LLC Member Disputes

by | Jan 27, 2022

First, what is a member dispute? And why does an LLC need to have specific rules for how members can dissolve their company?

LLC is one of the most popular legal structures in business today. And an LLC member is basically anyone who has a stake in it, either as a manager or as an investor.

Often, the LLC owners do not get along, and legal action needs to be taken. That legal action is called a “member dispute.”

The most common disputes in an LLC involve money, responsibilities, and unethical conduct. LLC members may disagree about how often and how much profit should be distributed. If negotiations fail, LLC members can hire a neutral third party skilled in dispute resolution to help mediate the dispute.

If members within the LLC have a dispute, you must consider if you have the legal ground to sue the co-member.

There are legal actions that a member can take against a fellow member regarding a legal dispute within an LLC. If one member is causing problems, then there are legal remedies that a manager has available. These legal remedies help protect members’ legal interests, the legal interests of the organization, and all legal rights to which you may be entitled.

However, if a co-member simply refuses to contribute their share on an LLC matter, legal action might not be necessary. In legal terms, there’s no legal ground for a legal suit unless it violates the implied covenant of good faith and fair dealing.

Can an LLC sue one of its members?

Not all LLCs have an operating agreement. Unfortunately, many LLCs form without drafting any sort of contract about the rights and duties of the parties. In those cases, members in an LLC can only sue one another if they can prove that they have been personally harmed apart from the other members or the business.

By legal definition, legal action is not legal ground for a legal suit unless it violates the implied covenant of good faith and fair dealing. The implied covenant of good faith and fair dealing is an agreement that all legal entity members will abide by and perform on. It also means that they will not create legal issues or grounds for legal suits.

If you have a legal ground to sue them within the legal covenants and agreements of the legal entity, you may consider legal action against your co-member.

On the flip side, when an LLC has done something wrong, there are times when legal action can be taken against them by another outsideparty.

Unless the legal action is successful, legal fees to act against an LLC may be more than what would have been won.   When another party takes legal action against an LLC, they are referred to as a claimant.   If you are involved in legal action with an LLC, one or more company members are claimants. Legal claims against an LLC can be taken by or against:

  1. a legal entity (LLC)
  2. a legal person (such as an individual member of the legal entity, if applicable)

If legal action is successful, claimants may receive compensation from the other party. The amount of their compensation will depend on the legal action.

In conclusion, legal action may not be grounds for a lawsuit unless it violates the implied covenant of good faith and fair dealing. If legal ground does exist, then legal action might be considered to protect the legal interests of the LLC and all legal rights owned by each member within the LLC.