Articles Posted in Rights of Dissent

  • 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 operating or partnership agreement, a merger or sale of substantially all of the business’ assets.


Deadlock among the members of a limited liability company, or among the partners in a general partnership, involves the inability of the company to make decisions that are material to the continued operation of the business.  It is not an infrequent occurrence.  The direct participation of the owners in the day-to-day affairs of the LLC or partnership and the requirement that — in most circumstances — the most important decisions require a unanimous vote make it important that an LLC or partnership is able to reach consensus on the most important decisions.


A Series Examining Deadlock Among the Owners of Closely Held Corporations, Limited Liability Companies and Partnerships


Because LLCs and partnerships are unincorporated business associations, they are typically quite different in structure than a traditional corporation.  And while deadlock among the members of a limited liability company or partnership involves many of the same principles that one finds in the closely held corporation, there are significant differences as well.

Deadlock limited liability company | deadlock corporation | deadlock partnership

In this article, we look at some of the differences between deadlock in corporations, which are generally governed by statute, and deadlock in unincorporated business associations (primarily partnerships and limited liability companies), which are governed primarily by principles of contract.  In many cases, the results are not very different, but there are some key distinctions.

In later posts, I will examine some of the circumstances in which the courts have been asked to resolve deadlock disputes through lawsuits seeking involuntary dissolution actions or the expulsion of a member or partner.

Deadlock Occurs When Contracts Fail

Unlike a corporation, which conceptually is a creature of statute, deadlock in a partnership or limited liability company usually does not involve any specific statutory provision that is intended to address the problem of deadlock.  In fact, neither the Revised Uniform Limited Liability Company Act (RULLCA) nor the Revised Uniform Partnership Act (RUPA) specifically mention deadlock.  Rather, because the limited liability company and partnership are fundamentally creatures of contract, the focus is not on the statutory criteria but the nature and scope of the express and implied agreements that exist between the owners.

Continue reading

  • 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 that sits by or acquiesces to wrongful conduct by the majority waives the right to later pursue a claim based on that behavior.

  • Fee awards are available only to shareholders with a statutory right to dissent and in the discretion of the judge.


Casey v. Brennan, 344 N.J. Super. 83 (App. Div. 2001)

Minority Shareholder Valuation Attorney

Statues: NJSA 14A:11-1, NJSA 14A11-3; NJSA 14A:6-14: NJSA 14A:11-6; NJSA 14A:11-10

Action challenging the valuation provided by controlling directors (also majority shareholders) in corporate reorganization as plan to reduce number of shareholders to 75 or less to qualify for subchapter S status. Directors approved plan of merger at $73 a share in reorganization plan requiring small shareholders to sell. Trial Judge set value at $90 a share. (Opinion here.)  The Supreme Court affirmed the Appellate Division.  (Opinion here.)

Facts: Community Bank adopted a plan of merger as part of a plan of reorganization that would reduce the number of shareholders by acquring holdings of persons with less than 15,000 sharesat a price of $73 per share. Statutory dissenters and non-statutory dissenters brought various actions consolidated for trial. Trial court holding that proxy statement was misleading and provided non-statutory dissenters with right to sue, and determined fair value $90 per share. Affirmed in part and remanded for reconsideration of valuation issues that were rejected by trial court. Continue reading

  • The Business Judgement Rule presumes that a decision made by a majority of the board of directors in business matters is entitled to deference.  Courts generally will not interfere with decisions that fall under the Business Judgment Rule.

  • Courts disregard the Business Judgment Rule when there is evidence of bad faith, misconduct or self dealing.

  • Even in a case involving the fair value of  the shares of a dissenting minority shareholder, a court may consider the transaction at ‘arms length’ and defer to the board’s discretion.

Contact Information