The 'Not Reasonably Practicable' Standard for LLC Dissolution in New York: When Courts Will Force Your Business Partnership to End

Your business partner hasn't spoken to you in six months. They've blocked you from accessing company bank accounts, fired employees without consulting you, and started competing against your own LLC using company resources. You want out, but they refuse to buy you out or dissolve the company. In New York, you might have grounds for judicial dissolution under the 'not reasonably practicable' standard — but proving it requires more than just showing your partnership has gone sour.

Under LLCL § 702, New York courts can dissolve an LLC when it's 'not reasonably practicable for the limited liability company to carry on its business in conformity with the articles of organization or operating agreement.' This isn't just about personal conflicts — it's about whether the business can actually function as originally intended.

What Does 'Not Reasonably Practicable' Actually Mean?

The 'not reasonably practicable' standard focuses on business functionality, not personal relationships. New York courts look at whether the LLC can operate according to its governing documents and original business purpose.

The Court of Appeals established the framework in 1545 Ocean Ave., LLC v. Lipsett, 144 A.D.3d 628 (2d Dep't 2016), where the court explained that dissolution is appropriate when:

• The LLC cannot carry on its business as contemplated in the operating agreement

• Deadlock prevents essential business decisions from being made

• The business purpose has become impossible to achieve

• Management structure has completely broken down

Courts don't dissolve LLCs simply because members don't get along. You need to show the dysfunction prevents the business from operating.

The Business Function Test

New York courts apply a practical test: can this LLC accomplish what it was formed to do? If your operating agreement requires unanimous consent for major decisions and members are deadlocked on essential matters, that's strong evidence. If the LLC was formed to develop a specific property but co-owners can't agree on development plans, dissolution becomes more likely.

The key is showing that disagreements affect business operations, not just personal relationships between members.

When Do New York Courts Grant LLC Dissolution?

Courts grant dissolution in specific circumstances that go beyond ordinary business disputes. The dysfunction must be fundamental and affect the LLC's ability to operate.

Successful dissolution cases typically involve:

• Management deadlock: Equal ownership splits where members can't agree on major decisions required by the operating agreement

• Breach of fiduciary duty: Managing members using LLC assets for personal benefit or competing businesses

• Exclusion from management: Minority members being locked out of decision-making despite operating agreement rights

• Impossible business purpose: The original business goal can no longer be achieved due to changed circumstances

In Mizrahi v. Cohen, 2018 N.Y. Slip Op. 32692(U) (Sup. Ct. N.Y. County 2018), the court granted dissolution when managing members excluded minority owners from all business decisions and used LLC funds for unauthorized purposes.

Financial Considerations

Courts also consider whether dissolution serves the members' economic interests. If the LLC is profitable but poorly managed, a court might order a buyout instead of dissolution. But if mismanagement is destroying value and no other remedy exists, dissolution becomes appropriate.

The court examines whether less drastic remedies — like appointing a receiver or ordering a buyout — could solve the problem without ending the business entirely.

What Evidence Do You Need to Prove Your Case?

Proving the 'not reasonably practicable' standard requires specific documentation showing how dysfunction affects business operations. Personal animosity alone won't win your case.

Essential evidence includes:

• Operating agreement violations: Document instances where the LLC failed to follow required procedures for major decisions

• Financial records: Bank statements, accounting records, and evidence of unauthorized transactions or self-dealing

• Communication records: Emails, texts, and meeting minutes showing deadlock on essential business matters

• Business impact documentation: Lost contracts, missed opportunities, or operational problems caused by management dysfunction

You'll also need expert testimony on business valuation and evidence of attempts to resolve disputes through other means. Courts prefer dissolution as a last resort.

The Timing Factor

Document problems as they develop. Courts want to see that dysfunction is ongoing and affects day-to-day operations, not just isolated incidents. Keep detailed records of how management disputes prevent the LLC from pursuing its business purpose.

Evidence of attempts to resolve conflicts through negotiation or mediation strengthens your position by showing dissolution is truly necessary.

How Does the Dissolution Process Actually Work?

LLC dissolution proceedings in New York follow specific procedural steps under Article 7 of the LLC Law. The process typically takes 12-18 months if contested.

