Can Your LLC Operating Agreement Block You From Dissolving the Business? What New York Business Owners Need to Know

Imagine you co-own a business in New York with a partner. Things were great at first. But now your partner is making decisions you disagree with, cutting you out of profits, or running the company into the ground. You want out. You go to a lawyer and learn that the operating agreement you signed years ago says you cannot ask a court to dissolve the LLC. Can that clause actually stop you?

This is a question more and more New York business owners are asking. And right now, the courts do not agree on the answer. A recent wave of cases in 2025 has brought this issue into sharp focus, and the outcome could affect thousands of LLC members across the five boroughs, Nassau County, and Suffolk County.

What Is Judicial Dissolution of an LLC?

Judicial dissolution is when a court orders that a business be shut down and its assets divided. In New York, LLC Law Section 702 gives members the right to petition a court for dissolution. You can do this when:

• The managers or controlling members are acting illegally, fraudulently, or oppressively

• The LLC's assets are being wasted or diverted for non-business purposes

• It is not reasonably practicable to carry on the business in conformity with the operating agreement

Think of it as the legal escape hatch for a business relationship that has broken down beyond repair. It is especially important for minority members who do not have the votes to force a buyout or a wind-down on their own.

What Is an Anti-Dissolution Waiver?

An anti-dissolution waiver is a clause in an LLC operating agreement that says the members give up their right to go to court and ask for dissolution. These clauses have become common in New York operating agreements, especially in real estate LLCs and family-owned businesses.

The idea behind them is stability. If you are running a long-term project like a real estate development, you do not want a disagreement between partners to trigger a forced sale. But in practice, these waivers can trap minority members in bad situations with no way out.

New York Courts Are Split on Whether These Waivers Are Enforceable

In 2025, the Second Department of the Appellate Division addressed this question in TZ Vista, LLC v. Helmer. The court held that the anti-dissolution waiver in the LLC's operating agreement was enforceable. The member who wanted out was stuck.

But that is not the end of the story. In a separate case around the same time, another court found that a similar waiver was unenforceable as against public policy. That ruling was a key factor in securing a $14.5 million buyout for a minority member.

So which is it? Right now, the answer depends on which court you are in and the specific facts of your case. This kind of split creates real uncertainty for business owners across New York.

Why This Matters for NYC Business Owners

If you are a member of an LLC in New York, this affects you in two important ways:

• If you are a minority member: You need to know whether your operating agreement contains an anti-dissolution waiver. If it does, your ability to exit the business through the courts may be limited. But it is not necessarily a dead end. Depending on the circumstances, a skilled commercial litigator may be able to argue that the waiver is unenforceable.

• If you are a controlling member: Do not assume that a waiver in your operating agreement will automatically protect you. Courts are looking at these clauses with increasing skepticism, especially when they are used to oppress minority members.

This is particularly relevant in industries that are common in New York City, like real estate, restaurants, retail, and professional services. Many of these businesses are structured as LLCs with two or three members. When the relationship breaks down, the operating agreement becomes the battlefield.

The Bigger Picture: LLC Amendment Rights

Another important 2025 decision from the New York Court of Appeals makes this even more complicated. In Behler v. Tao, the Court of Appeals upheld a controlling member's right to unilaterally amend an LLC operating agreement when the original agreement granted that power. The controlling member had added a merger clause to the agreement after the fact, and the court said that was allowed.

What does this mean in practice? If your operating agreement gives the majority member the right to amend it, they could potentially add an anti-dissolution waiver after you have already joined the LLC. You might never have agreed to that waiver, but it could still apply to you.

This is why it is critical to review your operating agreement carefully before you invest in or join any LLC. Pay close attention to:

• Amendment provisions: who can change the agreement and under what conditions

• Dissolution rights: are they preserved or waived

• Buyout provisions: is there a mechanism to buy out a member who wants to leave

• Deadlock provisions: what happens when the members cannot agree

What Happens When a Member Dies?

The First Department addressed another important question in Bodenchak v. 5178 Holdings LLC in 2025. When an LLC member who had filed for judicial dissolution died, the question was whether the executor of the estate could continue the dissolution proceeding.

The controlling members argued that the deceased member's interest terminated upon death. The First Department disagreed, ruling that LLC Law Section 608 gives the executor mandatory standing to step into the deceased member's shoes. This is important for estate planning. If you are an LLC member, your family's rights do not necessarily disappear when you pass away.

Protecting Yourself: What You Can Do Now

Whether you are already in a business dispute or just want to make sure you are protected, here are practical steps you can take:

• Review your operating agreement: Look for anti-dissolution waivers, amendment clauses, and buyout provisions. If you do not understand the language, have an attorney review it.

• Negotiate before you sign: If you are joining a new LLC, push back on anti-dissolution waivers. At minimum, negotiate for a fair buyout provision as an alternative exit.

• Document everything: If you suspect your partners are acting in bad faith, keep records. Emails, financial statements, and meeting notes can all be important evidence.

• Act quickly: Business disputes tend to get worse over time. The sooner you get legal advice, the more options you will have.

Frequently Asked Questions

Can I dissolve my LLC even if my operating agreement says I cannot?

It depends. New York courts are currently split on whether anti-dissolution waivers are enforceable. A court may refuse to enforce the waiver if it was used to oppress a minority member or if enforcing it would violate public policy. You should consult an attorney to evaluate your specific situation.

What is the difference between judicial dissolution and voluntary dissolution?

Voluntary dissolution happens when the members agree to shut down the business. Judicial dissolution is when a court orders it, usually because of a serious dispute. If your partners refuse to agree to a voluntary dissolution and you believe you are being treated unfairly, judicial dissolution may be your best option.

Can a controlling member change the operating agreement without my consent?

Possibly. The New York Court of Appeals ruled in Behler v. Tao that if the original operating agreement grants unilateral amendment rights to a controlling member, those amendments can be binding on all members. This is why reviewing the amendment provisions before joining an LLC is so important.

What should I do if my business partner is freezing me out?

Document the behavior, review your operating agreement for your rights, and consult a commercial litigation attorney as soon as possible. Depending on your situation, you may have claims for breach of fiduciary duty, breach of the operating agreement, or grounds for judicial dissolution.

The Bottom Line

New York LLC law is evolving fast, and the rules around dissolution waivers are still being worked out by the courts. If you are stuck in a bad business relationship, do not assume you have no options. And if you are entering a new LLC, take the time to protect yourself before you sign.

If you or someone you know is dealing with an LLC dispute, a business divorce, or a partnership conflict, the team at Yassi Law PC is ready to help. Contact attorney Reza Yassi or connect on LinkedIn. Call us today at 646-992-2138 for a consultation.

This article is for informational purposes only and does not constitute legal advice. Although I am an attorney, I am not your attorney, and reading this article does not create an attorney-client relationship. Laws vary by jurisdiction and may have changed since the publication of this article. For advice specific to your situation, consult a qualified attorney.