Minnesota LLC Dissolution Distribution

 Minnesota LLC Dissolution Distribution

Minnesota LLC Dissolution Distribution

Minnesota LLC Dissolution – Events

While M.S. Chapter 322C does not define the term “dissolution”, M.S. § 322C.0701, Subd. 1 identifies the events which will cause the dissolution of a Minnesota limited liability company, by providing as follows:

322C.0701 EVENTS CAUSING DISSOLUTION.

Subdivision 1.   Dissolution events.

A limited liability company is dissolved, and its activities must be wound up, upon the occurrence of any of the following:

(1)     an event or circumstance that the operating agreement states causes dissolution;

(2)     the consent of all the members;

(3)     following the admission of the initial member or members, the passage of 90 consecutive days during which the company has no members;

(4)     on application by a member, the entry by appropriate court of an order dissolving the company on the grounds that:

(i)      the conduct of all or substantially all of the company’s activities is unlawful; or

(ii)      it is not reasonably practicable to carry on the company’s activities in conformity with the articles of organization and the operating agreement;

(5)     on application by a member, the entry by appropriate court of an order dissolving the company on the grounds that the managers, governors, or those members in control of the company:

(i)      have acted, are acting, or will act in a manner that is illegal or fraudulent; or

(ii)      have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant; or

(6)     on application by the attorney general in an action commenced pursuant to section 322C.0708, the entry by appropriate court of an order dissolving the company on grounds specified in section 322C.0708.

Minnesota LLC Distribution – Defined

M.S. § 322C.0102, Subd. 7 defines a Minnesota LLC distribution in the following manner:

Subd. 7.   Distribution.

Distribution,”

except as otherwise provided in section 322C.0405, subdivision 7,

means a transfer of money or other property

  • from a limited liability company
  • to another person
  • on account of a transferable interest.

Minnesota LLC Distribution – Not Compensation

M.S. § 322C.0405, Subd. 7 effectively identifies that reasonable compensation paid for services rendered to a Minnesota limited liability company is not a Minnesota LLC dissolution distribution, by providing as follows:

Subd. 7.   Compensation not distribution.

In subdivision 1, “distribution” does not include

  • amounts constituting reasonable compensation for present or past services or 
  • reasonable payments made in the ordinary course of business under a bona fide retirement plan or other benefits program.

Therefore, such payments are not subject to the proportional distribution rules to which a Minnesota LLC dissolution distribution is subject.

Minnesota LLC Dissolution – Transferable Interest

M.S. § 322C.0102, Subd. 28 defines the term transferable interest – in the following manner:

Subd. 28.  Transferable interest.

Transferable interest” means the right,

  • as originally associated with a person’s capacity as a member,
  • to receive distributions from a limited liability company in accordance with the operating agreement,
  • whether or not the person remains a member or continues to own any part of the right.

Minnesota LLC Dissolution Distribution – After Debt Discharge

M.S. § 322C.0707, Subd. 1 identifies that a Minnesota limited liability company must discharge any unpaid liabilities before making a Minnesota LLC dissolution distribution to a member upon dissolution of a Minnesota limited liability company, by providing as follows:

Subdivision 1.   Application of assets to discharge obligations.

In winding up its activities, a limited liability company must apply its assets to discharge its obligations to creditors, including members that are creditors.

Minnesota LLC Dissolution Distribution – Surplus

M.S. § 322C.0707, Subd. 2 identifies that any surplus remaining after the payment of a Company’s obligations must be distributed to members upon dissolution of a Minnesota limited liability company, in the following order:

  1. Return of contributions made by the members, and
  2. An equal distribution of the remaining assets,

by providing as follows:

Subd. 2.   Distributions of surplus.

After a limited liability company complies with subdivision 1,

any surplus must be distributed in the following order,

subject to any charging order in effect under section 322C.0503:

(1)     to each person owning a transferable interest that reflects contributions made by a member and not previously returned, an amount equal to the value of the unreturned contributions; and

(2)     in equal shares among members and dissociated members, except to the extent necessary to comply with any transfer effective under section 322C.0502.

Minnesota LLC Dissolution Distribution – Charging Orders

M.S. § 322C.0503 Subd. 1 and Subd. 2 identify the effect of a charging order on a transferable interest upon dissolution of a Minnesota limited liability company, by providing as follows:

Subdivision 1.   Charging order against transferable interest.

On application by a judgment creditor of a member or transferee,

a court may enter a charging order

  • against the transferable interest of the judgment debtor
  • for the unsatisfied amount of the judgment.

A charging order

  • constitutes a lien on a judgment debtor’s transferable interest and
  • requires the limited liability company to pay over to the person to which the charging order was issued any distribution that would otherwise be paid to the judgment debtor.

Subd. 2.   Charging order effectuation.

To the extent necessary to effectuate the collection of distributions pursuant to a charging order in effect under subdivision 1, the court may:

(1)     appoint a receiver of the distributions subject to the charging order, with the power to make all inquiries the judgment debtor might have made; and

(2)     make all other orders necessary to give effect to the charging order.

Minnesota LLC Dissolution Distribution – Proportionate Distributions

M.S. § 322C.0707, Subd. 3 identifies the manner in which a Minnesota LLC dissolution distribution is to be made to a member upon dissolution – in the event there is not sufficient funds to return all of the contributions made by the members – by providing as follows:

Subd. 3.   Proportionate distribution.

If a limited liability company does not have sufficient surplus to comply with subdivision 2, clause (1), any surplus must be distributed among the owners of transferable interests in proportion to the value of their respective unreturned contributions.

Minnesota LLC Dissolution Distribution – Form of Distributions

M.S. § 322C.0707, Subd. 4 identifies that a Minnesota LLC dissolution distribution which is to be made to a member must be paid in cash, by providing as follows:

Subd. 4.  Form of distribution.

All distributions made under subdivisions 2 and 3 must be paid in money.

Conclusion;

Minnesota LLC Dissolution Distribution

Please contact Minnesota Attorney Gary C. Dahle for legal assistance with respect to any Minnesota LLC dissolution distribution.

Legal fees will be applicable for services rendered – and advance payment may be required.

Minnesota LLC Articles of Organization

Minnesota LLC Board Management

Minnesota LLC Contributions

Minnesota LLC Dissociation

Minnesota LLC Dissolution

Minnesota LLC Distribution

Minnesota LLC Governance

Minnesota LLC Members

Minnesota LLC Operating Agreements

Minnesota LLC Transferable Interest

Copyright 2017 – All Rights Reserved.

No claim to original government works.

Gary C. Dahle – Attorney at Law

2704 County Road 10, Mounds View, MN 55112

Phone: 763-780-8390  Fax: 763-780-1735

Gary@dahlelaw.com

Minnesota Secretary of State

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