Legal Question in Business Law in California

When an LLC files dissolution papers with the Secretary of State, the LLC switches from a business-as-usual mode to a going-out-of-business mode. It does not cease to exist, It is supposed to wind up its affairs by liquidating its assets, paying its liabilities, distributing the balance (hopefully it is positive!) to the owners, and performing such other acts as are appropriate to an orderly shutting down. This process may take years, and in theory could go on in perpetuity. See Corporations Code sections 17350-17357, especially 17354, and with respect to what happens when dissolution papers are filed but the LLC in fact continues to operate normally instead of winding up its affairs, section 17357.

As to the operating agreement: This is a contract between the members of the LLC, and whether and to what extent it is affected by the filing of a certificate of dissolution would be determined by what the agreement says....as a very general rule, the agreement will remain in full force and effect.

It is of course entirely possible that events going on with this LLC have resulted in one or another of the members being in breach of the agreement. If there have been breaches, then someone may have a right to sue someone else for those breaches.

If this LLC has significant assets or liabilities, maybe the members and managers should get legal advice about their rights and responsibilities, including payment of the franchise tax and how to wind up a business lawfully.

A review of the agreement would be necessary to determine whether it addresses termination; however, a cursory review of the facts you present would present an argument that the conduct of the parties after dissolution reflected the intent that the operating agreement should continue regardless of the underlying LLC's existence in corporate form.

If you would like me to review the agreement and provide you with my thoughts, please feel free to contact me.

Regards,

Bryan

Becker Attorneys

Your Lawyer for Life

877.201.8728

[email protected]

One other thought occurred to me.....the statute of limitations for suits based on a written contract is four years from the date of the breach.

The answer depends on the side that you are on -- if the operating agreement is favorable to you, you could file documents to formally "continue" the LLC past the date of dissolution; that would arguably fully reinstate the terms of the operating agreement, and you could proceed against your partners on that basis. If you want the terms of the agreement ignored, you could argue that the LLC was dissolved and the owners continued business under a partnership, without a partnership agreement, and the terms of the LLC operating agreement don't apply. You can email me with further questions at [email protected]

The answer depends on which side you are on. I would not give advice without looking closely at the facts, little details of which want to be material. Let me know if you want my help. I dont practice philosophy - I protect my clients' interests.

Daniel Bakondi, Esq. [email protected] 415-450-0424

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