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LLC Created from Sole Proprietorship Receives All Interests and Obligations
Description The Supreme Court of Connecticut held that when a sole proprietorship converts into a limited liability company that all of its interests and obligations, including debts and liabilities, are transferred from the original business organization to its successor.
Topic Business Organizations
Key Words Limited Liability Company; Sole Proprietorship; Successor Interest
C A S E   S U M M A R Y
Facts Defendants entered into a construction contract with Pageau, who did business as C&J Builders, a sole proprietorship. The contract contained an arbitration agreement in case of dispute. A few months later, while work was ongoing, Pageau made C&J Builders into an LLC. Months later, a dispute between C&J and the defendants arose over a payment. Pageau submitted his claim to the arbitrator specified in the contract. Defendants refused to cooperate, so Pageau sued. Defendants claimed that since the contract was with a sole proprietorship, the arbitration clause was no longer effective once C&J became an LLC. The trial court held for C&J to compel arbitration. Defendants appealed.
Decision Affirmed. State statutes on business organizations clearly show an intent to "facilitate seamless transition" between one form of business organization and another, such as a change from a sole proprietorship to an LLC. "We conclude, therefore, that where a sole proprietorship converts to a limited liability company, all of the interests and obligations incurred by, or chargeable against, the sole proprietorship or its assets are transferred to the limited liability company by operation of law." Hence, C&J, as an LLC, may obtain a court order directing defendants to submit to arbitration.
Citation C&J Builders and Remodelers, LLC v. Geisenheimer, 733 A.2d 193 (Sup. Ct., Conn., 1999)

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