Delaware's Answer to Management Deadlock in the Limited Liability Company: Judicial Dissolution

Summary

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The combination of corporate and partnership forms in a limited liability company (LLC) has appealed to many entrepreneurs and has caused the LLC form not only to emerge as an alternative business governance structure, but also to explode as a favored corporate regime. This Note will explore an unsettled area of law for LLCs -- the possibility of judicial dissolution. Part II of this Note will discuss the purposes behind the provisions of the Delaware Limited Liability Company Act and introduce the focus of this Note, the contentious case of Haley v. Talcott. Part III will discuss the corporate deadlock problem faced by the parties in Haley and try to explain the basis for the court's decision. Part IV will discuss what the case suggests for future Delaware LLCs and Delaware courts facing disputes involving LLC judicial dissolution. In cases where equity considerations override the "freedom of contract" policy, the court should be willing to order dissolution.

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Delaware's Answer to Management Deadlock in the Limited Liability Company: Judicial Dissolution

I. INTRODUCTION

The combination of corporate and partnership forms in a limited liability company (LLC) has appealed to many entrepreneurs and has caused the LLC form not only to emerge as an alternative business governance structure, but also to explode as a favored corporate regime.1 Delaware adopted its first LLC statute in 1992, and over 150,000 Delaware LLCs formed in the following decade.2 By 1996, tens of thousands of LLCs had been formed and all fifty-one United States jurisdictions had adopted LLC statutes.3

LLC statutes have been enacted and amended quite rapidly since the adoption of the first LLC statute. The LLC has evolved into more of a distinct form and less of a hodgepodge of existing corporate and limited partnership rules.4 However, the LLC is still a relatively new governance regime when compared to the partnership structure, which existed as a common law form of organization long before the first limited partnership statute had been adopted in 1822.

There is currently very little case law interpreting LLC statutes or agreements, but the entity's rising popularity will cause litigation involving LLC agreements and statutes to increasingly appear before the courts. It is uncertain whether or not a unique LLC jurisprudence will develop, but courts will undeniably look to existing forms-general or limited partnerships or corporations-and apply the rationale and principles behind them to disputes involving LLCs.5 Indeed, the Delaware Limited Liability Company Act draws on many of the provisions of Delaware's well-accepted limited partnership statute, the Delaware Revised Uniform Limited Partnership Act, and the Delaware General Corporation Law.6

This Note will explore an unsettled area of law for LLCs-the possibility of judicial dissolution. Part II of this Note will discuss the purposes behind the provisions of the Delaware Limited Liability Company Act and introduce the focus of this Note, the con...

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