The litigation process includes:

• Petition filing: Submit dissolution petition in Supreme Court in the county where the LLC operates

• Preliminary relief: Request temporary restraining orders to prevent asset dissipation during litigation

• Discovery phase: Exchange financial documents, take depositions, and gather evidence of business dysfunction

• Valuation proceedings: Court-ordered appraisal of LLC assets and business value

• Final hearing: Present evidence on why dissolution is the only viable remedy

Courts often encourage settlement negotiations during this process. Many cases resolve with buyout agreements rather than formal dissolution.

Alternative Remedies

Before ordering dissolution, courts consider less drastic options. These include appointing a receiver to manage the LLC, ordering one member to buy out another, or restructuring management roles.

Under LLCL § 702(b), courts can order 'such other relief as may be appropriate' instead of dissolution if it better serves the members' interests.

What Are the Alternatives to Judicial Dissolution?

Before pursuing costly dissolution litigation, explore other options that might resolve the dispute more efficiently. These alternatives often preserve business value better than forced dissolution.

Common alternatives include:

• Voluntary dissolution: All members agree to wind up the LLC under the operating agreement terms

• Buyout negotiations: One member purchases others' interests at fair market value

• Mediation: Professional mediator helps members negotiate resolution without court involvement

• Arbitration: Binding arbitration if the operating agreement requires it for disputes

• Management restructuring: Modify roles and responsibilities to eliminate conflict sources

Many commercial litigation disputes involving LLCs resolve through negotiated buyouts that avoid the time and expense of dissolution proceedings.

Operating Agreement Provisions

Well-drafted operating agreements can prevent dissolution disputes by including buy-sell provisions, deadlock-breaking mechanisms, and dispute resolution procedures. If your agreement lacks these protections, you're more likely to need judicial intervention when conflicts arise.

Review your operating agreement with counsel to understand available options before pursuing dissolution litigation.

How Much Does LLC Dissolution Cost?

Contested LLC dissolution proceedings in New York typically cost $50,000-$200,000 in legal fees, depending on complexity and business value. These cases require extensive discovery, expert witnesses, and detailed financial analysis.

Cost factors include:

• Business valuation: Professional appraisers charge $15,000-$50,000+ for complex businesses

• Expert witnesses: Accountants, industry experts, and business consultants for testimony

• Discovery costs: Document production, depositions, and forensic accounting

• Court fees: Filing fees, motion practice, and potential appeal costs

Consider these costs against the value of your LLC interest when deciding whether to pursue dissolution or accept a buyout offer.

Many cases settle during litigation when parties realize the cost of fighting exceeds the disputed value. This makes early negotiation attempts crucial for cost control.

Frequently Asked Questions

Can I force dissolution if I own less than 50% of the LLC?

Yes, minority members can petition for dissolution under the 'not reasonably practicable' standard. Ownership percentage doesn't determine your right to seek judicial dissolution. However, you'll need stronger evidence showing that majority members' actions make continued business operations impossible or contrary to the LLC's purpose.

How long does the dissolution process take in New York courts?

Contested dissolution cases typically take 12-24 months from filing to final judgment. Complex cases involving substantial assets or forensic accounting can take longer. The timeline depends on court scheduling, discovery disputes, and whether parties attempt settlement negotiations during litigation.

Will I get fair value for my LLC interest in a dissolution?

New York courts order fair market value appraisals during dissolution proceedings. However, forced liquidation often results in lower values than orderly sales. Courts may also apply minority discounts to your interest depending on your ownership percentage and the operating agreement terms.

Can the other members block my dissolution petition?

Other members can oppose your petition, but they cannot simply block it. The court will examine evidence from all parties and determine whether the 'not reasonably practicable' standard is met. Strong opposition evidence might lead the court to order alternative remedies like a buyout instead of dissolution.

The 'not reasonably practicable' standard provides a path out of dysfunctional business relationships, but success requires careful preparation and strong evidence of business dysfunction. Courts won't dissolve profitable LLCs based solely on personal conflicts between members.

If you're locked in an LLC dispute where management dysfunction prevents your business from operating effectively, the team at Yassi Law PC is ready to help. Call us today at 646-992-2138 for a consultation.

Contact Us

Written by Reza Yassi | LinkedIn

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.