On June 10, 2010, amendments to Washington's Limited Liability Company Act, which address the dissolution of a Washington limited liability company, took effect. The amendments revise and substantially elaborate upon the procedure for dissolving and winding up an LLC's operations and addressing claims against a dissolved LLC. This Update summarizes the amendments to the Washington Limited Liability Company Act.

Highlights of the Amendments

The amendments provide greater certainty for members and managers of Washington LLCs regarding the winding up process. Since LLCs now represent the most frequently formed new business entity in Washington, the amendments materially benefit the state's business climate. Highlights of the amendments include:

  • Liability Protection After Dissolving: The amendments clarify the continued existence of the LLC by providing that the entity's liability protection continues indefinitely following dissolution.
  • Three Year Clock for Claims: The amendments allow for the filing of a certificate of dissolution with the Secretary of State, which starts a three-year clock for disposing any claims against the LLC.
  • Expedited Claim Resolution Process: The amendments provide for an expedited claim resolution process, as short as 120 days, by allowing an LLC to give written notice of its dissolution to known creditors of its dissolution.
  • Clearer Process for Dissolution: The amendments generally clarify issues concerning dissolution and the process for winding up under Washington law.

Amendments Clarify the LLC Dissolution and Winding Up Process

Typically, dissolution of an LLC occurs when the members unanimously consent to cease the business of an LLC; however, other events, such as failing to pay the annual license fees, may cause dissolution as well. Dissolution is the first step in the process of ceasing to conduct business as an LLC. Winding up, which follows dissolution, is the process that the managers and/or members follow to conclude the affairs and business of the LLC. The amendments provide a clearer road map for owners and managers of Washington LLCs who are navigating the dissolution and subsequent winding up of their company.

Post-Dissolution Activities Clarified. The amendments provide that, following dissolution, an LLC may undertake activities only for the purpose of winding up the LLC's activities, including:

  • preserving the LLC's business and property as a going concern for a reasonable time;
  • prosecuting and defending actions and proceedings;
  • transferring the LLC's property;
  • settling disputes; and
  • performing other acts necessary or appropriate to the winding up.

Amendments Eliminate Concept of Cancellation of an LLC

Prior to the amendments, the Washington Limited Liability Company Act allowed for the cancellation of an LLC following its dissolution, either by action of the Secretary of State or by the LLC filing a certificate of cancellation. The provisions contemplated that the filing of the certificate of cancellation would follow the completion of the winding up process, yet they provided little explanation of the consequences of cancellation. A recent Washington Supreme Court case, Chadwick Farms Owners Association v. FHC LLC, 166 Wn.2d 178, 207 P.3d 1251 (2009), exacerbated the problem. In Chadwick, the court ruled that an LLC with a cancelled certificate could no longer sue or be sued. The court suggested that the individuals winding up the LLC faced an increased risk of personal liability as a result. This decision led to uncertainty about both the benefits and risks of filing a certificate of cancellation and the potential risk for individuals conducting the winding up process.

The amendments resolve the uncertainty about the impact of cancellation by eliminating the concept entirely. While the amendments do not directly address the personal liability of the individuals conducting the winding up process, by eliminating the possibility of completely terminating an LLC's existence, the amendments clarify the fact that the corporate shield, which protects members and managers against liability, remains in effect through the LLC's process of winding up its business.

Amendments Provide for Three-Year Clock for Claims Against a Dissolved LLC

The amendments allow a dissolved LLC to file a certificate of dissolution with the Washington Secretary of State, which commences a set period of three years for third parties to file claims against the LLC. This change conforms to current Washington corporate law and helps provide certainty for an LLC, its member and managers, and its creditors about the liability for outstanding claims.

Amendments Establish New Procedures for Disposition of Known Claims

The amendments establish a procedure for disposing of known claims against the LLC as soon as 120 days following the filing of a certificate of dissolution. This change conforms to existing Washington corporate law and provides a way to quickly and directly address the outstanding liabilities of a dissolved LLC, which expedites the winding up process. This disposition of claims requires that the LLC follow specific procedures, which include giving written notice to the known claimants of the LLC's dissolution.

Amendments Explain Revocation Process

Following the voluntary dissolution of an LLC, the members and/or managers may revoke the dissolution within 120 days of filing a certificate of dissolution. The amendments elaborate upon the process for revoking the dissolution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.