Straightening Out Kinks in Washington's LLC Law
Last month Governor Gregoire signed into law a bill amending Washington’s Limited Liability Company Act (Act). The amendments address the confusion introduced by last year’s Supreme Court ruling in Chadwick Farms Owners Ass’n v. FHC, LLC, 166 Wn.2d 178, 207 P.3d 1251 (2009), and eliminate a nonsensical provision that was injected into the Act in 2009. The amendments will take effect June 10, 2010.
Chadwick Farms dealt with dissolution and winding-up issues. The court held that once a Washington LLC’s certificate of formation has been cancelled, it cannot sue or be sued and any pending lawsuits by or against the LLC abate. The court also held that those who improperly wind up the LLC can be personally liable to the LLC’s creditors. I analyzed the court’s reasoning and some of the questions raised, here.
The bill’s amendments substantially change the Act’s dissolution procedures. Under the current Act, a Washington LLC’s dissolution is a private action that can be taken by unanimous member consent, or that occurs as specified in the certificate of formation or LLC agreement. Wash. Rev. Code § 25.15.270. No public filing is required upon dissolution, but upon completion of winding up, the LLC’s certificate of formation must be cancelled by filing a certificate of cancellation. Wash. Rev. Code § 25.15.080.
The amendments eliminate the entire concept of cancelling the certificate of formation. Effective June 10, 2010 there will be no requirement or ability to file a certificate of cancellation. Instead, a dissolved LLC may elect to file a certificate of dissolution with the Washington Secretary of State. Filing a certificate of dissolution is not mandatory, but if it is filed it commences a three-year survival period, after which claims may not be brought by or against the LLC or its managers or members.
If no certificate of dissolution is filed, claims by or against the LLC or its managers or members are not time-limited, except by any applicable statutes of limitations. Presumably most dissolving LLCs will file the certificate of dissolution in order to start running the three-year period.
The amendments also address the winding-up procedures for a dissolved LLC. A new procedure was added: an LLC that has filed a certificate of dissolution may give notice of the dissolution to known claimants and require that claims be asserted within 120 days of the notice. Claims not asserted within the time limit are cut off. If a claimant responds and the LLC then rejects the claim, the claim will be barred unless the claimant commences a legal action to enforce the claim within 90 days of the LLC’s rejection.
The new bill also addresses a 2009 amendment to the Act, currently codified in Wash. Rev. Code § 25.15.293, which I discussed here. The 2009 change made no sense, and the new bill simply deletes it.
The members of the Washington Bar Committee on the Law of Partnerships and LLCs, ably chaired by Brian Todd, as well as the Washington legislators who worked on this bill, are to be commended for their efforts. The new approach to LLC dissolution is a decided improvement over that of the prior Act.
http://www.llclawmonitor.com/admin/trackback/196839
