Limited Liability Companies

A Limited Liability Company (LLC) is a relatively new concept in New York as the Limited Liability Company Law was not enacted until 1994. Like a corporation, a LLC must be registered with the Secretary of State, and must have Articles of Organization, as well as an Operating Agreement, which defines the role, rights and liabilities of its members.

          If the Operating Agreement fails to deal with issues involving the LLC’s operation, then the statutory provisions of the Limited Liability Company Law control. Normally a LLC is managed by its members, but it can name a non member to manage its operation. The Operating Agreement can provide for a myriad of issues involving the management and operation of the LLC’s business including termination of a member’s interest in the event of a breach of the member’s obligations. Members of a LLC cannot withdraw from it unless permitted to do so by the Operating Agreement until the LLC is dissolved and the winding up of its affairs has occurred.

          Like corporations and partnerships, LLCs can be dissolved by its members or if members are unable to agree to its dissolution, or the need for dissolution, then by judicial dissolution. For judicial dissolution to be granted it must be determined that it is not reasonably practicable to carry on the LLC’s business. Recently an appellate court held that requires a finding that management is unable or unwilling to permit the purposes of the LLC to be achieved or that continuous operation of the LLC is financially unfeasible, rejecting the notion of applying partnership or corporation principles to the dissolution of a LLC. Deadlock amongst the members as to the operation of the LLC in and of itself is not a basis for dissolution.

          Obviously Limited Liability Company Law is complex and cannot be fully described here and consultation with an experienced business litigator is strongly suggested.

Hoffman, Polland & Furman, PLLC.
220 East 42nd Street
New York, New York 10017
Phone: 212-338-0700
Fax: 212-338-0093