An ownership dispute is a fight between the people who own a business — partners, LLC members or shareholders — over money, control, information or exit. Which law applies depends on the entity, and so does the answer to the two questions that decide these cases: who can sue, and in whose name, and can someone be bought out instead of the business being destroyed. In the District of Columbia a dissolution petition can be converted into a forced purchase at fair value under D.C. Code § 29–312.24 — which is often the real endgame.
Which kind of ownership dispute is this?
| Entity | Duties owed | Who sues | Page |
|---|---|---|---|
| General partnership | § 29–604.07 | Partner, to the partnership and other partners | Partnership disputes |
| Limited liability company | § 29–804.09 | Member — express direct action under § 29–808.01 | LLC member disputes |
| Corporation | §§ 29–306.30, 29–306.42 | Shareholder — derivative, subject to § 29–305.51 standing | Shareholder disputes |
| Any — ending the entity | §§ 29–312.20 to 29–312.24; § 29–807.01 (LLC) | Petitioner for dissolution | Business dissolution |
Who can sue, and in whose name?
This is the fork that derails more ownership cases than any substantive issue. An LLC member has an express statutory direct action; a corporate shareholder pursuing a derivative claim must clear standing requirements first.
(a) Subject to subsection
D.C. Code § 29–808.01 — Direct action by member
A shareholder shall not commence or maintain a derivative proceeding unless the shareholder: (1) Was a shareholder of the corporation at the time of the act or omission complained of or became a shareholder through transfer by operation of law from one that was a shareholder at that time; and (2) Fairly and adequately represents the interests of the corporation in enforcing the right of the corporation. ( July 2, 2011, D.C. Law 18-378, § 2, 58 DCR 1720 .) Section References This section is referenced in § 29-306.09 . Previous § 29–305.50. Definitions. Next § 29–305.52. Demand.
D.C. Code § 29–305.51 — Standing
See breach of fiduciary duty for what each duty actually requires.
Can a court dissolve the business?
Yes, on the grounds set out in § 29–312.20 for a corporation, following the procedure in § 29–312.21 and, if the grounds are established, a decree under § 29–312.23.
(a) If, after a hearing, the Superior Court determines that one or more grounds for judicial dissolution described in § 29-312.20 exist, it may enter a decree dissolving the corporation and specifying the effective date of the dissolution, and the clerk of the court shall deliver a certified copy of the decree to the Mayor, who shall file it.
D.C. Code § 29–312.23 — Decree of dissolution
An LLC dissolves on the events listed in § 29–807.01, which begins with whatever the operating agreement says — another reason the agreement is the first document to read.
(a) A limited liability company is dissolved, and its activities and affairs shall be wound up, upon the occurrence of any of the following: (1) An event or circumstance that the operating agreement states causes dissolution;…
D.C. Code § 29–807.01 — Events causing dissolution
Can the other owner be bought out instead?
Often, yes — and this is the provision most owners do not know exists. In a dissolution proceeding brought under § 29–312.20(a)(2), the corporation or the other shareholders may elect to purchase all the petitioner’s shares at fair value, which takes destruction of the business off the table.
(a) In a proceeding under § 29-312.20(a)(2) to dissolve a corporation, the corporation may elect or, if it fails to elect, one or more shareholders may elect to purchase all shares owned by the petitioning shareholder at the fair value of the shares. An election pursuant to this section shall be irrevocable unless the court determines that it is equitable to set aside or modify the election.
D.C. Code § 29–312.24(a) — Election to purchase in lieu of dissolution
The election is irrevocable unless the court finds it equitable to set aside or modify it — so it is a decision to take advice on, not a tactic to try on. It also runs on a tight timetable:
| Step | Time limit |
|---|---|
| File the election to purchase | Within 90 days of the petition, or later if the court allows |
| Corporation notifies other shareholders (if shareholders elected) | Within 10 days of the election |
| Other shareholders join the purchase | Within 30 days of the effective date of that notice |
| Petitioner discontinues, settles, or sells the shares | Not permitted after an election, unless the court finds it equitable |
What happens to the business while the case runs?
(b) The Superior Court in a proceeding brought to dissolve a corporation may issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs, take other action required to preserve the corporate assets wherever located, and carry on the business of the corporation until a full hearing can be held.
D.C. Code § 29–312.21(b)
The court can appoint a receiver or custodian pendente lite, preserve assets, and keep the business trading until a hearing. Under § 29–312.22 a receiver winds up and liquidates while a custodian manages — see court-appointed receiverships.
What if money or opportunities are already gone?
Then the ownership dispute has a recovery dimension. The duty of loyalty requires the member to account and hold as trustee anything derived from the company, and where funds have been moved on, the fraudulent-transfer remedies apply. See partner diverting company funds and fraud and embezzlement — civil recovery.
Frequently asked questions
My partner locked me out. What do I do first?
Exercise the statutory information right and get the records — for an LLC that is § 29–804.10. See locked out of the business.
Do I have to dissolve the company to get out?
Not necessarily. § 29–312.24 exists precisely so a dissolution petition can end in a purchase at fair value instead. Dissociation is a separate route again for LLC members.
Does the operating agreement override the statute?
Within limits, and it varies by provision — § 29–807.01 begins with what the operating agreement says, while other duties are stated subject to specific sections. The agreement is the first document to read, not the last.
How is “fair value” decided?
§ 29–312.24 provides for the court to determine fair value if the parties cannot agree. Valuation is evidence-driven and is usually where these cases are actually contested.
Why does a dissolution decree not simply switch the company off?
Because the decree begins a supervised process. D.C. Code § 29–312.23(b) provides that after entering it the Superior Court directs the winding-up and liquidation of the corporation’s activities and affairs and the notification of claimants — so assets are realized and creditors dealt with before anything reaches the owners.
When does the buyout election have to be filed?
Within 90 days of the petition, or later if the court allows. D.C. Code § 29–312.24(b) sets that window; where shareholders rather than the corporation elect, the company must notify the other shareholders within 10 days, and those wishing to join must file notice no later than 30 days after that notice takes effect.
Where does the court’s authority reach once a receiver is appointed?
Beyond the District. D.C. Code § 29–312.22(a) provides that the court appointing a receiver or custodian has jurisdiction over the corporation and all of its property wherever located, and § 29–312.22(c)(1)(A) allows the receiver, if authorized by the court, to dispose of assets wherever located at a public or private sale.
How much does the petitioning owner receive under a buyout?
The fair value of the shares, fixed in the proceeding rather than negotiated. The election under D.C. Code § 29–312.24(a) is irrevocable unless the court finds it equitable to set aside or modify it, and every shareholder who elects or gives notice of an intention to join becomes a party to the proceeding.
Sources and legal authorities
- D.C. Code § 29–312.24 — Election to purchase in lieu of dissolution
- D.C. Code § 29–312.23 — Decree of dissolution
- D.C. Code § 29–312.21 — Procedure for judicial dissolution
- D.C. Code § 29–312.22 — Receivership or custodianship
- D.C. Code § 29–807.01 — Events causing dissolution (LLC)
- D.C. Code § 29–808.01 — Direct action by member
- D.C. Code § 29–305.51 — Standing
General information about D.C. law, not legal advice. Statutory periods and remedies turn on the entity, the agreement and the facts.
Related: Partnership Disputes · LLC Member Disputes · Shareholder Disputes · Business Dissolution · Breach of Fiduciary Duty · Court-Appointed Receiverships · Business Litigation. Call (301) 901-3109 or use the contact page.