Deadlock In LLCs

By: Washington State Business and Real Estate Lawyer David Tingstad

David TingstadThe IRS estimates that 25% of all LLCs consist of two members. Care should be taken to draft an LLC Agreement to avoid a deadlock between the members or managers. In Washington, our new default rule for voting of members is on a per member basis regardless of how much capital a member contributes. As a result, in the absence of an agreement to the contrary, a deadlock can arise in any situation where there is an even number of members. A deadlock between the members usually results in significant damage to the business of the LLC and can lead to expensive litigation involving judicial dissolution. You should have a written LLC Agreement that anticipates and resolves a deadlock before it arises. Common examples of deadlock resolution techniques include: the identification of a “tie breaker” to decide an issue, the appointment of an arbitrator, shotgun buy-sell and drag-along, tag-along, provisions.

If you are beginning an LLC or if you are a member of a deadlocked LLC, you should contact a lawyer at Beresford Booth immediately to take the necessary steps to protect your interest and your business.

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