How To Dissolve an LLC After Your Partner Abandons the Company
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UPDATED: Feb 8, 2020
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Limited liability companies are a type of business structure allowed by state law, and therefore such types of companies, and the rights of their owners (referred to as members), are governed by state law. A definitive answer for this question depends on your state and its relevant business laws and regulations.
As a general matter, most states will allow a member of an LLC to seek a dissolution of an LLC if there are opposing interests between the members. However, if the members cannot work it out between themselves, the court will have to get involved. It will take legal action and a court order to do so. If you find yourself approaching a legal dispute with your current or former business partner over the dissolution, you should consult with an experienced business attorney as soon as possible. If you do not know an attorney, your local bar association will be able to provide a list of qualified attorneys. Note that you will need to meet whatever standard your state’s laws set for allowing dissolution.
Obviously, the most prudent course of action is to dissolve the LLC without having to go to court. Once you bring a legal action, the stakes are high. Full-blown litigation costs a great deal of time and money. Therefore, you should try to come to a resolution or agreement with your partner (the other LLC member). Some factors to consider include:
- Could you buy out his or her interest? If the business is small or not yet profitable, this might be in your best interest (and less expensive) than taking legal action.
- Conversely, if he or she would like to keep the business structure and the name, if there is not a lot of value to the company’s name (e.g., little good will), perhaps your partner would buy out your interest. You could then start a new business.
Note that in terms of buying out each other’s interest, if the company has debts, one way to buy out the other member is simply agree to take over or assume all the debts or obligations, allowing the other person off the hook. This doesn’t involve any cash out of pocket, and could be attractive if one of you believes the business has value and can support the obligations.
In the future, as part of creating any limited liability companies or other business structure, if you have any partners, you should draft a buy-sell agreement at the outset, delineating what happens if one person wants out and providing a mechanism for that event. At the planning stage of your LLC, retaining a a business lawyer would be most cost effective to prevent legal problems before the LLC runs into trouble.