My LLC Co-Owner Is Taking Company Money. What Can I Do in California?

When money leaves an LLC without a clear explanation, the natural reaction may be that a co-owner took money that was not theirs. Legally, the analysis starts somewhere else: was the transaction authorized?

California Corporations Code section 17701.10 gives an LLC's operating agreement substantial control over relations among members, managers' rights and duties, and how the LLC conducts its activities—subject to important statutory limits.¹

The operating agreement may address bank-account authority, member or manager compensation, distributions, expense reimbursement, member loans, voting thresholds, related-party transactions, and dispute procedures.

A payment that looks unusual may have been authorized. Someone may also have practical access to company funds without legal authority to use them personally. That is why the operating agreement usually comes first. Separate owner arrangements may raise the issues discussed in Can I Enforce a Verbal Business Agreement in California?

It depends partly on how the LLC is managed. In a member-managed California LLC, members owe statutory duties of loyalty and care. The duty of loyalty includes accounting to the LLC for property, profit, or benefits derived from LLC activity or use of LLC property.

That can matter if a member allegedly uses company money, property, or opportunities for an unauthorized personal benefit. But California law also says a member does not violate a duty merely because the member's conduct furthers that member's own interest. The transaction still has to be evaluated in context.²

The default rule is different for a manager-managed LLC. The principal statutory fiduciary duties generally apply to the manager or managers, not to every member simply because that person owns an LLC interest.

But the operating agreement can change the analysis. In Samuelian v. Life Generations Healthcare, LLC (2024) 104 Cal.App.5th 331, the Court of Appeal explained that an operating agreement may impose fiduciary duties on members of a manager-managed LLC even though those duties do not arise solely from membership under the statutory default rule.⁴

Determine whether the LLC is member-managed or manager-managed, whether the person involved is a manager, what the operating agreement says, and what transaction occurred. These are common issues in LLC and business-owner disputes.

This is one of the most important questions. Suppose a two-member LLC has $300,000 in its account and one owner allegedly transfers $100,000 into a personal account without authorization. The other 50% owner may understandably feel personally short $50,000. But the LLC may be the party directly missing $100,000.

California distinguishes between direct and derivative claims. A direct claim seeks relief for an injury suffered personally by the member. A derivative claim is brought by a member on behalf of the LLC because the LLC itself suffered the injury.

In PacLink Communications International, Inc. v. Superior Court (2001) 90 Cal.App.4th 958, the Court of Appeal held that claims based on alleged transfers of LLC assets without compensation were derivative because the direct injury was to the company.⁵

Likewise, Tuli v. Specialty Surgical Center of Thousand Oaks, LLC (2024) explains that corporate derivative principles apply to LLCs and that a claim seeking recovery of a company asset is ordinarily derivative in character.⁶

That distinction can determine who owns the cause of action, what pre-suit steps apply, and where any recovery goes. A member may still have a direct claim where an independent contractual, statutory, or individual right was violated.

California Corporations Code section 17709.02 imposes specific requirements on derivative claims. Among other things, the complaint generally must address the plaintiff's membership at the time of the challenged transaction and plead with particularity the member's efforts to obtain the desired action from the LLC's managers—or explain why that effort was not made.³

The statute also requires specified written notice concerning the underlying claims or delivery of the proposed complaint and contains additional procedural provisions, including potential security requirements.

California authority further recognizes a continuing-membership requirement. In Sirott v. Superior Court (2022) 78 Cal.App.5th 371, the Court of Appeal held that a former LLC member generally lacked standing to continue maintaining derivative claims after relinquishing its membership interest.⁷

A member should obtain legal advice before surrendering or selling an interest while a potential derivative claim is developing. A derivative lawsuit is not required in every ownership dispute.

California gives LLC members significant statutory information rights. Under Corporations Code section 17704.10, members may, for purposes reasonably related to their membership interest, request specified information and inspect and copy records the LLC is required to maintain.⁸

That can include categories such as ownership information, the operating agreement, tax returns, required financial records, and books and records concerning the LLC's internal affairs.

The statute also permits a court to enforce those information obligations. If a court finds an LLC's refusal was unjustified, it may award reasonable expenses, including attorney's fees, incurred in the enforcement proceeding.

Section 17704.10 does not independently say that every individual bank statement must be produced. Bank statements, general ledgers, transaction reports, invoices, expense records, and similar materials may be important evidence depending on the LLC's books, recordkeeping, and the scope of the lawful request.

Sometimes the issue becomes larger than one disputed payment. The owners may be deadlocked or commercially unable to work together.

Corporations Code section 17707.03 permits judicial dissolution under specified circumstances. Those include when it is no longer reasonably practicable to carry on the business in conformity with the governing documents; dissolution is reasonably necessary to protect the complaining member's rights or interests; management is deadlocked or subject to internal dissension; or persons controlling the LLC have engaged in or knowingly permitted persistent and pervasive fraud, mismanagement, or abuse of authority.⁹

Judicial dissolution is a significant remedy—not a routine threat. It can also produce a different outcome than the filing member expects. Other members generally may seek to avoid dissolution by purchasing the moving member's interest for cash at fair market value through the statutory procedure.

A dissolution filing may lead to a court-supervised buyout instead of closure. It does not promise a buyout or any particular result.

Not simply because you own part of the LLC. If the money belonged to the company, recovery on a derivative claim generally belongs to the LLC.

A direct claim may exist where the member personally suffered a distinct injury or an individual contractual or statutory right was violated. Examples may include a distribution allegedly owed directly to the member, breach of a separate agreement, conduct directed specifically at that member, or an individual right created by the operating agreement.

Classification depends on the injury and relief sought—not merely the cause-of-action label.

Preserve evidence before escalating the dispute. Gather the operating agreement and amendments, articles of organization, ownership and capital records, tax returns, accounting exports, financial statements, available transaction histories, invoices, expense documents, distribution and compensation records, member-loan records, and communications explaining the disputed transactions.

Then build a simple chronology: who moved the money, when, how much, what explanation was given, and what authority allegedly permitted it?

Do not alter company records, destroy data, drain accounts in retaliation, lock another member out of company systems without legal authority, or publicly accuse someone of criminal conduct based only on a disputed transaction.

The goal is to understand the evidence before deciding whether the appropriate response is a records demand, negotiation, formal demand, direct litigation, derivative litigation, a buyout discussion, or judicial dissolution. The likely expense may also matter when comparing negotiation with litigation; a separate Insight discusses how much business litigation may cost.

An LLC ownership dispute is rarely resolved by the withdrawal alone. The stronger questions are: Was the transaction authorized? Who owed a duty? Who owned the money? Who suffered the legal injury? And what remedy best protects the business or the member's ownership interest?

Sometimes the answer is a financial explanation. Sometimes it is a records demand. Other cases may require negotiation, litigation, a derivative claim, a buyout, or dissolution.

The right strategy depends on the documents, management structure, financial record, and commercial objective. Preventive work involving operating agreements and business governance can also help owners define authority before a dispute develops.