In New York, Limited Liability Companies are one of the most popular forms of business structure. Commonly abbreviated as an LLC, the structure consists of members with a stake in the business. The members are similar in nature to shareholders of a corporation or a partnership, but tend to be more involved in day-to-day operations. Just as surely as businesses are formed, there are disputes between members.
Business disputes can sometimes lead to a “business divorce.” Just like a marriage divorce, a business divorce can get nasty and expensive quickly. Business divorce can sometimes lead to the LLC being entirely dissolved, or to members being forced or bought out. When the relationship between members of an LLC has soured, what should you do in anticipation of a business divorce?
The first thing you should do is to determine what rights you have as a member of the LLC. Your first stop should be the LLC’s Operating Agreement, which will explain what rights each member has. If your LLC lacks an Operating Agreement, check which laws may apply to your situation. It is beneficial to have an attorney assist you with this step.
After you have determined your rights, the second thing you need to do is determine the where, when, and how you may be required to litigate your business divorce. The Operating Agreement may require that you mediate a dispute before filing an action, and may also dictate whether you can file a lawsuit in the courthouse or if you are required to arbitrate the dispute.
The third step you should take in anticipation of a business divorce is collecting as much documentation relating to the LLC’s finances and any dispute between the members as you possibly can. This includes thorough bank records and any relevant email communications. It also may help to get a sense of what your interest in the LLC is worth, which may be a factor in determining how (or if) you proceed with a “business divorce.”
At Canales Law, we are experienced in handling tense disputes between New York LLC members. If you sense a dispute on the horizon, you should contact an attorney as soon as possible. Contact us for more information.
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