When people come together to form a new business, everything usually starts off great—it is all smiles and handshakes. Most new businesses do not contingently plan for what happens if the relationship amongst the principals turns sour. So what happens when things get so bad that it is impractical for all the parties to remain in business together? Well, if the business is a limited liability company (LLC), one option to consider is seeking a judicial determination to force out a minority member of the LLC.

New Jersey Limited Liability Company Act

One of the most common forms of business for small- and medium-sized companies is a LLC. For many years, LLCs formed in New Jersey were governed by the New Jersey Limited Liability Company Act (LLCA). The LLCA provided that a member could be “dissociated” (i.e., expelled) by a judicial determination for various reasons, including where the member: (1) has engaged in wrongful conduct; (2) materially breached the LLC’s operating agreement; or (3) has engaged in conduct “which makes it not reasonably practicable to carry on the activities with the person as a member.” N.J.S.A. 42:2B-24(b)(3). In 2013, the legislature repealed the LLCA and replaced it with the Revised Uniform Limited Liability Company Act (RULLCA). The RULLCA contains essentially the same expulsion provisions. See N.J.S.A. 42:2C-46(e). However, despite the long-standing statutory mechanism for expelling a LLC member where it was not “reasonably practicable” to carry on the business with that member, there was a dearth of case law interpreting this ambiguous phrase.

Chancery Court Orders Expulsion

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]