So sick of saying goodbye again. — Henry Rollins
For the past two weeks, we’ve explored the tell-tale signs that a business is suffering and about to fail due to one or more partners’ shortcomings. If you’re a New Yorker and those signs reached a boiling point, you need to consider the options.
So, in concluding our special trilogy of “Of Business and Divorce” installments, we’ll focus on how to go about a separation of the two types of businesses in the Empire State: Corporations and Limited Liability Companies (LLC).
When a New York business goes bad and a divorce is necessary, dissolution is covered under BCL-1104. That’s the normal dissolution. In cases of shareholder oppression, there is BCL 1104-A.You could go to court, but the key thing to remember is that a best approach and/or defense in this case is to buy the shares of the problem-partner.
Too much time in court will drag you and your attention away from the business. Ever watch “Bar Rescue”? There are often bickering owners who’ve been together for 10 years and haven’t set foot in the same room as the other for the past 9-and-a-half. Jon Taffer comes in and quickly has one buy out the other just to keep the business operational. Sure it’s a reality show, but the contract is legally binding. Those bar owners don’t want to go to court any more than you do, and this applies to nearly all businesses. When someone doesn’t pay up, that’s another story.
LLCs are very different from corporations. LLCL 702 is brief in itself and spells out what you need to know pertaining to a dissolution. Its language is similar to 1104 and 1104-A, but you can’t invoke those. LLCL 702 basically says you cannot force a dissolution if there is a viable way to get the company to move forward. While the courts have said that BCL 1104-a does not apply, they will allow a suit for dissolution for shareholder or member oppression. A change of salary or change in equity can trigger such a dissolution suit. Beyond that and possibly some other remote issues, a judge would see the company as being in good shape. No irreconcilable differences this time around, sorry.
There are some judicial precedents and interventions available if you know things are going south with a partner, which we explored in the fall. In short, you can buy out an LLC partner or member, but New York law does not permit expulsion.
Feel free to contact Brinen & Associates if you believe these options are ones you need to take. We’ll help you during what can be a painful, New York-style business divorce.