Requesting Dissolution of LLC Does Not Terminate Membership
Does seeking dissolution of a limited liability company (LLC) terminate a member’s ownership interest? And what does that have to with belly-dancing? Read on.
The Georgia LLC Act provides that a person ceases to be a member of an LLC he/she “files a petition or answer seeking for the member any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief . . . .” Code Section 14-11-601.1(b)(4)(D) A plain reading of the statute seems to indicate that, upon filing a complaint to dissolve an LLC, the plaintiff-member loses his/her member status. The Court of Appeals, however, recently clarified that the mere filing of a complaint to dissolve an LLC does not automatically result in the plaintiff’s loss of membership status. Crumpton v. Vick’s Mobile Homes, LLC, 779 S.E.2d 136 (Ga. Ct. App. 2015).
In that case, a brother and sister inherited membership interests in an LLC that owned a mobile home park. The sister claimed that the brother denied her access to the company’s financial books and records. The brother claimed, inter alia, that the sister “harassed, stalked, and threatened” tenants and “parked erratically while wearing indecent attire, fed numerous stray cats and raccoons, and “danc[ed] backward in a Michael Jackson moon-walking manner along the streets . . ., wearing a belly dancer costume, in an inappropriate and bizarre manner.” Id. (There’s your belly-dancer connection.)
The belly-dancing sister filed a complaint seeking, inter alia, dissolution of the LLC. Id. at 136. In response, the less expressive brother moved for judgment on the pleadings, arguing that the belly-dancing sister was no longer a member of, or otherwise associated with, the LLC. Relying upon a plain reading of the statute, the trial court granted the brother’s motion and held that the sister’s filing of the complaint operated to remove her from the LLC.
The Court of Appeals reversed, holding that although §14-11-601.1(b)(4)(D) lacks clarity, when interpreted using the canons of construction and when read together with applicable precedent, the result is that the mere filing of a complaint for dissolution does not automatically remove the filing member from the LLC. As the Court explained, “[u]nder appellant’s interpretation, one member could never seek the disassociation of another because the very act of doing so would disassociate the first member.” Id. at 137. The decision is significant because it frees LLC members who wish to disassociate to seek judicial dissolution without forfeiting their standing as members, and losing the contract and statutory rights that accompany membership.