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Outside accounting ordered in LLC dissolution

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The Indiana Court of Appeals reversed a judgment in favor of one of the owners of a dissolved LLC, finding the trial court erred when it entered judgment against the other owner personally without ordering an outside accounting of the company's finances.

In Jeff Perkins v. James R. Brown, No. 49A02-0806-CV-569, Jeff Perkins appealed a judgment entered against him for $155,175, which represented 50 percent of the net profits and retained earnings of his and James Brown's executive search firm, Kessler Advisor LLC. When the company was formed, Perkins handled business development, and Brown handled search work, sent invoices to clients, and managed the accounting needs.

Brown objected to Perkins' desire to give greater compensation for business development instead of the even split between their two job duties. Actions were taken to keep him from having access Kessler's business, accounting, and customer information.

Brown filed a complaint against Perkins and Kessler, requesting declaratory judgment as to the ownership percentages, an equitable accounting of the company, and that it is dissolved with the net remaining assets distributed according to the ownership percentages.

Brown submitted evidence at trial that he believed Kessler's total income was nearly $388,000 and that usually 20 percent of that was used to cover operating expenses. Judgment was granted in favor of Brown and against Kessler and Perkins, awarding Perkins and Brown $155,175 each. Perkins filed a motion to correct error, which was denied. Brown's motion to amend the pleadings was granted.

The trial court erred in determining the amount of damages in the dissolution of Kessler without ordering an outside accounting of the company's finances, wrote Judge James Kirsch. There was no evidence presented at trial of what the actual finances of the company were prior to the dissolution, what income it actually received or what the expenses were at this time.

Without any direct evidence, the trial court couldn't accurately determine if Kessler had all the money it was owed from outstanding invoices, who its creditors were, and if 20 percent would have covered all the expenses, wrote the judge. Plus, the trial court was unable to determine whether Perkins made any distributions during this period of time that would have created personal liability.

Asset distribution upon the ending of an LLC must be distributed according to Indiana Code Section 23-18-9-6, but without the outside accounting, the Court of Appeals can't tell the assets were distributed according to the statute.

The appellate court reversed the denial of Perkins' motion to correct error and remanded with instructions for the trial court to order and oversee an outside accounting to determine the proper distribution to Kessler's creditors as well as to Brown and Perkins. The trial court also shall make an appropriate entry of damages due to each party, including any determination of personal liability of Perkins under the Indiana Business Flexibility Act.

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  1. What is this, the Ind Supreme Court thinking that there is a separation of powers and limited enumerated powers as delegated by a dusty old document? Such eighteen century thinking, so rare and unwanted by the elites in this modern age. Dictate to us, dictate over us, the massess are chanting! George Soros agrees. Time to change with times Ind Supreme Court, says all President Snows. Rule by executive decree is the new black.

  2. I made the same argument before a commission of the Indiana Supreme Court and then to the fedeal district and federal appellate courts. Fell flat. So very glad to read that some judges still beleive that evidentiary foundations matter.

  3. KUDOS to the Indiana Supreme Court for realizing that some bureacracies need to go to the stake. Recall what RWR said: "No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!" NOW ... what next to this rare and inspiring chopping block? Well, the Commission on Gender and Race (but not religion!?!) is way overdue. And some other Board's could be cut with a positive for State and the reputation of the Indiana judiciary.

  4. During a visit where an informant with police wears audio and video, does the video necessary have to show hand to hand transaction of money and narcotics?

  5. I will agree with that as soon as law schools stop lying to prospective students about salaries and employment opportunities in the legal profession. There is no defense to the fraudulent numbers first year salaries they post to mislead people into going to law school.

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