Under the right set of facts, New York courts occasionally find remedies for LLC owners not explicitly authorized in the Limited Liability Company Law (“LLC Law”). Judges have a natural inclination to try to find solutions for legal problems where existing law falls short, which is part of how the common law came to be.
One striking example is the LLC derivative cause of action. In Tzolis v Wolff, 10 NY3d 100 , the Court of Appeals ruled that members of an LLC “may bring derivative suits on the LLC’s behalf, even though there are no provisions governing such suits in the Limited Liability Company Law,” and even though the Legislature considered, but rejected, including a derivative right of action in the LLC Law.
Another remedy not found in the LLC statutes is the so-called “equitable buyout” in LLC dissolution proceedings.
In a nutshell, an equitable buyout grants an LLC member the possibility upon dissolution of the company (under circumstances yet to be well defined by the courts) of the ability to purchase the other member’s interest as an alternative to liquidation and sale of the company’s assets at auction. An equitable buyout results in one member involuntarily selling his or her equity to the other, and the other member becoming the business’s sole owner. The entity’s existence continues post-buyout – despite ostensibly being “dissolved.” Continue Reading The LLC Equitable Buyout: Past, Present, Future