Friday, April 13, 2012

Effect of Assigning Entire Economic Interest in LLC Clarified

Dissociation of an LLC Member upon Having
Transferred All of Their Interest in the Venture Clarified

      A member of an LLC may unilaterally (and here assuming no contrary provision in the operating agreement) convey his economic interest in the venture.  That conveyance does not, however, convey any right to participate in the management and affairs of the LLC.  However, having conveyed his entire economic interest in the venture, the member is subject to having his right to further participate in the management and affairs of the company terminated, that termination being effected by a dissociation approved by the remaining members.
      A revision made to the LLC Act, namely the addition of “that they may unilaterally transfer,” addresses the argument that not “all” of a member’s interest has been conveyed, and therefore he cannot be dissociated, because the non-transferrable rights to participate in management have not been transferred.  See 2012 H.B. 341, amending KRS § 275.180.  Ergo, it is clear that when a member has transferred all of his economic interest in a venture, he is thereafter subject to dissociation by the other members.

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