Partnerships and closely held businesses can thrive when owners share a vision, values, and goals. However, when disputes arise, they can hinder growth, erode trust, and jeopardize the company’s future. In New York, certain disputes may even become grounds for judicial dissolution—a court-ordered breakup of the business. Understanding when this option is available is essential for anyone facing serious internal conflict.
What Does Dissolution Mean in New York?
Business dissolution is the formal process of ending a company’s existence. For corporations, limited liability companies (LLCs), and partnerships, dissolution may be voluntary or court-ordered.
- Voluntary dissolution occurs when owners agree to close the business.
- Judicial dissolution happens when an owner petitions the court, claiming that disputes or misconduct make it impossible to continue.
Judicial dissolution is not granted lightly. Courts weigh the severity of the dispute, the impact on operations, and the rights of minority owners.
Common Business Disputes That Lead to Dissolution
Not every disagreement justifies dissolution. But in some cases, disputes reveal such deep divisions that continuing together is no longer feasible.
1. Deadlock Among Owners
Deadlock occurs when owners with equal power cannot agree on major decisions. Without a way to break the tie, the company may be paralyzed. In New York, persistent deadlock is a common basis for seeking dissolution.
2. Breach of Fiduciary Duty
Business partners owe each other duties of loyalty and care. When one owner diverts assets, competes unfairly, or hides information, trust is broken. A breach of fiduciary duty can be grounds for dissolution, especially when it undermines the company’s operations.
3. Oppression of Minority Owners
New York law protects minority shareholders and LLC members from oppression by the majority. If controlling owners freeze out minority interests, deny access to records, or withhold dividends, the minority may petition for dissolution.
4. Mismanagement or Fraud
Courts may order dissolution if the company is being grossly mismanaged or if fraud is taking place. Examples include falsifying financial records, engaging in self-dealing, or making reckless decisions that harm the business.
Alternatives to Dissolution
Dissolution is often viewed as a last resort. Before asking the court to dissolve a business, owners may consider:
- Buyouts–One side purchases the other’s ownership interest.
- Mediation or arbitration–Neutral third parties can help resolve disputes without litigation.
- Amending the operating agreement–Adding clearer voting rules or decision-making procedures may prevent deadlock.
Exploring these options can save time, money, and the relationships that often fuel a business’s success.
How New York Courts Handle Dissolution Petitions
When dissolution petitions are filed, New York courts take a careful approach. The court will:
- Review governing documents such as operating agreements or shareholder agreements.
- Consider whether the dispute makes it impossible to continue operations.
- Assess whether dissolution would unfairly harm innocent owners or creditors.
In some cases, courts may deny dissolution but order other remedies, such as appointing a receiver or compelling a buyout. This underscores the importance of having skilled legal counsel who can present your case effectively.
Talk to a Business Law Attorney in New York
At Kohan Law Group, we represent business owners facing disputes that threaten the future of their companies. Whether you are dealing with deadlock, fiduciary breaches, or shareholder oppression, our attorneys bring both courtroom skill and a deep understanding of business law to the table. Contact us today to learn how we can help.