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Bsinessman PitfallThe limited liability company (LLC) has blossomed into the most widely-used business entity in New York and many other states in recent years because of the many perks it affords members and managers. It is a flexible model that allows companies to structure their business in a manner that best suits their wants and needs, while still providing them with the same limited liability protection afforded by limited partnerships. While the malleability of the LLC is attractive to sole proprietors and companies alike, members should not blindly rely on New York’s Limited Liability Company Law (LLCL) to govern the activities of the LLC, resolve all conflicts within the LLC or to compensate for a poorly drafted or non-existent operating agreement.

Case in point: Post-1999, it is notoriously difficult to withdraw from or dissolve an LLC in New York state without a carefully worded operating agreement that provides withdrawing members with a clear exit strategy, either in the form of an unambiguous withdrawal provision and/or an explicit clause providing a dissolution option. Where an LLC’s operating agreement fails to provide such clear-cut provisions—or where the LLC was formed without a written agreement altogether—members are left with no choice but to petition for judicial dissolution of the LLC under §702 of the LLCL, and more often than not, those petitions are unsuccessful.

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