Can a Member of an LLC Get a Refund Before the Dissolution of the Business?
If members of a limited liability company, or LLC, dissolve their business, it means they plan to terminate it. The members of the LLC must then wind up the business until the business ceases to exist. The Uniform Limited Liability Company Act establishes the steps that members of LLCs must follow when dissolving the business and winding up. A member can only get a refund following dissolution.
The dissolution of an LLC may be triggered by an event specified in the LLC’s operating agreement -- an event that makes it unlawful for the LLC to continue operating. Other triggers are the consent of the required number or percentage of members specified in the operating agreement, a judicial determination or decree or by reaching the end of the term specified in the operating agreement. The LLC then files articles of termination with the secretary of state where the business is based. While winding up the business affairs of the LLC, the LLC must pay its creditors before anyone else.
The LLC will use its assets to satisfy its credit obligations. First, the LLC must notify its creditors with known claims that it's planning to dissolve. The LLC must send notice detailing the information that a creditor must include in a claim, the address where the creditor must send the claim and the deadline for receipt of the claim; the notification should assert that the claim will be barred if not received by the date stated. For all other claims, the LLC must include everything required in the notice to known creditors in addition to publishing the notice in the newspaper. Only after paying these creditor claims may the LLC distribute payment to members. This includes refunds of capital contributions in addition to any profits earned. Members only receive refunds if money remains after paying creditors.
A member can collect his interest in the LLC by dissociating from the LLC. A number of events can cause a member to dissociate, including the member’s express will to dissociate, an event agreed upon in the operating agreement and expulsion by a unanimous vote of the other LLC members. The LLC must purchase the dissociated member’s distributional interest in the business for fair value when the member dissociates from an at-will company or a term company but does not trigger a dissolution and the winding up of the company.
The dissociated member’s distributional interest is not transferable. The member no longer owns part of the business, so he must sell his distributional interest to the LLC. This may not be a refund per se, but the member does get paid after disassociating under these circumstances. The LLC may offset this distributional interest for damages if the member wrongfully dissociated from the LLC.