When Deciding Whether to Judicially Dissolve an LLC, the Court May Find the “Purpose” of the LLC to Be Different Than What Is Stated in the LLC Agreement
Although it occurs less often than dissolutions based on deadlock, the Delaware Court of Chancery may also dissolve an LLC “where the defined purpose of the entity was fulfilled or impossible to carry out.” In re Seneca Invs. LLC, 970 A.2d 259, 263 (Del. Ch. 2008). This basis for judicial dissolution begs the question: how is the “purpose” of the entity defined? In the recent case of Meyer Natural Foods LLC v. Duff, 2015 WL 3746283 (Del. Ch. June 4, 2015), the Court of Chancery found that its analysis of an LLC’s purpose should not, necessarily, be limited to what the LLC agreement identified as the purpose. Although the Court acknowledged that a purpose clause is of “primary importance,” it went on to determine that the purpose clause is not the only evidence the Court may consider, even where the purpose clause is unambiguous and the LLC agreement contains an integration clause. In particular, the Court considered other agreements executed by the members of the LLC around the same time as the LLC agreement in determining the purpose of the LLC. This article examines: 1) the pre-Meyer case law limiting the LLC’s purpose to that defined in the LLC agreement; 2) the facts and holdings of Meyer; and 3) the lessons taught and questions raised by Meyer.
This article was originally published in the American Bar Association Business Law Section's "Business Law Today."