The Business Divorce Law Report

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Most limited liability company and partnership statutes make no mention of ‘deadlock’ as grounds to order the involuntary dissolution of a business. Deadlock arises when the members or partners are no longer able to pursue the basic agreements on which the business was organized, typically an operating agreement or partnership agreement. The key determination in an action to force the dissolution of a limited liability company or partnership is whether it is ‘reasonably practicable’ for…
Deadlock in a limited liability company or partnership occurs when the members can no longer pursue the purpose of the business as agreed in an operating agreement or partnership agreement. A ‘minority veto’ occurs when a minority member or partner uses the unanimity requirement to block the will of majority. Actions outside the ordinary course of business are likely to require unanimous consent, including the admission of a new member or partner, amendment to the…
A limited liability company operating agreement may be amended informally by oral agreement or by a course of conduct. The party that claims amendment of an operating agreement by a course of conduct must establish the clear and mutual intent of the parties to agree to the amendment. A clear and unambiguous provision in an operating agreement that governs how the limited liability company will be valued in the future is an enforceable contract. A…
  The business judgment rule insulates decisions made in good faith and in the best interests of the enterprise from being subject to judicial second guessing ordinary business decisions Majority shareholders that failed to pay dividends to a non-employee minority shareholders in valid exercise of business judgment rule did not engage in wrongful conduct. Common law dissolution under New York law is available only for a palpable breach of duty so egregious as to disqualify…
Any action that the managers of a Limited Liability Company might take at a meeting can also be taken by executing a written consent. An action by written consent may, in some circumstances, avoid the need to assemble a quorum of the managers. The managers of an LLC many be contractually obligated to effect management changes by an operating agreement, but those obligations are not self-executing. A venture capital company and the independent manager of…
‘Business Divorce’ refers to disputes in which the owners of a closely held business, whether a corporation, limited liability company, partnership or limited partnership, must separate their business interests. In many cases, such as oppressed minority shareholder cases or oppressed LLC member cases, there are allegations that those in control of the company have engaged in wrongful behavior.  In other cases, the deadlock of the owners on an important issue is the source of the…
New York does not recognize a cause of action for minority oppression of a member of a limited liability company. Judicial dissolution is a remedy available to the minority LLC member when the majority is unwilling or unable to promote the purpose of the company or continuing the business has become financially not feasible. The dismissal of a judicial dissolution claim brought by an LLC member seeking to dissolve the family business demonstrates the difficulty…
A trial court reasons that because a member-managed limited liability company is similar in management to a partnership, the court may reason from partnership law in fashioning a remedy for an expelled member. The majority members of the LLC, who voted under the Operating Agreement,  to compel the withdrawal of the member are jointly and severally liable to pay the ousted member the fair value of his equity interest. When no other provision of the…
In valuing the shares of a minority shareholder, a trial court must consider any valuation technique that is generally acceptable in the financial communities.  Determining fair value is an art, not a science. Directors that hold a majority interest in a closely held business have a duty to deal fairly with the minority and in a merger to make full and fair disclosures and offer a fair price in exchange for shares. A minority shareholder…
The Single Business Theory permits a court to treat related businesses as though they were one enterprise. Courts apply the single business theory in rare cases to prevent injustice. Pertuis v. Front Roe Rests., Inc., 2018 S.C. LEXIS 85 (2018) Statutes: S.C. Code Ann. § 33-18-420; S.C. Code Ann. § 33-15-105; S.C. Code Ann. § 33-18-200 to -210; S.C. Code Ann. § 33-18-220; S.C. Code Ann. § 33-18-230; N.C. Gen. Stat. § 55-14-31 An action…