Dissolving a New York LLC When the Members Cannot Agree

## When an LLC Relationship Breaks Down

A disagreement among members does not automatically justify dissolving a New York limited liability company. Under Section 702 of the New York Limited Liability Company Law, a member may ask the Supreme Court to dissolve an LLC when it is not reasonably practicable to carry on the business in conformity with the operating agreement. That standard focuses less on personal hostility and more on whether the company can still pursue the purpose its members agreed to pursue.

The operating agreement is therefore the starting point. It may identify the LLC's business purpose, allocate management authority, establish voting thresholds, and provide buyout or deadlock procedures. An agreement stating a broad purpose can make dissolution harder to obtain if the company remains profitable and operational. A narrowly defined venture that can no longer proceed may present a stronger case.

## Deadlock and Financial Failure

New York courts commonly examine two related questions: whether management is unable or unwilling to pursue the LLC's stated purpose, and whether continuing the business is financially unfeasible. Neither factor is mechanically dispositive. A 50-50 voting deadlock can be important, but deadlock alone may not support dissolution when routine operations continue and the company remains economically viable.

Evidence matters. Relevant records may include meeting minutes, written consents, financial statements, tax returns, bank records, customer correspondence, and communications showing failed votes. A member claiming exclusion should document denied access to information, unilateral transactions, or deviations from the operating agreement. Conversely, managers opposing dissolution should preserve evidence that the company continues to serve customers, pay obligations, and follow its governing documents.

Courts may also consider whether the dispute can be addressed through a remedy short of dissolution. Although New York's LLC statute does not contain the same express buyout mechanism available in certain closely held corporate proceedings, negotiated redemptions and membership-interest sales frequently resolve these cases.

## Preparing for Litigation

A dissolution petition should connect specific facts to the operating agreement rather than merely catalogue insults or mistrust. Petitioners must also consider venue, standing, service, and requests for interim relief. If company assets are at immediate risk, a party may seek an injunction or temporary receiver, but extraordinary relief requires concrete proof and may impose significant cost.

Members should avoid self-help measures that create new exposure. Emptying accounts, diverting customers, deleting data, or locking another authorized member out of company systems can generate fiduciary-duty, conversion, or accounting claims. Even when litigation appears inevitable, ordinary records and assets should be preserved.

Valuation is another early concern. A credible appraisal should address normalized earnings, member compensation, marketability, control, company debt, and any real estate or intellectual property. Tax consequences can materially change the value of a proposed separation.

## Practical Takeaways

Review the operating agreement before making threats or changing company access. Identify the LLC's stated purpose, voting rules, transfer restrictions, and dissolution provisions. Preserve business and financial records, and keep disputed funds in ordinary company accounts unless counsel advises otherwise.

Consider mediation, a structured buyout, a division of assets, or a sale of the entire business. A negotiated exit can provide confidentiality and pricing flexibility that a dissolution proceeding may not. If court action is necessary, build the case around the company's purpose and practical ability to operate—not simply the deterioration of the members' personal relationship.

This article provides general information, not legal advice. New York LLC disputes are fact-specific, and members should obtain advice based on the governing documents and current law.