Chapter 6: Dissolution and Winding Up
Causes of Dissolution:
Dissolution of a company can be forced by a court for a violation, initiated voluntarily by a decision of its members or as otherwise outlined in the operating agreement, or because the duration of the company has been reached. The code can impose any acceptable reasons for dissolution or leave it all to the operating agreement. A person who wrongfully causes dissolution of the company may lose any member or manager rights.
Some statutes provide that a company dissolves when any member dissociates, while others allow individual companies to decide whether or not dissociation will trigger dissolution. If the latter option is implemented, it is imperative that the statute make clear what is to happen upon dissociation in cases where the company has failed to outline such a process in the articles of organization.
Dissolution. A limited liability company wound up upon the happening of thea. The occurrence of events specified inb. The written consent of all members.c. An event of dissociation of a member, unless otherwise provided in articles of operation or continuation is consented to by all remaining members. d. Entry of a decree of judicial dissolution under Section 46. Winding Up:
Upon dissolution, the code may require certain actions in a particular order to protect vulnerable members and preserve fairness; at least a set of basic default rules should be adopted such as even apportionment or apportionment according to contribution, in the absence of any specified process in the operating agreement. Nearly all limited partnerships will choose to allocate profits and losses in order to comply with applicable tax, accounting, and other regulatory requirements.
DISTRIBUTION OF ASSETS IN WINDING UP LIMITED LIABILITY COMPANY’S ACTIVITIES. (a) In winding up its activities, a limited liability company must apply its assets to discharge its obligations to creditors, including members that are creditors.(b) After a limited liability company complies with subsection (a), any surplus must be distributed in the following order, subject to any charging order in effect under Section 503: (1) to each person owning a transferable interest that reflects contributions made by a member and not previously returned, an amount equal to the value of the unreturned contributions; and (2) in equal shares among members and dissociated members, except to the extent necessary to comply with any transfer effective under Section 502.(c) If a limited liability company does not have sufficient surplus to comply with subsection (b)(1), any surplus must be distributed among the owners of transferable interests in proportion to the value of their respective unreturned contributions. (d) All distributions made under subsections (b) and (c) must be paid in money. CLAIMS:
The code can protect creditors by forcing the company to pay its debts first before making any distributions after dissolution. A company may not be aware of all claims against it at the time of dissolution, so the statute should designate processes for dealing with known and unknown claims.
50. Known Claims Against Dissolved LLC.a. A dissolved LLC may notify its known claimants in writing of the dissolution and specify a procedure for making claims.b. A claim against the LLC is barred if:(1) A claimant who was given written notice under paragraph a, above, does not deliver the claim, in writing, to the LLC by the deadline specified in the notice.(2) A claimant whose claim is rejected by the LLC does not commence a proceeding to enforce the claim within ninety (90) days after receipt of the rejection notice.51. Unknown or Contingent Claims. A claim not barred under Section 50 may be enforced: a. Against the dissolved LLC, to the extent of its undistributed assets.b. If the dissolved LLC’s assets have been distributed in liquidation, against a member of the LLC, other than the Nation, to the extent of the member’s proportionate share of the claim or of the assets of the LLC distributed to the member in liquidation, whichever is less, but a member’s total liability for all claims under this Section may not exceed the total value of assets at the time distributed to the member. -5HCC03 §§50-51