Friday, May 5, 2017

DISSOLVING AN LLC


If there is no operating agreement which covers disputes among members, it is Section 702 of the Limited Liability Company Law which governs. Matter of 47th Rd. LLC, 2017 NY Slip Op 30607 - NY: Supreme Court 2017:

"Section 702 of the LLCL provides for dissolution of a limited liability corporation under the following circumstances:
On application by or for a member, the Supreme Court in the judicial district in which the office of the limited liability company is located may decree dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement. A certified copy of the order of dissolution shall be filed by the applicant with the Department of State within 30 days of issuance. . .
Under Section 702 of the Limited Liability Company Law ("LLCL"), the Supreme Court in the judicial district in which the office of the company is located may, on application by or for a member, decree dissolution of the company "whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement." LLCL $702.

The Operating Agreement, in Article II, states only that the company is formed for "any lawful business purpose." The standard operating agreement, in Article 6, provides that the company shall be dissolved and its affairs wound up upon the first to occur of the following: a the latest date on which this company is to dissolve, if any, as set forth in the articles of organization, or by a judicial decree pursuant to section 702 of the New York limited liability company law.
In determining applications for a judicial dissolution of a limited liability company, the court must first look to such company's operating agreement to determine "whether it is or is not reasonably practicable for the limited liability company to continue to carry on its business in conformity with the operating agreement" (Matter of 1545 Ocean Avenue, LLC v Crown Royal Ventures, LLC, 72 AD3d 121 [2d Dept 2010]; see LLCL § 702). Considered a statutory "default provision" for judicial dissolution (see Man Choi Chiu v Chiu, 71 AD3d 646 [2d Dept 2010]), LLCL § 702 is available whenever the court finds that it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement. Appellate case authorities have instructed that the court's initial analysis is one that is contract-based because the statute mandates an examination of the articles and operating agreement to determine the reasonable practicability of carrying on the business in conformity with these governing documents (see Matter of 1545 Ocean Avenue, LLC v Crown Royal Ventures, LLC, supra; see also Matter of Shure v S&S Eatery LLC, 35 Misc.3d 1218(A), 2012 WL 1521915 (Sup. Ct., Nassau Co., 2012); Matter of Spires v Lighthouse Solutions, LLC, 4 Misc.3d 428, 436 [Sup. Ct., Monroe Co., 2004]).

Here, the general nature of the stated purpose in the Operating Agreement is vague; hence, it does not assist in determining the reasonable practicability of continuing the business. Normally, the LLCL would operate to fill in the voids (see Flax v Shirian, 44 Misc. 3d 1222(A), 3 N.Y.S.3d 284, 2014 N.Y. Misc. LEXIS 3679, 2014 NY Slip Op 51229(U), 2014 WL 4056810 [Sup. Ct. Suffolk Co. 2014]). However, the evidence adduced at the hearing makes it clear that the purpose of the company is to operate an eight-unit residential apartment building in an up and coming area of Queens County.

To successfully petition for the dissolution of a limited liability company under the "not reasonably practicable" standard imposed by LLCL § 702, the petitioning member must demonstrate, in the context of the terms of the articles of incorporation of the operating agreement, the following: 1) the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved; or 2) continuing the entity is financially unfeasible (see Matter of 1545 Ocean Avenue, LLC., v Crown Royal Ventures, LLC, supra; see also Doyle v Icon, LLC, 103 AD3d 440 [1st Dept 2013]). Disputes between members are alone not sufficient to warrant the exercise of judicial discretion to dissolve an LLC that is operates in a manner within the contemplation of it purposes and objectives as defined in its articles of organization and/or operating agreement (see eg. Matter of Natanel v Cohen, 43 Misc.3d 1217(A), 2013 NY Misc Lexis 2900 *12-13 [Sup. Ct. Kings Co. 2014]). It is only where discord and disputes by and among the members are shown to be inimical to achieving the purpose of the LLC will dissolution under the "not reasonably practicable" standard imposed by LLCL § 702 be considered by the court to be an available remedy to the petitioner (see Matter of 1545 Ocean, supra at 130-132; see also Matter of Sieni v Jamsfab, LLC, 2013 WL 3713604 *5, 2013 NY Misc Lexis 2900 *12-13, 2013 NY Slip Op 31473[U] *5 [Sup Ct, Suffolk County 2013]; Goldsein v Pikus, 2015 N.Y. Misc. LEXIS 2849, *1, 2015 NY Slip Op 31455(U), 1 [Sup. Ct. NY Co. 2015])."

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