The Importance of a Dissolution Clause in Your LLC Agreement

A recent case out of Delaware highlights one potential pitfall of overlooking key aspects that should be included in an LLC agreement. In the case, the business owners agreed to dissolve the business, but disagreed on how that dissolution should be carried out. One party wanted a private auction while the other wanted a public one.

The Delaware Court of Chancery ruled in favor of a private auction. A Delaware litigation blogger described the decision this way:
“The parties could have made provision in their LLC agreement to address how exactly they wanted a dissolution or an auction to occur, but the court found that nothing in the LLC agreement was relevant to determining how the auction should take place. Throughout 42 pages, an average length for a Chancery opinion, the court explained why a private ‘English-style’ open ascending auction, also called an open outcry auction, must be held within 30 days, with the opening minimum bid starting at $77 million in cash.”
As illustrated above, you must consider your exit strategy when establishing your business. You might think now that you and your partners will be happily in business together for the long haul, but it is always in your best interest to plan for all contingencies and to be prepared.
As you write your LLC agreement, protecting yourself, your business and your intellectual property should all be top-of-mind. The advice of a skilled business law attorney can save you time and frustration now, as you write the agreement, and later as any disputes arise.
To learn more about our business entity formation and agreement legal services, visit EmergeCounsel online.