Under the Delaware General Corporation Law (the “DGCL”), 8 Del. C. § 273 provides the basis for the dissolution of a deadlocked “joint venture” corporation, meaning that there are two 50/50 shareholders who cannot agree on whether to continue the company. Click here for a prior post from September 2013 discussing these actions. Also, see the Directors’ and Shareholders’ Reference Guide to Summary Proceedings in the Delaware Court of Chancery (see page 9 – 10).
The question becomes, how does the Court deal with deadlock amongst stockholders of an alternative entity, such as a limited liability company? The Delaware Limited Liability Act (“LLC Act”) does not have a provision similar to 8 Del. C. § 273 providing for the dissolution of a deadlocked LLC.
The Court has addressed this issue in prior opinions, and has analogized the situation to an application made under Section 273 of the DGCL for a judicial dissolution of a joint venture corporation. See Achaian, Inc. v. Leemon Family LLC, 25 A.3d 800, 812 (Del. Ch. 2011).
Therefore, similarly to a joint venture corporation, a petitioning shareholder must satisfy the following three prerequisites in order to obtain dissolution of an LLC with two deadlocked 50/50 shareholders:
- The LLC only has two shareholders, each owning 50% of the company.
- The shareholders cannot agree on whether to continue the LLC.
- A shareholder petitions the Court stating that it desires to discontinue the LLC and dispose of its assets in a plan to be agreed upon by both stockholders, or, if no plan can be agreed upon, then to dissolve the LLC.