This page explains New York law under the Limited Liability Company Law for LLCs formed in New York: the ways an LLC can end, what a member must show to get a court-ordered dissolution, and what happens after the order. KOR Law LLP's business divorce practice handles disputes between members over management, distributions and dissolution, the interpretation of operating agreements, and contested buyouts and exits. If the business is a corporation, a different statute and a buyout election apply, covered in whether a minority shareholder can force a buyout or dissolution in New York.
Can the members dissolve the LLC without a court?
Yes, if the operating agreement or the statute gives them a path. An LLC is dissolved and must be wound up on the first of these events (LLC Law 701(a)):
- the dissolution date in the articles of organization, or the time specified in the operating agreement;
- an event the operating agreement specifies;
- the vote or written consent of at least a majority in interest of the members (or of each class or group), unless the operating agreement requires a greater or lesser percentage;
- having no members, subject to a 180-day window, or another period the operating agreement sets, for the last member's legal representative to agree in writing to continue the company; or
- a court decree of judicial dissolution under LLC Law 702.
The departure of one member does not end the company. Unless the operating agreement says otherwise, the death, retirement, resignation, expulsion or bankruptcy of a member does not dissolve the LLC unless, within 180 days, a majority in interest of the remaining members votes or agrees in writing to dissolve (LLC Law 701(b)).
In a deadlock, the voting route often fails by definition: two 50% members cannot produce a majority in interest without each other. That is why the operating agreement matters so much. The members must adopt a written operating agreement covering the business, the conduct of its affairs and the members' rights and responsibilities (LLC Law 417(a)), and a well-drafted one may contain buy-sell terms, dissolution events or a tie-breaking mechanism that resolves the impasse without a petition.
What does "not reasonably practicable" mean?
The statute does not define the phrase. The Appellate Division, Second Department, addressed it in Matter of 1545 Ocean Ave., LLC (2010). The court explained that dissolution under LLC Law 702 "is initially a contract-based analysis": the court must first examine the operating agreement to decide whether it is reasonably practicable for the company to carry on in conformity with it. It also noted that deadlock is an independent ground for dissolving a corporation under BCL 1104, but "no such independent ground for dissolution is available" under LLC Law 702.
The court then held that the petitioning member must establish, in the context of the operating agreement, that "(1) the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved, or (2) continuing the entity is financially unfeasible." It described dissolution as "a drastic remedy." In that case, the operating agreement allowed any one manager to act alone, and the court found that the managers' disagreements did not meet the standard. The same decision observed that a member aggrieved by a manager's conduct may have a derivative claim instead (citing Tzolis v Wolff, 2008).
The practical lesson: a petition built only on "we cannot agree" is weak. A petition that ties the disagreement to the operating agreement, and shows why the company cannot pursue its stated purpose or cannot continue financially, addresses the test the court applies.
How does a judicial dissolution run, step by step?
- Check the operating agreement. Look for dissolution events, buy-sell rights, voting thresholds and dispute clauses (LLC Law 417(a), 701(a)).
- File the petition. The application is made "by or for a member" to the Supreme Court in the judicial district where the LLC's office is located (LLC Law 702). In 1545 Ocean Ave., the proceeding was started by order to show cause and verified petition.
- The court part. The Commercial Division takes LLC dissolution cases whatever the amount at stake (22 NYCRR 202.70(b)(11)); see whether your business dispute belongs in the New York Commercial Division.
- Interim protection. A member can ask for a preliminary injunction or temporary restraining order when the other side threatens an act that would make the judgment ineffectual (CPLR 6301). A temporary receiver of property that is the subject of the action may be appointed where there is danger the property will be removed from the state, lost, materially injured or destroyed (CPLR 6401(a)).
- The decree. If the court orders dissolution, the applicant must file a certified copy of the order with the Department of State within thirty days of its issuance (LLC Law 702).
- Winding up. On cause shown, the Supreme Court may wind up the LLC's affairs on a member's application and may appoint a receiver or liquidating trustee (LLC Law 703(a)). Those winding up may settle the business, sell its property, pay its liabilities and distribute what remains (LLC Law 703(b)).
- Articles of dissolution. Articles of dissolution are filed with the Department of State within ninety days following the dissolution and the start of winding up; the articles of organization are cancelled when they are filed (LLC Law 705(a), (b)).
For more on how quickly emergency relief can be obtained, see how fast you can get a TRO or preliminary injunction in a New York business dispute.
| Order | Who is paid | Statute |
|---|---|---|
| 1 | Creditors, including members who are creditors, for the company's liabilities (by payment or adequate reserves), other than liabilities for distributions to members | LLC Law 704(a) |
| 2 | Members and former members, for distributions owed to them, except as the operating agreement provides | LLC Law 704(b) |
| 3 | Members, first for the return of their contributions not already returned, then for their membership interests in the proportions they share distributions, except as the operating agreement provides | LLC Law 704(c) |
What changes the answer?
