What to Do with an LLC with No Members

iStock-1288715721-300x181Generally, an Indiana limited liability company that has no members is dissolved. Ind. Code § 23-18-9-1.1(c). (For an interesting case from Alabama involving the dissolution of an LLC for lack of members, see our Indiana Law Blog article, Family Businesses:  Succession Planning for LLCs.) Although that provision is in the chapter entitled “Voluntary Dissolution,” it is really not voluntary at all. It is really a statutory dissolution that occurs automatically, and it can be triggered by several different events that result in the dissociation of a sole, or last remaining, member.

There are, however, two exceptions to the statutory dissolution of an LLC with no members. First, the LLC will not be dissolved if the operating agreement provides specifically for the admission of a member after the dissociation of a sole or last remaining member, and a member is actually admitted under that provision within 90 days of the first date the LLC had no members. In our experience, very few operating agreements contain such a provision.

The second exception applies if the reason the LLC has no members is the death of the sole or last remaining member.  In that case, the LLC is not dissolved if the operating agreement provides for the member’s personal representative, or the personal representative’s designee, to be admitted as a member and that person is admitted within 90 days of the member’s death.  See Ind. Code 23-18-6-5(a)(4).  Again, it is safe to say that few operating agreements have such provisions.  Moreover, even if one exists, there is a significant possibility that no member will be appointed before the 90 day window closes.

There are other ways an LLC might find itself with no members. One example relates to LLC members that are, themselves, entities such as corporations or LLCs. The LLC statute provides that such a member is dissociated from the LLC (i.e., ceases to be a member) upon its dissolution.  See Ind. Code 23-18-6-5.  Therefore, an LLC that is the wholly owned subsidiary of a corporation or LLC is statutorily dissolved when its parent is dissolved.

When an LLC dissolves, it does not cease to exist. Instead, it may continue to operate but only to the extent necessary to wind up and liquidate its business and affairs. Ind. Code 23-18-9-3. Ordinarily, the members or managers have authority to wind up and liquidate the company’s business and affairs, Ind. Code 23-18-9-4(1), but if there are no members or managers, the only alternative is for a member’s personal representative or a person who owns interest in the company (called an assignee) to apply to a circuit or superior court to wind up the business and liquidate the company, Ind. Code 23-18-9-4(2). The statute does not provide a mechanism to return to good standing an LLC that is statutorily dissolved for the lack of members. Applying to a court for liquidation is the only alternative.

Unfortunately, the Business Flexibility Act authorizes a court to liquidate the company, but it does not specify a procedure for doing so. When our firm recently faced that question, we requested the court to appoint a liquidator under Ind. Trial Rule 66. The court granted the request, and, after selling the company’s assets and paying its debts, the liquidator published a notice of liquidation under Ind. Code § 23-18-9-9 to bar any unknown claims.

One final observation: As noted above, an LLC is dissolved if its sole member is dissolved, even if the dissolution is administrative. Although there is a mechanism for the reinstatement of the administratively dissolved parent, there is no provision for reinstatement of the subsidiary that is statutorily dissolved as a result of its parent’s administrative dissolution and no express provision for readmitting the reinstated parent as a member of the subsidiary. Thus, as far as we know, the only recourse is judicial liquidation described above.

If you are associated with an LLC that faces a problematic situation, please feel free to contact Harshman Ponist’s business attorneys by calling 317-964-6000 or submitting an inquiry through this website.

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