Hostile LLC Breakups: Pre-Suit Planning and Litigation Tactics When Exiting an LLC With Archaic Documents

When limited liability companies were first gaining widespread traction generations ago, LLC operating agreements were often created with form templates of the time that contained few or no mechanisms for providing an exiting member with the fair value of the membership interests or for resolving membership disputes. As long as the original members were running things, this arrangement was not an issue. But now, sometimes several decades after formation of an LLC, the membership interests have been passed on to a second or even third generation who no longer wish to continue in the business or with the current members.

Disputes often result in the controlling member(s) stopping distributions or denying other members access to the company's books and records. When an excluded member wishes to withdraw or otherwise enforce their rights under these circumstances, careful negotiation and pre-litigation planning are required. When the members are related or have ongoing connections, emotions play a large role.

Where the operating agreement is silent, and many older OAs are, the parties' rights and remedies are defined by statute, which can be ambiguous and untested and may implicate laws that have since been amended or modified. If disputes appear headed to litigation, however, many complex issues need to be considered, and alternative plans and strategies need to be considered before suit is filed.

Listen as our experienced panel discusses how to navigate exiting an LLC with outdated operating agreements or under the statutory default procedures where the member interests may be owned by second or third generation owners.