- The operating agreement's terms. The court analyzes dissolution in light of the agreement first (LLC Law 702; 1545 Ocean Ave.).
- Whether one manager may act alone. An agreement that lets a single manager act can make deadlock less significant (1545 Ocean Ave.).
- The company's finances. Showing that continuing is financially unfeasible is one way to meet the standard (1545 Ocean Ave.).
- Voting thresholds and classes. Voluntary dissolution needs a majority in interest, or each class's majority, unless the agreement sets another percentage (LLC Law 701(a)(3)).
- The type of entity. Corporations have deadlock and special circumstances petitions (BCL 1104, 1104-a); LLCs do not.
- Where the office is. The petition goes to the Supreme Court in that judicial district (LLC Law 702).
- A lender's pledge. If a member's interest is pledged to a lender, the lender may have its own remedies; see what a UCC foreclosure sale of an ownership interest in New York is.
For example: two 50% members who cannot agree on a refinancing
For example, imagine a New York LLC formed to own and lease a mixed-use building in Brooklyn, with two members holding 50% each and an operating agreement that requires both members to approve any refinancing. (This is a made-up illustration, not a real client or result.) The mortgage is maturing, one member wants to refinance and the other wants to sell, and neither will sign. The operating agreement has no buy-sell clause and no tie-breaker, so a majority in interest to dissolve voluntarily cannot be reached (LLC Law 701(a)(3)).
One member petitions the Supreme Court in the judicial district where the LLC's office is located (LLC Law 702). The petition explains why, under the operating agreement's approval requirement, management cannot pursue the company's stated purpose of owning and leasing the building, and why continuing without a refinancing is not financially feasible, the two showings described in 1545 Ocean Ave. Because rent receipts have stopped reaching the company account, the petition also asks for interim relief (CPLR 6301, 6401).
Common mistakes
- Pleading deadlock alone. Deadlock is not an independent ground under LLC Law 702 (1545 Ocean Ave.).
- Skipping the operating agreement. Its exit and voting terms come first, and the court reads the dispute through them (LLC Law 417(a), 702).
- Using corporate law for an LLC. The BCL buyout election under BCL 1118 applies to corporate petitions under BCL 1104-a.
- Letting the asset slide. Interim relief is aimed at preventing loss or injury to property before judgment (CPLR 6301, 6401).
- Missing the filing after the order. The certified copy goes to the Department of State within thirty days (LLC Law 702).
- Forgetting the lender. Loan documents may treat the dispute or a dissolution as a default.
What to do this week
- Pull the signed operating agreement, articles of organization and every amendment.
- Mark each clause on voting, dissolution, transfers, buy-sell rights and dispute resolution.
- Write down the company's stated purpose and the decisions now blocked.
- Collect the company's financial statements and tax returns for the three most recent years (LLC Law 1102).
- Check loan documents for change-of-control or dispute defaults.
- Speak with counsel about whether to negotiate a buyout, seek interim relief or petition.
If the dispute is still at the early stage, the warning signs that a partnership or LLC dispute is headed to court covers records demands and other first steps.
Frequently asked questions
Does a member's resignation or death dissolve the LLC?
Not on its own. Unless the operating agreement provides otherwise, the company continues unless a majority in interest of the remaining members votes or agrees in writing to dissolve within 180 days (LLC Law 701(b)).
Can the other member be forced to buy me out?
The LLC Law has no buyout election like the one for corporations in BCL 1118. A buyout comes from the operating agreement's terms or from a negotiated settlement, which the members can reach at any point, including while a petition is pending. Pricing questions are covered in how a business is valued in a New York buyout or dissolution.
What if the LLC is still making money?
Financial unfeasibility is only one of the two showings. A member may instead show that management is unable or unwilling to reasonably permit or promote the company's stated purpose (1545 Ocean Ave.).
Can I file the dissolution case in federal court?
LLC Law 702 places the application in the Supreme Court in the judicial district where the LLC's office is located. Related claims raise their own forum questions, discussed in federal court or state court for a New York business dispute.
Who winds up the company after the order?
On cause shown, the Supreme Court may wind up the affairs on a member's application and appoint a receiver or liquidating trustee (LLC Law 703(a)). Those winding up can sue and defend, sell property, pay liabilities and distribute what remains (LLC Law 703(b)).
Will there be document discovery in a dissolution case?
The court controls disclosure, and in the Commercial Division specific limits apply; see what discovery limits apply in the New York Commercial Division. A member's statutory records right exists separately (LLC Law 1102(b)).