Limited Liability Company (LLC) Disputes and Litigation

LLC’s are a relatively new form of business entity, as business entities go.  In New Jersey, LLC’s came into existence when the Legislature enacted the New Jersey Limited Liability Company Act in 1993.  In 2012, it adopted the Revised Uniform Limited Liability Company Act.

LLC’ have many advantages over other forms of business entities – they combine the best of partnerships and corporations.  Like a corporation, but unlike a partnership, members of LLC’s are normally not personally liable for the business’s debts unless they sign a personal guarantee.    On the other hand, like a partnership, but unlike a corporation, LLC’s avoid “double taxation” – profits are not taxed at the business level as well as again as personal income to the owners.  Likewise, LLC’s have much more flexibility than corporations do.

Owners of LLC’s (known as members), normally go into business ventures with the highest of hopes, and the highest of trust in their members owners.  However, disputes often are inevitable.  When they do, the first place to look is the LLC’s operating agreement.  This will normally spell out what the members rights, responsibilities and remedies are.  If the members have not adopted an operating agreement, then they are governed by the Revised Uniform Limited Liability Company Act, Chapter 2C of Title 42 of New Jersey Statutes. 

It is therefore important that owners have a well-drafted operating agreement so that the members can control their own fate.  McLaughlin & Nardi, LLC’s business lawyers have drafted many LLC operating agreements, as well as shareholder agreements for corporations and partnership agreements for partnerships.

Our business attorneys explore the possibility negotiations to resolve conflicts when they arise. However, we do so only when we can achieve a resolution which will safeguard our clients’ interests.  If a beneficial agreement cannot be reached, alternative dispute resolution (“ADR”) may afford a good option.  ADR, however, is only available when the parties agree to it.  Normally an agreement is included in the LLC’s operating agreement.  This demonstrates the value of having a well-written operating agreement.

Mediation entails a neutral mediator attempting to bring the owners together to resolve their differences and reach an agreement acceptable to all.  Arbitration, on the other hand, involves an arbitrator making a binding, unappealable decision, based on the evidence.

Our lawyers have drafted many operating agreements for New Jersey limited liability companies, and many effective ADR agreements.  We are experienced negotiators and have pursued our clients’ rights in many arbitrations and mediations, and Maurice McLaughlin serves as a mediator for Superior Court of New Jersey

When conflicts between members a limited liability company cannot be settled and there is no effective ADR provision in the operating agreement, litigation often ensues.  LLC litigation is normally heard in state court. 

Normally LLC litigation is heard in the Chancery Division of New Jersey’s Superior Court by a judge without a jury.  This is because the Chancery judge can provide “equitable” relief, not just money damages, although the judge normally awards that as well.  For instance, the Chancery judge can order forced buyouts, dissolve an LLC, or issue restraining orders.

LLC litigation is among the most complex.  Normally complex matters must be addressed such as business valuations, forensic accounting, and extensive document discovery and depositions.  It is important that you have an experienced attorney in these cases, which are extremely complex and have such far reaching consequences.  Our attorneys have extensive experience representing owners in business litigation in both New Jersey’s Chancery and law divisions, and in federal court.

If you believe that your rights as an LLC member have been violated, or you are wrongfully accused of violating your fellow owner’s rights, please e-mail us or call (973) 890-0004.