Reed Smith Client Alerts

With the recent downturn in the U.S. and world economies, many companies are facing hardships that could result in dissolution. A recent decision from the Delaware Court of Chancery demonstrates the often overlooked, albeit difficult, remedy of equitable dissolution.1

Statutory dissolution is available to all entity types in Delaware, including LLCs.2 Delaware’s LLC Act identifies certain circumstances under which a Delaware LLC can be statutorily dissolved and its affairs wound up.3 Among those circumstances is the entry of a decree of judicial dissolution under 6 Del. C. Section 18-802, which allows a “member or manager” of the LLC to seek an order from the Court of Chancery dissolving the LLC.4

In addition to these statutory bases for dissolution, the Delaware Court of Chancery has the equitable power to dissolve entities, including an LLC where a non-member or non-manager plaintiff lacks standing to seek dissolution under the LLC Act.5 The court views “any form of judicial dissolution as a ‘limited remedy that [should be] grant[ed] sparingly.”’6 When a non-member or non-manager plaintiff seeks equitable dissolution, they must “explain” in a “convincing manner” why the court should “invoke equitable principles to override the plain language” of the LLC Act and the relevant LLC agreement.7