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The T&S Hardwoods KD LLC: A Court Case on Dissolution and Deadlock
01/23/2023
The T&S Hardwoods KD LLC: A Court Case on Dissolution and Deadlock
The Court of Chancery of the State of Delaware recently issued a letter decision in the case of . The case involved a dispute between a lumber supplier, T&S Hardwoods, Inc., and a lumber wholesale distributor, Robinson Lumber Company, Inc., over the dissolution of their joint venture, T&S Hardwoods KD LLC. The limited liability company (LLC) was formed in 2016 with T&S providing a steady lumber supply for RLC to resell, and the venture providing T&S with financing between when it cut the lumber and when the end customers paid their invoices. However, the relationship between the two parties soured, leading to allegations of deadlock, inability to function, and lack of any equitable exit mechanism. As a result, T&S filed for dissolution of the LLC. The Court denied Respondents' motion to dismiss and consolidated the case with Robinson Lumber Company, Inc. v. Lawrence N. Thompson, III, et al. (C.A. No. 2022-0423-MTZ). In the letter decision, the Court noted that under Section 18-802 of the Delaware LLC Act, dissolution may be decreed "whenever it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement." The Court found that T&S's allegations of deadlock, inability to function, and lack of any equitable exit mechanism stated a claim for dissolution. The case highlights the importance of clear and effective governance mechanisms in LLCs, as well as the potential consequences of deadlock and dysfunction among members. It also serves as a reminder of the judicial remedy of dissolution as a limited but available option for LLCs that can no longer function in conformity with their operating agreement. For more information on LLC dissolution and best practices for protecting your business, check out the Delaware LLC Act (https://corp.delaware.gov/llc/) and these articles from Forbes (https://www.forbes.com/sites/jimwestergren/2019/06/19/avoiding-deadlock-in-a-limited-liability-company/?sh=6b9f84db2c2b) and Inc. (https://www.inc.com/joseph-lucas/how-to-avoid-deadlock-in-your-llc-or-corporation.html) on avoiding deadlock in a LLC or corporation. This update is brought to you by Billion Law, a boutique business law practice that provides legal advice to entrepreneurs of all stripes!
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