Business Life Cycles of an LLC

by Jeff Franco J.D./M.A./M.B.A.

All 50 states and the District of Columbia authorize the use of a limited liability company entity structure for businesses. A majority of these jurisdictions have adopted the guiding principles of the Revised Uniform Limited Liability Company Act, or RULLCA, which provides LLCs with a perpetual and indefinite life. Perpetual existence of the LLC entity applies irrespective of the presence of active business operations.

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LLC Formation

An LLC legally exists on the date your jurisdiction files the certificate of organization. A prospective owner -- called "member" -- or an organizer who has no interest in the business must draft and deliver the certificate of organization. The certificate must include the business's name, the address of its principal office and the contact information for the agent you authorize to accept legal service of process on behalf of the LLC. The state office responsible for filing the certificate will not do so until there's at least one LLC member. If there are no members at the time you deliver the certificate, you have 90 days to provide written notification that a member has acquired an interest in the LLC, otherwise the certificate becomes void.

Government Dissolution

The jurisdiction that authorizes the creation of the LLC also has the authority to dissolve it in limited circumstances. Dissolution occurs upon the passage of 90 consecutive days without a single member having an interest in the business. The respective government may also force dissolution if a member makes an application in the state court to do so. The member must show that the LLC regularly engages in illegal or fraudulent activities, or that controlling members are acting in a manner that damages the interest of other members. Most courts require the complaining member to show why there is no other solution to cure the problem other than dissolution.

Member Dissolution

LLC members may decide at any time to dissolve the LLC and cease all business operations. In the absence of an operating agreement providing directions on how to do so, states generally require the unanimous consent of all current members to effectuate dissolution. The operating agreement may also provide other events that automatically require dissolution when they occur. For example, the agreement may require dissolution if and when the number of current members is less than four. However, those remaining members are free to amend the operating agreement to avoid dissolution if there is unanimous consent.

Dissociation

Government regulations do not require the dissolution of an LLC when a member dissociates. However, the operating agreement may require the LLC to dissolve in the event a key member disassociates from the business and it becomes impractical or impossible to carry out business activities without that member. Once a member dissociates, the right to manage the LLC's business activities terminate immediately. The remaining members may unanimously agree to amend the operating agreement, voiding any clause requiring the dissolution.