The limited liability company did not exist as a legally recognized business entity in New York when I first began handling business divorce cases in the 1980s. Decades later, the LLC is “King of the Hill,” having displaced closely held business corporations and partnerships as the entity of choice for newly formed businesses in New York and across the nation.
The legislative premise of LLC enabling statutes is freedom of contract. The statutes establish default rules that, with few mandatory exceptions, can be modified or even eliminated by the members in their operating agreement so as to order their internal affairs as they see fit to optimize management, operating, and economic efficiencies.
The default rules comprising New York’s LLC Law contain necessarily broad and undefined terms in identifying and enforcing the rights and responsibilities of LLC members and managers. As with other enabling statutes, by and large the legislature left it to the courts to construe, define, and refine the LLC Law’s provisions on a case-by-case basis. Over time, and through the doctrine of precedent known as stare decisis, the courts collectively fashion a common-law quilt that provides guidance for lawyers and other business advisors and, in turn, transactional certainty to the business community.
Matter of Cangro
These ruminations meet their antithesis in a recent decision in a case called Matter of Cangro, 2019 NY Slip Op 31846(U) [Sup Ct Richmond County May 16, 2019], in which two non-managing members together holding 25% of a family-owned, single-asset realty LLC petitioned for judicial dissolution under LLC Law § 702 based on allegations that they were being excluded from management and deprived of access to banking, insurance, and other granular business records. Continue Reading Court Appoints Interim Receiver for LLC, But at What Price?