Deadlock-Breaking Mechanisms in LLCs: Avoiding Litigation and Dissolution When Members and Managers Fail to Agree

Drafting Buy-Sell Provisions, External and Internal Tie-Breakers, Put or Call Options, Provisions for Partition or Sale and More

Recording of a 90-minute CLE webinar with Q&A


Conducted on Wednesday, August 16, 2017
Recorded event now available


This CLE webinar will provide corporate counsel with a framework for adopting deadlock-breaking mechanisms in limited liability company (LLC) operating agreements, and potential state law consequences when no such mechanisms are in place. We will also discuss arbitration and mediation provisions as alternatives to litigation or judicial dissolution.

Description

Deadlocks in an LLC typically arise when members or managers fail to reach agreement or obtain the required voting approval for a particular course of action. The failure to provide deadlock-breaking mechanisms in the operating agreement can result in significant expense, loss of time, and possible litigation and may result in judicial dissolution of the LLC.

Counsel can employ various provisions in LLC agreements to break a deadlock, including buy-sell provisions, external or internal “tie-breakers,” rotating or alternating voting procedures, put or call options, and where appropriate, provisions for partition or sale of the company or its assets. These provisions may be critical for the continued operation of the business.

Absent such provisions, LLC statutes will typically provide for judicial remedies including placing operational control in a custodian or dissolution of the entity. Operating agreements that do not provide mechanisms for breaking deadlock may nevertheless provide alternate methods of resolving disputes, such as mediation and arbitration. Counsel should understand the pros and cons of these alternatives for the LLC's members.

Listen as our authoritative panel outlines and provides drafting tips with regard to various deadlock-breaking mechanisms in operating agreements. Counsel will also discuss arbitration vs. mediation, and why either option is likely preferable to litigation or judicial dissolution of the entity.

Outline

  1. When deadlocks arise in LLC decisionmaking
  2. Provisions designed to resolve deadlocks
    1. Buy-sell
    2. External or internal “tie-breakers”
    3. “Rotating/alternating” or “casting” voting procedures
    4. Put or call options
    5. Partition or sale of the company or its assets (and when that is appropriate)
  3. Provisions requiring alternative dispute resolution
    1. Mediation
    2. Arbitration
  4. The goal - avoiding litigation or judicial dissolution

Benefits

The panel will review these and other key issues:

  • What are the typical triggers of a deadlock between members or managers?
  • What are the key provisions that should be included in the LLC's operating agreement to resolve the deadlock?
  • When is a partition or sale appropriate to resolve a deadlock?
  • What are the advantages and disadvantages of arbitration and mediation, and what should the LLC provide?

Faculty

Louis T.M. Conti, Partner
Holland & Knight, Tampa & Orlando, Fla.

Mr. Conti's practice includes serving as outside counsel to businesses of all sizes, mergers and acquisitions, cash flow and asset-based financings, leveraged buy-outs, mezzanine and subordinated debt transactions, public and private equity placements, venture capital and private equity investments, company governance advice, sophisticated and complex cross-border transactions, and joint ventures and strategic alliances. He has served as a special master and arbitrator in LLC disputes, and as an expert witness in connection with Florida corporate and LLC law in cases around the state. He is the co-author of "Deadlock-Breaking Mechanisms in LLCs—Flipping a Coin Is Not Good Enough, but Is Better Than Dissolution" published in Business Law Today.

Lisa R. Jacobs, Partner
DLA Piper, Philadelphia

Ms. Jacobs represents businesses and institutional and individual clients in domestic and international transnational matters including mergers and acquisitions to complex corporate finance, venture capital transactions, institutional and private equity financings, asset securitizations and private placements, as well as private equity fund formation and governance issues. In addition, she counsels government and sports organizations in structuring transactions. She is the co-author of "Deadlock-Breaking Mechanisms in LLCs—Flipping a Coin Is Not Good Enough, but Is Better Than Dissolution" published in Business Law Today.

Steven N. Leitess, Member
Silverman Thompson Slutkin White, Baltimore

Mr. Leitess’ practice has a national scope, serving clients located around the country in litigation and transactional matters. His practice focuses on business litigation, consulting and strategic planning, corporations and unincorporated business entities, asset-based lending, commercial financial services, bankruptcy and state law insolvency/receiverships, commercial real estate purchase, sale, development and foreclosure, UCC contracts, and employment, trade secret and non-competition agreements. He also dedicates his practice to transactional matters and “outside general counsel” services for day-to-day operations of corporate clients who lack an in-house legal department. He is the co-author of "Deadlock-Breaking Mechanisms in LLCs—Flipping a Coin Is Not Good Enough, but Is Better Than Dissolution" published in Business Law Today.


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