Hold the Vinegar on My Tacos: Why Breaking Up an LLC is Hard to Do.

Jeffrey B. Cullers 

Colorado, like most states, makes it fairly straightforward for married people to get a divorce. Under Colorado’s “Dissolution of Marriage” statutes, one must do little more than represent that the marriage is “irretrievably broken.” It generally does not matter who is at fault or if one of the spouses disagree that the marriage is broken. If you don’t have kids or a lot of property, you might even consider navigating the court procedure pro se (that is, without an attorney), and there are resources to help you do this. Connected issues, such as property division and child support, may be more controversial, but will almost certainly not get in the way of the divorce itself.

But suppose you have a different sort of partner – a business partner. You and a buddy start up a food truck called “Extreme Tacos” and begin selling awesome street tacos.  Together you formed a limited liability company (“LLC”), signed something called an “Operating Agreement” found online, and contributed your life’s savings to buy the truck. Business has been great.  The community is abuzz about the great food and you’re even selling T-shirts with your fluorescent logo of a house-sized taco parachuting toward a regular sized human being.  Life is good — and exhausting. 

But now, your buddy wants to start offering fish and chips at the truck. You disagree – people come to the truck for tacos, and there is simply no space in the truck to prepare British pub fare, too. That and – how extreme can fish and chips be??  Every day devolves into an argument and the conflict takes over your life. You want to sell the business and move on, but your partner disagrees and cannot afford to buy you out. You need a “business divorce.” You search for that section in the Colorado statutes entitled “Dissolution of Business,” but where is it?

In general, there are three basic ways for the owners of a limited liability company to end a business relationship: (1) the owners use a provision in the operating agreement designed for that purpose; (2) the owners make some other mutually-agreed arrangement; or (3) one owner seeks a judicial dissolution of the LLC. In the dispute involving Extreme Tacos, you think options (1) and (2) are impossible, so option (3) appears to be what you need – it allows a judge to grant a “business divorce” by dissolving the business. However, judicial dissolution of an LLC is not at all like dissolving a marriage. The proponent must prove an opaque point of legalese: that it is not reasonably practicable to carry on the business of the company in conformity with the operating agreement. Courts view judicial dissolution of a company as an extreme and rarely-granted remedy to business dysfunction. Also, the procedure is a full-blown lawsuit that few non-lawyers would be able to handle pro se.

The upshot: ending a business relationship between adversarial parties is not at all like ending a marriage. Judicial dissolution is much harder and potentially very expensive. The best way to deal with business dysfunction is to head it off at the beginning with a good operating agreement that plans for the whole life cycle of the business.

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