Thursday, May 1, 2008

Indiana Law on Judicially Dissolving a Limited Liability Company

Indiana has no case law on dissolving a limited liability company. The statute setting the procedure for judicially dissolving a LLC is IC 23-18-9-2:

On application by or for a member, the circuit or superior court of the county in which the limited liability company's principal office, or if there is none in Indiana, in which the registered office is located, may decree dissolution of the limited liability company whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.
Which made Judicial Dissolution of the Unprofitable LLC from New York Business Divorce Blog very interesting. New York's statute parallels Indiana's 23-18-9-2 without any significant differences and there is case law interpreting the statute.

Thinking over the argument regarding profitability as grounds for dissolution, I can see why the New York judges considered lack of profitability as grounds for dissolution but I think the argument against this position is the better one. I cannot think of any judges I am acquainted with having any experience in business. I can see them thinking that an unprofitable business equates to a failure of the operating agreement.

I see here a reference for us in Indiana for litigation purposes and a bit more. I read the following as something for us to think of when drafting a LLC operating agreement:
Profitability or the lack thereof, by itself, clearly is no basis to grant or deny dissolution, assuming the operating agreement itself does not set forth some measure of financial distress as ground for dissolution.