In the world of business law, we often focus on formation, such as drafting operating agreements and launching new ventures. However, as an attorney, I am often brought in when a business relationship has deteriorated beyond repair and the only remedy left is judicial intervention to shut it down. In South Carolina, this is known as judicial dissolution. It is an involuntary legal process where a court orders the termination of a business entity’s existence because the internal machinery of the company has broken down beyond repair.
Under the South Carolina Business Corporation Act and the Uniform Limited Liability Company Act, clients typically seek this remedy when they are trapped in a business divorce characterized by management deadlock, where owners are so evenly split that they cannot make decisions or where those in control act unfairly toward minority owners. Because the court is dissolving a company, this is considered a remedy of last resort used only when the business is suffering irreparable injury or assets are being wasted.
The primary purpose of judicial dissolution is to provide an exit strategy for owners who are being held hostage by a dysfunctional or abusive majority. It protects the economic value of an owner’s investment before it is entirely drained by mismanagement or litigation. Once a decree is entered, the company enters a winding up phase. In some cases, the court will appoint a receiver, who is a neutral third party, to take control of the books, sell off the assets, satisfy creditors, and distribute the remaining proceeds to the owners.
However, because dissolution is so nuclear, South Carolina courts sometimes explore less drastic measures first. For example, a judge may instead order a mandatory buy-out, requiring one party to purchase the other’s shares at fair value. This keeps the business operational while allowing the disgruntled party to exit with their capital. If you find yourself frozen out of operations or paralyzed by a 50/50 split, it is vital to gather evidence of the deadlock or misconduct early, as these cases are won or lost on the specific facts of the company’s breakdown.
