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What to do if you are frozen out of an LLC by another shareholder

On Behalf of | Nov 8, 2023 | Business Law |

Being frozen out of a Limited Liability Company (LLC) by another shareholder can be a challenging and frustrating situation.

However, you can take steps to address this issue and protect your rights as a shareholder.

Document everything

Keep thorough documentation of all communication and actions related to the dispute. This includes emails, meeting minutes and any other relevant information. Having a clear record can be valuable if you need to prove your case in the future.

Review the operating agreement

Carefully review the LLC’s operating agreement. The operating agreement outlines the rules and regulations governing the company, including the rights and responsibilities of each member. Pay close attention to any provisions related to dispute resolution, decision-making and the transfer of ownership interests.

Communicate with the other shareholder

Open lines of communication help resolve conflicts within an LLC. Try to have an honest and respectful conversation with the shareholder freezing you out. Share your concerns and discuss possible solutions. It is often best to resolve issues amicably.

Request mediation or arbitration

If communication does not yield positive results, consider suggesting mediation or arbitration. This dispute-resolution method can be a cost-effective and less confrontational way to address your concerns and come to a mutual agreement.

Take legal action as a last resort

In New York, 64,870 and 68,420 businesses opened and closed, respectively, between 2020 to March 2021 according to the Small Business Administration, and small businesses were the majority with 62,936 closings. To prevent your business from closing, explore legal options as a last resort. Instead, consider seeking a court order to protect your interests or pursuing a “buy-sell agreement.”

Take time to do your due diligence and start with non-confrontational solutions to protect your relationship and company.