Like any other type of business structure, a limited liability company (LLC) can face internal disputes among its members. It is important to know your options when there is conflict within an LLC. The long-term health and viability of the business depend on being able to resolve disagreements.
A South Carolina business attorney can provide guidance when resolving LLC member disputes in South Carolina and help you take steps to avoid disputes in the future.
Resolving LLC Member Disputes
Often, there is no actual dispute; rather, there is a misunderstanding. One member might have misinterpreted what another member did or believed rumors without verifying the facts. The first step in resolving disputes among members of an LLC is to sit down with all the involved parties and identify the issue in dispute. This simple stuff step could save everyone a great deal of grief and prevent the situation from escalating.
Another common scenario is that an LLC member did something out of ignorance rather than malice. Very few people actually read the contracts they sign. An LLC member might not realize that the LLC operating agreement prohibits certain conduct. Explaining the rights and duties of LLC members might help the offending member to realize what they did was wrong, and give them an opportunity to correct their actions.
If those two approaches are not effective, you might try to resolve the conflict through alternative dispute resolution, like mediation or arbitration. You will want to check the LLC operating agreement for the rules about dispute resolution. One of the worst things to do is immediately file a lawsuit. Litigation is adversarial and confrontational, and will likely damage if not destroy business relationships.
Sources of Conflict Among Members of an LLC
If the LLC has a managing member, the other members might suspect that the managing member overstepped their authority, improperly appropriated assets of the company, received an unfair amount of compensation, or breached their fiduciary duty in some other manner. The same accusations could be leveled by one member against another member.
Also, perceived or actual conflicts of interest can lead to disputes between members of an LLC. For example, a member might enter into a contract for the LLC to purchase materials from another company without disclosing that member’s financial interest in that supply company.
Preventing Future LLC Member Conflicts
Make sure that the LLC operating agreement covers all essential issues, so that all members know their rights and obligations. An LLC member should not have to guess about whether conduct is allowed or prohibited.
Hold a meeting of the LLC members to discuss any gaps you discovered in the operating agreement. Get their input on the terms they would like to have in the contract. With the permission of the LLC, draft an amended operating agreement and have all members sign the document. Hold a meeting with all members to discuss the terms of the operating agreement and make sure they understand what is expected of them.
If your LLC experiences conflicts among its members, you could seek the guidance of a South Carolina business attorney. Get in touch with our office today for a consultation.