Deadlocking is a standstill resulting from two opposing forces. The potential for this issue to arise is quite prevalent with two-member LLCs; namely, the members of the LLC are in disagreement with the other’s decision. If the matter is significant enough, business operations can come to a complete halt. Whenever possible, deadlocking should be avoided.
How can you avoid it? There are different provisions that can be incorporated into an operating agreement to avoid or prevent deadlocks. For example, a dispute resolution provision involving mediation or arbitration may be written into the operating agreement; or the members can agree to a “Texas shoot-out provision”, which results in offering to buy another member out on specific terms.
It is important for members to decide how a deadlock will be addressed on the front end in order to protect everyone’s interests and investment! Don’t do this alone! Contact C&G today to assist you!
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