Business Disputes Between LLC Members: 5 Key Legal and Practical Considerations

Disputes between members of a limited liability company (LLC) present several legal and practical considerations. While it is critical to carefully review the LLC’s Operating Agreement in this scenario, the members must also make practical decisions based on the business, financial, and reputational risks at hand. An experienced Miami business dispute attorney should be able to assist with pursuing an amicable resolution while also preparing for the possibility of litigation.  

If you are a member of a limited liability company (LLC) and you are facing a dispute with one or more of your business’s other owners, you need to ensure that you are making informed decisions in light of the specific circumstances at hand. While these disputes can involve a variety of legal issues, they can raise several practical considerations as well—and addressing all pertinent considerations will be critical for protecting your interests going forward.

What Are Some of the Key Considerations Involved in Resolving LLC Member Disputes?

As a co-owner of an LLC, making informed decisions about how to approach an internal dispute starts with ensuring that you have a clear understanding of the circumstances involved. With this in mind, here are five key considerations:

1. What Does Your Company’s Operating Agreement Say About Control?

First, it is important to ensure you have a clear, comprehensive understanding of what your company’s Operating Agreement says about control. Do all members have equal voting rights? Does the Operating Agreement contain special “tie-breaker” provisions? Are there any other provisions that dictate a specific outcome under the circumstances at hand?

Any time you are facing a dispute related to your LLC, reviewing the relevant terms of the LLC’s Operating Agreement is a good first step. If the Operating Agreement does not provide a clear path forward, the next step is to review what it says about dispute resolution.

2. What Does Your Company’s Operating Agreement Say About Dispute Resolution?

When LLC members are deadlocked without a clear path forward, they must pursue an appropriate means of dispute resolution. Operating Agreements commonly include mandatory alternative dispute resolution (ADR) provisions that require the members to pursue mediation or arbitration (or both)—either before or instead of going to court.

Mandatory ADR provisions in LLC Operating Agreements are generally enforceable; and, if an LLC’s members cannot agree on how to proceed, any member can initiate mediation or arbitration in accordance with the terms of the company’s governing contract. When deciding whether to initiate mediation or arbitration, members should also carefully consider their Operating Agreement’s governing law, jurisdiction, and cost-sharing provisions (if any).

3. Is Maintaining Co-Ownership a Viable Option Going Forward?

Regardless of the options available for resolving the dispute, LLC members facing an internal dispute should also realistically assess the viability of maintaining co-ownership going forward. Even if the members can get past their current dispute, are additional contentious disputes likely to arise in the future?

If continuing to operate as co-owners is untenable, all parties should focus on a resolution that allows them to terminate their business relationship. Whether this means pursuing a buyout, selling to a third party, or winding up the business’s affairs will depend on the circumstances at hand.

4. Do You (or Any of Your Co-Owners) Have Grounds to Pursue Legal Action?

When facing a contentious dispute among business owners, it is important to thoroughly assess any potential grounds for legal action. While some business disputes simply involve fundamental disagreements, many involve violations of one or more members’ legal duties.

If you have a claim for breach of fiduciary duty, for example, this could fundamentally alter the nature of your dispute. Conversely, if any of your co-owners have grounds to allege that you have breached your fiduciary duties to the company, this will require careful consideration as you formulate your strategy for moving forward.

5. Do All Co-Owners Share a Common Interest in Finding an Amicable (and Reasonable) Path Forward?

Finally, it is important to assess whether all co-owners involved in the dispute share a common interest in finding an amicable (and reasonable) path forward—whether this means remaining co-owners or going your separate ways. If so, this fact alone can help to facilitate good-faith settlement negotiations. If not, this can significantly increase the likelihood that ADR or litigation will be necessary.

FAQs: Resolving Business Disputes Between LLC Members

What should I do if my LLC’s co-owners and I can’t agree on how to run our business?

If you and your LLC’s co-owners can’t agree on how to run your business, you should seek a resolution sooner rather than later. The longer your disagreement remains unresolved, the more difficult it could become to achieve an amicable resolution. While there are no guarantees, pursuing an amicable resolution promptly can often help minimize the likelihood of needing to pursue ADR or litigation.  

Can I force my LLC’s co-owners to sell their membership interests to me?

Whether you can force your LLC’s co-owners to sell their membership interests to you depends on the terms of your Operating Agreement. If this is an option you are interested in pursuing, you should promptly consult with an experienced attorney.

Can I force a sale of the business if my co-owners and I are at an impasse?

Whether you can force a sale of your LLC also depends on the terms of your Operating Agreement. If you and your co-owners are at an impasse and you are ready to sell the business and move on, you should consult with an experienced attorney promptly in this scenario as well.

Schedule a Confidential Consultation with an Experienced Miami Business Dispute Attorney Today

If you are facing a dispute with your LLC’s co-owners, we invite you to contact us for more information. To schedule a confidential consultation with an experienced Miami business dispute attorney at Gonzalez Law Offices, P.A., please call 305-676-6677 or tell us how we can reach you online today.