Friday, January 18, 2008

Getting Out of An Indiana Limited Liability Company

So you got into a LLC and now you want to get out?

This could be a problem and the solution depends on a few things:

  1. Was the LLC set up before or after June 30, 1999?
  2. Is there an operating agreement?
  3. How does the member want to get out of the LLC?
If the member wants to withdraw from a LLC set up before June 30, 1999 that has an operating agreement, then the operating agreement controls. If this LLC has no operating agreement, then IC 23-18-6-6(b) gives us the answer.

But for a LLC set up after June 30, 1999, the following statute gives a different answer:
IC 23-18-6-6.1
Withdrawal of member; companies formed after June 30, 1999
(a) A limited liability company formed under this
article after June 30, 1999, is governed by this section.
(b) Unless otherwise provided in a written operating agreement, a
member may not withdraw from a limited liability company before the
dissolution and winding up of the limited liability company. A member may
withdraw from a limited liability company only at the time or upon the
occurrence of events specified in the operating agreement and in
accordance with the operating agreement.
Think about this for a moment: you cannot withdraw from a post June 30, 1999 limited liability company unless there is an operating agreement that allows for withdrawal or the dissolve the LLC. Dissolving an LLC is not so easy to do. Think about this as a very, very good reason for having an operating agreement. (You might want to take a look at my article Starting a LLC (Limited Liability Company), Attorney Fees, and Online Services for a bit more of a discussion about needing an operating agreement).

Before dissolving the company, the party wanting to get out may be able to assign their interest to another person. (see IC 23-18-6-3 - 3.1) An assignment means that one gives another person their interest in the LLC - usually for money. Which raises a practical problem of finding someone to take the assignment. With assignments, the statute allows them unless the operating agreement does not.

I think the topic of dissolving a LLC needs a post of its own, but the statutes covering the topic of voluntary dissolution are here.