. (b).)

A detailed agreement answers most questions. A two-page template leaves the statute to decide, and its default answers can surprise the members. If your company never adopted an agreement at all, see our page on LLCs with no operating agreement.

Operating agreement breaches that come through the door

Distributions. The agreement promises distributions on a schedule or formula, and the manager stops paying, pays himself first, or reclassifies profit as "reserves" without authority.

Votes that never happened. The agreement requires member approval for borrowing, hiring a relative, selling assets, or admitting a new member, and the manager just does it. Under the default rules, a member-managed company decides ordinary-course matters by majority, and anything outside the ordinary course needs the consent of all members. (Corp. Code, § 17704.07, subd. (b)(3), (4).)

Capital contributions. A member commits to fund and stops funding, or demands a capital call the agreement does not permit.

Transfers. A member sells or pledges his interest to an outsider in violation of a right of first refusal or consent requirement.

Competition and side deals. A member or manager runs a parallel business, takes a company opportunity, or contracts with the company on terms he set himself. These are usually fiduciary breaches as well; see the fiduciary duty guide.

What the agreement cannot waive

Members can tailor almost everything, but a few lines are fixed. The agreement may not eliminate the duty of loyalty, although it may identify specific activities that do not violate it and may set a vote by which members can ratify a conflicted transaction after full disclosure. (Corp. Code, § 17701.10, subd. (c)(14).) It may not unreasonably reduce the duty of care. (Corp. Code, § 17701.10, subd. (c)(15).) It may not eliminate the obligation of good faith and fair dealing, though it may set standards for measuring it if they are not manifestly unreasonable. (Corp. Code, § 17701.10, subd. (c)(5).)

Nor may it vary the court's power to order judicial dissolution or the buyout procedure that lets the other members avoid it. (Corp. Code, § 17701.10, subd. (c)(7).) And any change to the fiduciary duties of a manager or a managing member must be in a written operating agreement adopted with the members' informed consent. (Corp. Code, § 17701.10, subd. (e).) Simply signing a form agreement does not count as informed consent.

The record access rules are also fixed, and any waiver of a member's inspection rights is unenforceable. (Corp. Code, § 17704.10, subd. (h).) Our page on being locked out of an LLC explains how to use them.

Member breach versus manager breach

Who owes what depends on how the company is managed. In a member-managed LLC, each member owes the company and the other members the duties of loyalty and care. (Corp. Code, § 17704.09, subd. (a).) In a manager-managed LLC, those duties fall on the managers, and a member owes no fiduciary duty solely by reason of being a member. (Corp. Code, § 17704.09, subd. (f)(1), (3).) Every member must still exercise rights and perform obligations consistently with good faith and fair dealing. (Corp. Code, § 17704.09, subd. (d).)

So a passive member in a manager-managed company who votes his interest selfishly may not have breached a fiduciary duty at all, though he may have breached the agreement. And a manager who breaches the agreement has usually breached a fiduciary duty too.

Deadlines and remedies

An action on a written operating agreement must be filed within four years of the breach. (Code Civ. Proc., § 337, subd. (a).) An oral or implied agreement gets two years. (Code Civ. Proc., § 339, subd. 1.)

Remedies start with damages and an accounting. Specific performance is available to compel a transfer, a vote, or delivery of records. Disgorgement and a constructive trust follow where the breach is also a fiduciary breach. A fee clause in the agreement shifts attorney fees to the prevailing party.

Structural remedies exist too. On application by the company, a court can expel a member who willfully or persistently committed a material breach of the operating agreement or of the statutory duties. (Corp. Code, § 17706.02, subd. (e)(2).) A majority of the members can remove a manager at any time without cause, subject to any service contract. (Corp. Code, § 17704.07, subd. (c)(5).) And a court can dissolve the company when it is not reasonably practicable to carry on the business in conformity with the articles or the operating agreement. (Corp. Code, § 17707.03, subd. (b)(1).) See removing an LLC manager.

Where these cases are heard

Operating agreement claims are filed in the Superior Court for the county where the company does business: the Central Justice Center in Santa Ana for Orange County companies and the Stanley Mosk Courthouse in Los Angeles.

What to bring to the first meeting

The articles of organization and the operating agreement with every amendment. The last three years of tax returns and K-1s. Capital account and distribution records. The communications that show the breach and any objection you made. If you are a manager accused of breach, bring the minutes, consents, or emails that show the approval you obtained.

Frequently asked questions

What happens if a member breaches the operating agreement?

The company or the other members can sue for damages, an accounting, or specific performance, and in serious cases the company can ask a court to expel the member for a willful or persistent material breach. (Corp. Code, § 17706.02, subd. (e)(2).) Expulsion ends the member's management rights but not the economic interest, which is addressed through the agreement or a buyout.

Can an operating agreement eliminate fiduciary duties?

Not entirely. It may not eliminate the duty of loyalty or unreasonably reduce the duty of care, though it may carve out specific activities and set a ratification vote. (Corp. Code, § 17701.10, subd. (c)(14), (15).) Any modification must be in a written agreement adopted with the members' informed consent. (Corp. Code, § 17701.10, subd. (e).)

Is an oral operating agreement enforceable in California?

In most cases yes, with a two-year limitations period and a harder proof problem. (Code Civ. Proc., § 339, subd. 1.) Terms are reconstructed from emails, tax filings, and how the members actually behaved. Where nothing was agreed, the statutory defaults control.

Does a manager breach the agreement by making a bad business decision?

Not usually. The duty of care is limited to refraining from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. (Corp. Code, § 17704.09, subd. (c).) A decision that turned out badly is not a breach unless it violated a specific term of the agreement or crossed that line.

Can I sue the LLC itself for breach of the operating agreement?

Yes, where the company is the party obligated, as with a distribution or buyout the company owes you. Where another member is the one who breached, the claim is against that member.

Talk to a California LLC dispute attorney

If a member or manager is violating your operating agreement, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is at 327 Magnet, Irvine, CA 92618, and represents LLC members and managers in Orange County, Los Angeles, and throughout California. See also our partnership dispute attorney page and the companion page on breach of a partnership agreement.

This page provides general information about California law and is not legal advice. Outcomes depend on the operating agreement, the facts, and the court.