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Four Conditions that Can Lead to the Dissolution of a Limited Liability Company

April 25, 2013

Posted in Limited Liability Company Law, Partnership Law

IMG_0645When the investors or entrepreneurs set up a limited liability company (LLC) for their business ventures, most of the time they want the endeavor to be successful and lasting. However, there are times when the members will need to dissolve the business affairs of the LLC, either as the result of unforeseeable circumstances or for strategic reasons. The Corporations Code §17350 provides that an LLC shall be dissolved and its affairs wound up after the following events:

1.   At a Time Specified in the Article

During the formation of the LLC, if the investors specify that the LLC will only exist for a definite length of time or if there is a specific date for the termination of the LLC, the LLC may be dissolved when this date has been reached. This is sometimes done when a specific date for terminating an LLC is important to the investor. Before the expiration date, however, the investor can always change or delete this condition from the Article.

2.  Upon an Event Specified in the Article or Operating Agreement

In addition to reaching a specific time for dissolving an LLC, investors can also set a specific event to trigger this, designated either in the Article or the Operating Agreement. For example, the members of the LLC can state that when a specific real estate project is sold, completed, or developed, the LLC will be dissolved. This way, the members can be assured that the LLC they invested in will only serve that particular purpose, and they can always create a new one for a different purpose. This example pertains to real estate transactions. As to the LLC in different segments of business, the condition can be set upon a condition of certain gross sales or net profits being generated for a specific business. Almost any legitimate business purpose can be set as a condition.

3.  By the Majority Vote of the Members

The most obvious method for dissolving an LLC is when the majority of the members vote to dissolve the LLC. This right cannot be waived, and the Operating Agreement cannot withdraw the members’ right to vote on dissolution. However, the Operating Agreement can set a condition for the vote, such as to increase the vote from a majority to unanimity.

4.  Upon a Decree of Judicial Dissolution

An LLC can be dissolved when the court issues a decree of dissolution following certain circumstances, which we will explore in more detail in the blog next week. Basically, if a member of the LLC brings a court action for its dissolution, and the court agrees with the initiating member, the dissolution decree will be issued. Once with the member has such decree, the LLC can then be dissolved.

If you have any questions about dissolving an LLC, or if you are unable to dissolve your LLC because your partner does not agree with you, you need to consult with an experienced business litigation attorney who is familiar with this area of law. Call us today at (714) 415‑2007 to schedule an appointment, or contact us online via our secure contact request form to learn about your options.