Corporate and Limited Liability Company Disputes
Disputes between or among stockholders in a corporation and members in a limited liability company can happen. This is because there may have been different expectations between the Bylaws and Stockholder Agreement in a corporation and the Operating Agreement in a limited liability company. Sometimes, these expectations do not clearly set out how disputes may be settled.
Was the problem that one of the members wanted to leave the LLC but didn’t agree to the buyout amount? Was the value to be determined by annual agreement but no agreement was reached? Was the dispute caused by a disagreement over the rights of a purchaser of the member’s interest in a limited liability company to vote? Was the problem a refusal of the majority owner, who is no longer working full time, to agree to transfer control?
These and other possible issues should be clearly set out at the beginning of the relationship. This allows for a level playing field between and among members and stockholders. For example, expectations can be effectively communicated before one’s needing to separate, or before a dispute arises.
Virginia statutes provide a mechanism for resolving a 50/50 deadlock, absent such a clause in the Operating Agreement of the limited liability company or the Bylaws or Stockholder Agreement of a corporation. The Virginia stock corporation statute offers the option of having the Circuit Court dissolve a corporation if the directors or stockholders are deadlocked, or if corporate assets are being misapplied or wasted. In the case of a limited liability company, the Virginia limited liability statute tracks partnership law and does not offer many alternatives. Under Virginia’s limited liability statute, you can file with the Court for judicial dissolution. Here is a standard to keep in mind: “is it reasonably impracticable to carry on the business in conformity with the Articles of Organization and the Operating Agreement?” You will have to provide evidence that it is reasonably impracticable to carry on the business. If the other member does not want to dissolve the LLC or can’t afford to buy you out, anticipate lengthy litigation.
I can help you identify potential problems and suggest solutions. No single solution fits all situations or individuals. Having forethought on the resolution of potential disputes can be wise to incorporate into any Bylaws, Stockholder Agreement or Operating Agreement.