What does it mean for a Limited Liability Company (“LLC”) to enter into “Dissolution” and/or “Winding-up?”
A Dissolution in relation to a LLC generally occurs when there is a change in the number or status of the Members of a LLC. Think of it like a Dissolution of Marriage. All the Members (i.e., owners) of a LLC are “married” in a sense in that they share ownership of a given company. When one leaves, the membership relation changes and the prior relationship dissolves.
While the Missouri LLC Act promotes the freedom of contract and maximum flexibility when it comes to LLC Operating Agreements, Missouri Statutes provide basic situations when dissolution occurs (if not provided otherwise in an OA). Dissolution can occur as the withdrawal of a member under RSMo 347.103. It can occur as a result of the death, incapacity, or assignment of a member’s interest under 347.117. And, in certain circumstances, the State may initiate involuntary LLC dissolution under 347.143 if a company has engaged in illegalities.
Dissolution is something that can be averted or allowed to continue. Usually an OA will have a provision stating that the remaining members of a LLC can stop a dissolution process if they agree otherwise. If, however, the dissolution continues there are several things that need to be followed, such as notices to all creditors and the proper reimbursement of capital contributions to any members.
The “winding-up” of a LLC is exactly what it sounds like. It’s when LLC members carry out actions not for the carrying on or the continuation of a business, but rather to settle its affairs and bring closure to the business. It’s the end game.
How dissolution and winding-up relate are that dissolution — a change in the relationship between members — will ultimately result in a winding-up — an end of the business — unless affirmative steps are taken otherwise. A LLC can go through several dissolutions and still run. It can’t go through several wind-ups and still run.