HOW TO DISSOLVE A LIMITED LIABILITY COMPANY IN CONNECTICUT

Limited Liability Companies in Connecticut, and every other state, are created by statutory law. General Statutes Title 34 governs the creation and governance of LLC’s in Connecticut. Specifically, General Statutes sections 34-206 sets forth the means of dissolving an LLC. The LLC may be dissolved by:

  1. At the time or upon the occurrence of events specified in writing in the articles of organization or the operating agreement;
  2. If not provided in writing under #1, then by affirmative vote, approval, or consent of at least a majority in interest of the members; or
  3. By the entry of a judicial decree of dissolution.

The operating agreement for an LLC is the document the members execute to govern the affairs of the LLC. Many times they are drafted by an attorney. Operating agreements are not required. However, they are a good idea for a variety of reasons, including the issue of dissolution. It is also a good idea to have an attorney draft the operating agreement rather than resorting to Legalzoom. I have seen many instances of operating agreements from Legalzoom that simply do not cover the likely problems members of an LLC face when there is more than one member.

If members of an LLC do not have an operating agreement that defines how the company may dissolve and wind up its affairs, then by law the decision is controlled by General Statutes. This essentially means a majority vote can dissolve the LLC.

I recently came across an operating agreement for an LLC that covered many aspects of the affairs of the LLC, but it left out dissolution. As such, the members of the LLC faced a situation where a super majority (two thirds in this case) was required to permit a transfer of interest, but a simple majority would suffice for dissolution. The minority members had bargained for some ability to have input on transfer of interests, but neglected to address dissolution. The failure to address it in the operating agreement in this particular circumstance provided leverage for the holder of the simple majority interest.

If a member desires to dissolve an LLC but does not have majority control, or the required interest necessary under an operating agreement, then the last resort is what is called “judicial dissolution.” Under General Statutes section 34-207, a trial court in Connecticut can grant an application to dissolve an LLC “whenever it is not reasonably practical to carry on the business in conformity with the articles of organization or operating agreement.” Again, there is a specific reference by the legislature to the operating agreement. A member moving for dissolution likely needs to show the trial court that the other members are not carrying on the business in accordance with the governing document for the LLC.

One circumstance where a trial court likely will grant dissolution is where the members are in a deadlock. Deadlock tends to happen when the voting interests of the LLC are equal (i.e. 50/50 ownership) and there is no ability to break the deadlock. You see deadlocks mostly when there are two or more partners and the interests are divided equally such that the opposing sides have equal interests. If a dispute occurs, and the members did not address a means of breaking a deadlock in the operating agreement, then a member can seek to file a lawsuit in superior court requesting that the court dissolve the LLC.

Once an LLC is dissolved the company must wind up its affairs. The person winding up the affairs of the LLC may prosecute or defendant lawsuits on behalf of the LLC, settle and close business, dispose of and transfer property, discharge the liabilities of the LLC, and distribute any remaining assets. In the event of a lawsuit for or against an LLC, an attorney will be necessary to represent the LLC. The LLC essentially continues to exist during its winding up phase and can bring a lawsuit or face a lawsuit. Winding up may also require the LLC to make adequate payments to creditors followed by debts owed to the members and/or return of capital to the members. Winding up may also be addressed in the operating agreement.