The judge in the case - one of the best in the New York Commercial Division - noted that each provision could be read to give way to the other before issuing an interim ruling that left the conundrum unresolved, after which the parties consented to dissolution. The article entitled “Management” provided that in the event of any dispute between members, “final determination shall be made by a vote of the majority of the Members,” i.e, per capita voting, whereas the article entitled “Membership” required a vote of members “holding a majority of the Membership Interests” to approve any action, i.e., pro rata voting.Īs you would expect in a battle over governance rights in a two-member LLC, the side claiming 70% ownership argued that the latter article trumped the former, and the other side argued the opposite. You see, the LegalZoom operating agreement for the member-managed LLC had two separate provisions in two separate articles governing management decision-making by the members. As in every business divorce, the reasons for the demise of the business were complex and unique but shortcomings in the operating agreement also contributed significantly to the parties’ legal postures and willingness to risk litigation. Years later the members’ relationship turned bitter, which is when I first got involved in what became a court case and eventually the liquidation and dissolution of what had been a successful business. The two members were highly educated individuals with ample business experience.Īpparently for reasons of speed and convenience - they had the financial wherewithal to hire a lawyer, but chose not to - they used LegalZoom to form the LLC including the articles of organization and operating agreement. The latter document reflected a 70/30 ownership split. The case involved a two-member New York LLC that, in the four or five years it operated, achieved enviable growth and profits. Several years ago I had my first encounter as a business divorce lawyer with an LLC agreement purchased from the online legal forms provider, LegalZoom.
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