The combination of majority rule and lack of exit rights leaves minority members of LLCs vulnerable to freeze-out and other oppressive conduct by the majority, yet unlike in the large majority of states which provide statutory dissolution and buy-out remedies to oppressed minority shareholders in close corporations, most states (including New York) do not offer similar protection and remedies for minority LLC members.

Perhaps no one has studied and written about the problem of minority oppression in LLCs and other closely held business entities more and with greater insight than Professor Douglas K. Moll, who teaches at the University of Houston Law Center. Back in 2009 I posted here an online interview of Doug on the subject of shareholder oppression in closely held corporations, in which he also commented on minority oppression in LLCs.

Since then the LLC’s growing hegemony has continued full throttle, with that form of business entity in most if not all states far surpassing the traditional corporation as the preferred form for newly formed firms, making all the more pressing the problem of trapped-in minority LLC members. A few months ago, Doug posted at the Business Law Prof Blog a short piece called Minority Oppression in the LLC in which he echoed many of the themes more fully developed in his 2005 article in the Wake Forest Law Review called Minority Oppression & The Limited Liability Company: Learning (or Not) from Close Corporation History (available here on SSRN).

I recently invited Doug onto my Business Divorce Roundtable podcast to talk about minority oppression in LLCs. In the interview, a link to which is provided at the bottom of this post, Doug discusses:

• the basic concepts of minority oppression stemming from majority control and lack of exit rights;
• the historical evolution of LLC member exit rights and remedies driven largely by tax treatment considerations;
• the disparity in the number of states that provide statutory dissolution and buy-out remedies for minority shareholders in close corporations versus minority members in LLCs;
• the availability of fiduciary doctrine as substitute, however adequate or inadequate, for dissolution remedies; and
• the similar opportunities for minority oppression present in the LLC form as compared with the close corporation, and therefore the similar need for a protective oppression doctrine.

It was a pleasure talking with Doug, who’s a powerful thinker, articulate speaker, and terrific teacher with a deep understanding of both the legal and practical challenges that can arise in relations among business co-owners under the various corporation, partnership, and LLC statutory schemes.

So give the interview a listen. It’ll be 40 minutes very well spent.