Here we go again — and again and again.
On numerous prior occasions I’ve written about judicial dissolution cases and other infighting among LLC members featuring disputes over membership percentages. The disputes may involve voting rights, management rights, profit shares, buyout, or distributions upon liquidation.
In some cases, the parties fail to document properly — or at all — their respective membership interests. In others, the operating agreements state initial membership percentages but make them subject to future adjustment based on changes in the members’ capital accounts.
In the latter instance of indeterminate or floating interests, the operating agreement can become a curse if eligible capital contributions aren’t adequately defined and/or it establishes no reliable mechanism for recording them, especially non-cash contributions such as services or property. It becomes a double curse when the parties opt to forego legal counsel and use one of the notoriously unreliable, free or cheap, one-size-fits-all, online operating agreements.
The double curse was at work in Roy Food and Wine LLC v Meregalli, 2019 NY Slip Op 32875(U) [Sup Ct NY County Sept. 25, 2019], decided last month by Manhattan Commercial Division Justice O. Peter Sherwood, in which the parties litigated among other issues their respective membership interests, including a claim that the managing member misrepresented his capital contributions. Continue Reading The Perils of Indeterminate LLC Membership Interests