Dissociation vs. Dissolution in an LLC

A Limited Liability Company (LLC) might undergo dissociation and/or dissolution. In short, dissociation involves an individual member (owner) of the LLC leaving the LLC, whereas dissolution involves the LLC shutting down and ceasing to exist altogether.  

Dissociation, also known as cessation in Indiana, is the process by which an individual member of the LLC leaves (is no longer associated with) the LLC. Because an LLC is a separate legal entity from its members, the LLC may continue doing business under the control of its remaining members. In Illinois, the dissociated member will retain his distributional interest (right to receive a share of the LLC’s profits), but will lose all management rights. The remaining members can buy out the dissociated member’s distributional interest. In Indiana, the remaining members must buy out the dissociated member’s distributional interest at fair market value.

Dissolution is the process by which the LLC stops existing (dissolves) as a legal entity. Unlike dissociation, dissolution affects all members of the LLC. In both Illinois and Indiana, dissolution triggers a winding up process, whereby the LLC settles its outstanding debts to third parties, liquidates its assets, and distributes any remaining capital back to its members in proportion to how much capital those members contributed to the LLC. Once dissolution is complete, the LLC ceases to exist and can no longer carry out any business.

Thickstun Luo LLC can advise you on structural changes to your small business LLC. Contact us today for a consultation.

LEGALESE is an online blog by Thickstun Luo LLC. The blog explains legal terms and concepts in plain English.

Disclaimer: The LEGALESE blog and the posts therein do not form an attorney-client relationship between you and Thickstun Luo LLC. Furthermore, this blog is not intended to render legal advice regarding your specific situation. You should consult an attorney for specific legal advice. Some content in LEGALESE blog posts pertain to state-specific legal rules and concepts that may not be applicable in every jurisdiction.