Dissolution of an LLC.

AuthorEllentuck, Albert B.
PositionLimited liability company

State limited liability company (LLC) statutes sometimes require a dissolution of the LLC upon the death, insanity, bankruptcy, or other involuntary removal of any member unless the other members consent to continue the LLC. This creates many issues involving member rights to property, liabilities after dissolution, and dissolution procedures. Dissolution can involve the completion of contracts, payment of creditors, sale of assets, collection or compromise of receivables, and any other act that helps the LLC marshal the assets for payment of creditors and distribution to the members. Procedures for concluding the affairs of the LLC should be included in the operating agreement.

Dissolution events

States may permit modification of the dissolution events listed in the statute (the statute for the state of organization should be reviewed to determine which dissolution events are included). LLC organizers may want to modify the type and number of dissolution events by including other provisions in the operating agreement. It may make sense to provide that some events (such as a member's death) do not constitute a dissolution event since avoiding continuity of life is no longer required to ensure partnership classification.

All LLC statutes permit an LLC to dissolve on an expiration date specified in the articles or operating agreement. This date should be far enough in the future to permit the LLC to accomplish its goals. Where state law permits, organizers should consider providing for an indefinite life. If an indefinite life is provided, some provisions for interim distributions and transfers of interests are necessary.

Notice

The operating agreement should provide for notice to all members and creditors of the LLC's dissolution. All state statutes have provisions for LLCs to provide notice upon actual dissolution. Many also require that notice be provided when a dissolution event occurs. Some state statutes have required notice systems involving mailing notice to creditors and/or publishing a notice of dissolution in newspapers. LLCs complying with the notice requirements generally are relieved from liability for any known or unknown debts after the passage of a designated period of time. The operating agreement should designate the members or managers responsible for filing the proper notices.

Ability to bind LLC during dissolution process

The operating agreement should limit the ability of managers or members to bind the LLC as a...

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