business divorce

March 3, 2025

When to Seek Judicial Dissolution of an LLC

Key Takeaways: When to Seek Judicial Dissolution of an LLC

What is Judicial Dissolution? A court-ordered termination of an LLC when voluntary dissolution is not an option.
When Should You Seek It?
- Deadlock among members preventing essential business decisions.
- Conflicts that make business operations impossible.
- Fraud, oppression, or misconduct by controlling members.
- The LLC can no longer fulfill its intended purpose.
Legal Standards for Judicial Dissolution:
- Strict Approach (New York, Delaware): Only granted when the LLC is no longer “reasonably practicable.”
- Broader Approach (Uniform LLC Act States): Courts may dissolve an LLC for deadlock, oppression, or fraud.
How to Proceed? Consult a business litigation attorney to evaluate your legal options and protect your rights.

There are times when disputes among members of a limited liability company can reach the point where continuing the business becomes impossible. When the conflicts are intractable, a lawsuit for judicial dissolution is a way for the owners to find a remedy .

Limited Liability Company Dissolution Lawyer | LLC Dissolution Attorney

The remedies available to LLC members in a judicial dissolution action vary from state to state, and it is critical to owners to have a clear understanding of what is and is not possible Some states, such as New York and Delaware, are narrow in the remedies available, assuming that the members are best able to manage their affairs through contracts between them. This “strict approach” permits judicial dissolution only when it is “not reasonably practicable” to continue operations in compliance with the LLC’s operating agreement.

Other states, particularly those that have enacted the Uniform Limited Liability Company Act (ULLCA), offer a more flexible framework. In these states, members can pursue judicial dissolution on broader grounds, including minority oppression, illegality, and fraudulent behavior.

October 24, 2023

Arbitration Fails to Resolve Business Divorce Dispute

by Jay R. McDaniel, Esq.

The failure of the parties to submit evidence on an issue during arbitration caused a failure to decide all of the issues of the dispute.
A Court may modify an arbitration award rather than vacate and permit partial enforcement while permitting litigation of claims were not included in an arbitration hearing.
Failure to clearly define the mechanics of an arbitration and to agree on the issues that the arbitrator is to decide can make an award unenforceable.

This court decision addresses a recurring issue when parties agree to resolve their dispute by arbitration: exactly what was it that we agreed to arbitrate? Unless the answer to that question is clear and unambiguous, trouble is likely to follow. Continue reading

February 25, 2013

Expelled LLC Members: No Right to Force Purchase

by Jay R. McDaniel, Esq.

Removal of LLC Member May Be ‘Prospective’ Conduct

In what is probably the most significant appellate decision involving New Jersey limited liability companies in a decade, the Appellate Division held that wrongful conduct is not required to expel a member from the LLC, nor is the member entitled to be paid for the value of the interests.

On the contrary, the opinion in All Saints University of Medicine Aruba v. Chilana, Docket No. A-2628-09T1, App. Div Dec. 24, 2012, makes clear the standard can be much lower: conduct that makes it not reasonably practicable to continue the business with the member. The former member, moreover, cannot compel purchase of their interests. They are relegated to the status of assignee, forfeiting all of their management rights but still retaining their financial interest in the business.

Removal of Members in Business Divorce Cases

Expelling a member from a New Jersey limited liability company requires a judicial order, unless the LLC’s operating agreement contains specific provisions that permit for the expulsion of members. Litigation over the expulsion of members, referred to in the New Jersey Limited Liability Company Act as involuntary dissociation, typically focuses on wrongful conduct by the member whose ouster is sought.

Key Takeaways: When to Seek Judicial Dissolution of an LLC

The failure of the parties to submit evidence on an issue during arbitration caused a failure to decide all of the issues of the dispute.

A Court may modify an arbitration award rather than vacate and permit partial enforcement while permitting litigation of claims were not included in an arbitration hearing.

Failure to clearly define the mechanics of an arbitration and to agree on the issues that the arbitrator is to decide can make an award unenforceable.

Removal of LLC Member May Be ‘Prospective’ Conduct

Removal of Members in Business Divorce Cases