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

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

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

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Conducted on Tuesday, October 18, 2022

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Course Materials

This CLE course 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 arrangements are in place. The panel 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 an agreement or obtain the required approval for a 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. It may also result in a judicial dissolution of the LLC.

Counsel can employ various provisions in LLC agreements to break a deadlock, including buy-sell conditions, external or internal "tie-breakers," 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 such as placing operational control in a custodian or dissolution of the entity. Operating agreements that do not offer mechanisms to break a deadlock may 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 for 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.

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Outline

  1. When deadlocks arise in LLC decisionmaking
  2. Provisions designed to resolve deadlocks
    1. Buy-sell
    2. External or internal "tie-breakers"
    3. Put or call options
    4. 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 high priority 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

Kelley, Kathleen
Kathleen A. Kelley
Shareholder
Bean Kinney & Korman

Ms. Kelley focuses her practice on corporate and transactional law and government contracts. Her client base...  |  Read More

Sluka, Peter
Peter J. Sluka
Partner
Farrell Fritz

Mr. Sluka represents a broad range of individuals and entities in all phases of complex commercial litigation,...  |  Read More

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