In the haste and shoe-string budget constraints of starting a new business venture, partners often skip important parts of setting up a business entity, such as adopting an adequate written LLC operating agreement. After all, in a new business the focus is usually on survival, not the seemingly remote “what-ifs” of management conflict and exit planning, and partners usually get along well at the beginning of a business relationship. When business partners don’t get along anymore, or other circumstances lead to a split, this lack of planning can be a big problem. Happily, those who find themselves in this difficult situation now have some better options thanks to the Connecticut’s new LLC act, which went into effect on July 1, 2017.
The new act provides significant improvements over former Connecticut law with respect to member disputes. Under the old LLC act, if members could not come to terms for a member’s departure (and absent helpful provisions in the operating agreement such as a buyout provision), the only available remedy was applying to a court to dissolve the company. Dissolution of the LLC would often spell doom for the business venture; therefore, it was often not a viable option.
Under the new act, there are other and better remedies available when an LLC member becomes a problem. If a member asks a court to dissolve the LLC, the court can fashion a remedy other than dissolution that better fits the circumstances. For instance, the new LLC act permits members of an LLC to seek a court order to expel a member if the member has engaged in wrongful conduct that negatively impacts the company. In the hallmark case of Brennan v. Brennan Associates, which was argued and won by Carmody at the Connecticut Supreme Court, a problematic partner was expelled from the partnership instead of dissolving the entity. Thanks to the new LLC act, the same principles and remedies that applied to that partnership now apply to Connecticut LLC’s. Of course, a negotiated resolution is almost always the best solution, but if that isn’t possible, members of Connecticut LLCs have improved options to resolve a dispute.
Should you have any questions on navigating the new Connecticut LLC Act, please do not hesitate to contact Matthew H. Gaul or any member of our Business Services group.
Matthew H. Gaul
(203) 784-3106; [email protected]