You and your co-owner each own 50% of a New Jersey LLC. One of you wants to renew a lease, borrow money, hire or terminate a key employee, approve a major purchase, distribute profits, or sell the business. The other will not agree.
Meanwhile, the company still has customers, employees, vendors, contracts, bills, and deadlines. The business dispute between two owners is no longer just personal. It is beginning to affect decisions the business needs to make.
Does either owner have the authority to move forward alone? Can one owner require the other to sell? Does a 50/50 disagreement mean the company has to shut down?
Not automatically. What happens next depends on the operating agreement, how the LLC is managed, the particular decision being disputed, and whether the circumstances meet the legal standards for court involvement.
The first step is understanding whether you have reached a true governance impasse or are dealing with a difficult but isolated disagreement.
When Does a 50/50 Disagreement Become a Real LLC Deadlock?
Business owners do not have to agree about every decision. Disagreements over hiring, spending, growth, compensation, or strategy are part of running a company with another person.
The problem becomes more serious when the owners have equal decision-making authority, and their disagreement repeatedly prevents the LLC from taking action it needs to take. A necessary contract remains unsigned. Financing stalls. A major expenditure cannot be approved. An important management decision sits unresolved because neither owner has enough voting authority to overcome the other's objection.
For a member-managed New Jersey LLC, state law provides default management rules unless the operating agreement provides otherwise. Under those default rules, each member has equal rights in the management and conduct of the company's activities. Differences involving ordinary-course matters are decided by a majority of the members, while actions outside the ordinary course require the consent of all members.
In a two-member LLC, obtaining a majority of the members ordinarily requires both members to agree, unless the operating agreement provides a different decision-making structure.
What Does the Operating Agreement Say About the Decision?
When a dispute reaches this point, one of the first things we would review is what the governing documents actually say before assuming either owner is legally stuck.
The operating agreement can address voting requirements, management authority, decisions requiring unanimous approval, transfers of ownership, dispute-resolution procedures, buy-sell rights, and dissolution. It can also establish whether the LLC is member-managed or manager-managed.
That distinction matters. Under New Jersey's default rules, management of a member-managed LLC is vested in its members, with each member having equal management rights. In a manager-managed LLC, management decisions generally rest with the managers, although New Jersey law still requires member consent for certain actions.
The agreement can also allocate responsibilities or establish decision-making procedures that differ from what either owner assumed when the dispute began.
An operating agreement serves a much broader role in governing an LLC. In a deadlock, however, the immediate question is narrower: What does this agreement say about this decision, and who actually has authority to make it?
Does the Operating Agreement Provide a Way to Address the Deadlock?
Some operating agreements anticipate the possibility of an ownership impasse and provide procedures such as mediation, arbitration, a buy-sell process, valuation procedures, a designated decision-maker, or an agreed process for selling or dissolving the company.
Others do not.
Many business disputes become more difficult precisely because the agreement never contemplated the problem now facing the owners, or because the owners disagree about what a provision actually requires.
If the agreement contains a deadlock procedure, that provision deserves careful review before either owner takes unilateral action. If it does not, the absence of a contractual solution does not automatically give one member the right to impose an outcome on the other.
Can One 50/50 Owner Force the Other to Sell?
Not merely because the owners cannot agree.
One member's ability to require a sale or buyout depends on the operating agreement, any separate buy-sell agreement, the rights and claims involved, and, if litigation occurs, the remedies available under New Jersey law.
The owners can voluntarily negotiate a buyout, but that is different from having a legal right to force one.
New Jersey law does permit a court, in certain proceedings seeking judicial dissolution under the state's LLC statute, to order the sale of all interests held by a member who is a party to the proceeding to the company or another member who is also a party when the court determines that doing so would be fair and equitable under the circumstances. That authority does not create an automatic buyout right every time two equal owners reach a stalemate.
When Can a New Jersey Court Become Involved?
Court involvement is not limited to disputes over a potential buyout. Under New Jersey's Revised Uniform Limited Liability Company Act, an LLC member can seek judicial dissolution in specified circumstances. Those include situations where it is not reasonably practicable to carry on the company's activities in conformity with its governing documents, as well as certain cases where managers or controlling members have acted illegally or fraudulently, or have acted oppressively in a manner that is directly harmful to the member seeking relief.
A tied vote, personality conflict, or serious disagreement does not automatically satisfy those standards.
The court is also not limited to choosing between doing nothing and dissolving the LLC. In a qualifying proceeding, New Jersey law permits other relief, including the appointment of a custodian or provisional manager and, in appropriate circumstances, a court-ordered sale of a member's interest.
Which remedy, if any, is appropriate depends on the claims, governing documents, business circumstances, and evidence before the court.
What Should You Do Before the Dispute Gets Worse?
If important business decisions are already being delayed, focus first on understanding the company's legal and operational position rather than assuming you need to force the other owner out.
Consider:
- Reviewing the governing documents. Identify voting requirements, management authority, transfer restrictions, and dispute procedures.
- Defining the actual impasse. Determine whether one decision is stalled or whether the owners repeatedly cannot govern the business together.
- Preserving business records. Keep relevant emails, texts, financial records, meeting notes, contracts, and written objections.
- Avoiding unauthorized action. Do not assume that a deadlock expands your authority or allows you to make a disputed decision unilaterally.
- Assessing the business impact. Identify whether the dispute is affecting employees, customers, contracts, cash flow, or other ongoing obligations.
- Considering a negotiated resolution. Mediation, revised responsibilities, a voluntary buyout, or an agreed sale can sometimes resolve a dispute, but none is guaranteed to work.
- Having the dispute reviewed. An attorney can evaluate the governing documents, each owner's authority, and any contractual or statutory remedies that apply to the circumstances.
Does a Deadlock Mean the LLC Has to Close?
No. A 50/50 deadlock does not automatically dissolve a New Jersey LLC.
Depending on the governing documents, the facts, and the owners' willingness to reach an agreement, the dispute can result in mediation, a negotiated buyout, an agreed change in management responsibilities, a sale of the business, litigation, court-ordered relief, or, in appropriate circumstances, dissolution.
The fastest exit is not necessarily the best business or legal outcome.
Owners often have substantial financial, professional, and personal interests tied to the company, and a poorly considered decision can create additional problems instead of resolving the original dispute.
How Ritigstein Law Helps South Jersey Business Owners With LLC Disputes
At Ritigstein Law, we work with South Jersey business owners facing disputes involving company management, contracts, ownership rights, and business operations.
Our approach begins with understanding the business problem, the governing documents, and what is actually at stake. When a dispute can be addressed without litigation, we evaluate those options while remaining prepared to litigate when the circumstances require it.
From our Haddonfield office, we serve business owners throughout Burlington County, Camden County, Gloucester County, and the surrounding South Jersey region.
When equal owners cannot agree, we can review the operating agreement and other governing documents, identify what authority each owner actually has, and evaluate whether negotiation, another business resolution, or litigation is appropriate under the circumstances.
If a dispute between 50/50 owners is preventing your New Jersey LLC from making important decisions, contact Ritigstein Law to discuss the governing documents, the impact on the business, and what legal options may be available.
Disclaimer: The articles on this blog are for informational purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.
