Judicial dissolution of a New York limited liability company (LLC) is governed by Section 702 of the LLC Law (LLCL), whereas judicial dissolution of a closely held business corporation is governed by Article 11 of the Business Corporation Law (BCL). Under Section 702, a court may order LLC dissolution “whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.” That’s it. No more.

Article 11 of the BCL is more expansive. Section 1104(a) authorizes a petition for judicial dissolution by a 50% shareholder based on various deadlock scenarios. Section 1104-a permits judicial dissolution at the behest of an “oppressed” minority shareholder or where the controlling shareholders divert or waste company assets or otherwise are guilty of illegal or fraudulent actions toward the other shareholders.

Depending on the provisions of the LLC operating agreement, conduct that would constitute grounds for dissolution under Article 11 of the BCL also may constitute grounds under LLCL Section 702. But not always, as one minority member of an LLC recently found out when the court dismissed his request for judicial dissolution. According to the court’s decision, the minority member alleged that the majority members engaged in “illegal, fraudulent and oppressive conduct” – terms that are lifted right out of BCL Section 1104-a. The court ruled that “[w]hile such allegations are grounds for dissolution under [BCL] § 1104-a, they are not grounds for dissolution of a limited liability company”.  The case, Bonanni v. Horizons Investors Corp., was decided by Justice Elizabeth Hazlitt Emerson of the Suffolk County Supreme Court, Commercial Division.

The lesson is clear: A complaint or petition for dissolution of an LLC should reflect Section 702’s provisions by alleging a genuine conflict between, on the one hand, the adverse member’s alleged misconduct or other conditions warranting dissolution and, on the other hand, the terms of the operating agreement or articles of organization.