What happens if LLC Members cannot agree?
In Virginia, a Limited Liability Company (LLC), may be dissolved for many reasons, but when there are irreconcilable differences between or amongst owners (members), judicial intervention may be the only remedy. A member may, in accordance with the operating agreement and articles of incorporation, petition a court of competent jurisdiction for dissolution. In order to dissolve a company, the court must determine that it is not reasonably practicable to carry on the LLC’s business.
Who can file a petition for LLC dissolution in Virginia?
Any member of the LLC can file a petition. Because members of an LLC are generally very invested in their stake of a company, these proceedings can get emotional and personal. In a case where one member suspects another member of misconduct, a petition can be filed to not only expel the member in question, but also dissolve the company. The court, however, must reach the conclusion that it is impracticable to continue conducting business.
In order to prevail on a suit for judicial dissolution in Virginia, you will need to show that the members are essentially deadlocked in the day-to-day operations of the business. It is not enough to show inconvenience or general annoyance between the members.
Can an LLC continue after judicial intervention?
There are cases when it is possible to eliminate a member or owner but continue doing business without hindering the business as a whole. In Dunbar Grp., LLC v. Tignor, 267 Va. 361 (2004), the Circuit Court for the City of Richmond, Virginia, expelled a member, but the LLC was not dissolved because the record did not show that it was not reasonably practicable to carry on the business without said member. This is sometimes an option if a member has committed fraud or waste.
It is often in the best interest of all members of an LLC if they can come to an agreement without the need for a final hearing. You are taking a risk anytime you put your case before a judge for a final decision. However, we recognize that members can sometimes make irrational demands in these types of LLC ownership disputes.
Dissolving a company can be complicated, time consuming and expensive if it goes all the way to trail. An experienced attorney can help to navigate the dissolution requirements and emotional burden of business litigation. Please contact our office if you suspect an owner/member of your business of malfeasance or if you have been named in a petition for dissolution.
Richmond, Virginia Business Attorney