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Ask a Lawyer -- LLCs
LLC Question 134
Question:
I am member of a 3 member LLC in Virgina. One of the members attempted to buy out my share and the other members share. The other member and myself declined. Our operating agreement states nothing about dissolving the business. Two thirds of the business members do not want to dissolve the business but the the remaining one third does. Can the one third minority owner force the company to dissolve?
Response: I read your question to be whether an LLC member owning a minority interest can cause a Virginia LLC to be dissolved? Short answer: no. The general rule for dissolution of Virginia LLCs is found in Section 13.1-1046 of the LLC Act. It reads as follows:A limited liability company organized under this chapter is dissolved and its affairs shall be wound up upon the happening of the first to occur of the following events:
1. At the time or on the happening of any events specified in writing in the articles of organization or an operating agreement;
2. Upon the unanimous written consent of the members;
3. The entry of a decree of judicial dissolution under § 13.1-1047; or
4. Automatic cancellation of its certificate pursuant to § 13.1-1064.
Per your statement above, the LLC operating agreement does not discuss dissolution. All members do not consent to dissolution. Section 13.1-1064 deals with administrative dissolution for failure to pay the required annual fee to the state. Thus, the only possible option left is (3) above, judicial dissolution.
Section 13.1-1047, entitled "Judicial dissolution", reads: "On application by or for a member, the circuit court of the locality in which the registered office of the limited liability company is located may decree dissolution of a limited liability company if it is not reasonably practicable to carry on the business in conformity with the articles of organization and any operating agreement." It's a difficult burden of proof to show that it is "not reasonably practical to carry on the business." A typical situation fitting this description would be deadlock of LLC members. For example, if there were only two LLC members and they violently opposed each other on the future direction of the business. Where a majority of the LLC members agree on direction, there is no management deadlock. Another example would be where the purpose for which the LLC was formed per the articles of organization or operating agreement became no longer feasible (i.e., business formed to fish salmon then salmon later declared an endangered species which cannot be commercially fished). I don't see the hint of grounds for judicial dissolution in the facts given above and find it hard to believe that the proponent of dissolution could develop them.
Submitted: 09/17/2007; Scott, Virginia
Response: 09/18/2007; JJR
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