Judicial Determinations

If you are in a partnership or have formed an LLC; members or partners seeking to expel a fellow member or partner can do so with an application to the Court. A well drafted opertating agreement or partnership agreement will spell out what circumstances allow for the members or partners to disassociate another member or partner. However, in such case that you have an agreement that does not provide the proper governance, you can turn to the Court.

46.Events Causing Dissociation. A person is dissociated as a member from a limited liability company when

a.The company has notice of the person’s express will to withdraw as a member, but, if the person specified a withdrawal date later than the date the company had notice, on that later date;

b.An event stated in the operating agreement as causing the person’s dissociation occurs;

c.The person is expelled as a member pursuant to the operating agreement;

d.The person is expelled as a member by the unanimous consent of the other members if:

(1)it is unlawful to carry on the company’s activities with the person as a member;

(2)there has been a transfer of all of the person’s transferable interest in the company, other than:

(a)a transfer for security purposes; or

(b)a charging order in effect under section 43 of this act which has not been foreclosed;

(3)the person is a corporation and, within 90 days after the company notifies the person that it will be expelled as a member because the person has filed a certificate of dissolution or the equivalent, its charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation, the certificate of dissolution has not been revoked or its charter or right to conduct business has not been reinstated; or

(4)the person is a limited liability company or partnership that has been dissolved and whose business is being wound up;

e.On application by the company, the person is expelled as a member by judicial order because the person:

(1)has engaged, or is engaging, in wrongful conduct that has adversely and materially affected, or will adversely and materially affect, the company’s activities;

(2)has willfully or persistently committed, or is willfully and persistently committing, a material breach of the operating agreement or the person’s duties or obligations under section 39 of this act; or

(3)has engaged, or is engaging, in conduct relating to the company’s activities which makes it not reasonably practicable to carry on the activities with the person as a member;

f.In the case of a person who is an individual:

(1)the person dies; or

(2)in a member-managed limited liability company:

(a)a guardian or general conservator for the person is appointed; or

(b)there is a judicial order that the person has otherwise become incapable of performing the person’s duties as a member under this act or the operating agreement;

g.In a member-managed limited liability company, the person:

(1)becomes a debtor in bankruptcy;

(2)executes an assignment for the benefit of creditors; or

(3)seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of the person or of all or substantially all of the person’s property;

h.In the case of a person that is a trust or is acting as a member by virtue of being a trustee of a trust, the trust’s entire transferable interest in the company is distributed;

i.In the case of a person that is an estate or is acting as a member by virtue of being a personal representative of an estate, the estate’s entire transferable interest in the company is distributed;

j.In the case of a member that is not an individual, partnership, limited liability company, corporation, trust, or estate, the termination of the member;

k.The company participates in a merger under Article 10 (sections 73 through 87 of this act) if:

(1)the company is not the surviving entity; or

(2)otherwise as a result of the merger, the person ceases to be a member;

l.The company participates in a conversion under Article 10 (sections 73 through 87 of this act);

m.The company participates in a domestication under Article 10 (sections 73 through 87 of this act), if, as a result of the domestication, the person ceases to be a member; or

n.The company terminates.

42:1A-31. Dissociation from partnership; events causing

31. A partner is dissociated from a partnership upon the occurrence of any of the following events:

a.The partnership’s having notice of the partner’s express will to withdraw as a partner or on a later date specified by the partner;

b.An event agreed to in the partnership agreement as causing the partner’s dissociation;

c.The partner’s expulsion pursuant to the partnership agreement;

d.The partner’s expulsion by the unanimous vote of the other partners if:

(1) it is unlawful to carry on the partnership business with that partner;

(2) there has been a transfer of all or substantially all of that partner’s transferable interest in the partnership, other than a transfer for security purposes, or a court order charging the partner’s interest, which has not been foreclosed;

(3) within 90 days after the partnership notifies a corporate partner that it will be expelled because it has filed a certificate of dissolution or the equivalent, its charter has been revoked, or its right to conduct business has been suspended by the jurisdiction of its incorporation, there is no revocation of the certificate of dissolution or no reinstatement of its charter or its right to conduct business; or

(4) a partnership that is a partner has been dissolved and its business is being wound up;

e.On application by the partnership or another partner, the partner’s expulsion by judicial determination because:

(1) the partner engaged in wrongful conduct that adversely and materially affected the partnership business;

(2) the partner willfully or persistently committed a material breach of the partnership agreement or of a duty owed to the partnership or the other partners under section 24 of this act; or

(3) the partner engaged in conduct relating to the partnership business which makes it not reasonably practicable to carry on the business in partnership with the partner;

f.The partner’s:

(1) becoming a debtor in bankruptcy;

(2) executing an assignment for the benefit of creditors;

(3) seeking, consenting to, or acquiescing in the appointment of a trustee, receiver, or liquidator of that partner or of all or substantially all of that partner’s property; or

(4) failing, within 90 days after the appointment, to have vacated or stayed the appointment of a trustee, receiver, or liquidator of the partner or of all or substantially all of the partner’s property obtained without the partner’s consent or acquiescence, or failing within 90 days after the expiration of a stay to have the appointment vacated;

g.In the case of a partner who is an individual:

(1) the partner’s death;

(2) the appointment of a guardian or general conservator for the partner; or

(3) a judicial determination that the partner has otherwise become incapable of performing the partner’s duties under the partnership agreement;

h.In the case of a partner that is a trust or is acting as a partner by virtue of being a trustee of a trust, distribution of the trust’s entire transferable interest in the partnership, but not merely by reason of the substitution of a successor trustee;

i.In the case of a partner that is an estate or is acting as a partner by virtue of being a personal representative of an estate, distribution of the estate’s entire transferable interest in the partnership, but not merely by reason of the substitution of a successor personal representative; or

j.Termination of a partner who is not an individual, partnership, corporation, trust, or estate.