Remember the episode of Succession where Logan Roy promises Shiv the CEO position, only to pull it away once she’s fully committed? Or when he changes the rules, cutting his children out of distributions while enriching himself through side deals? That’s not just an exciting evening on the couch while enjoying your favorite home cooked meal (steak, always steak), it’s a textbook example of the kind of conduct that makes continued business operation legally “not reasonably practicable” under New York law. Under LLC Law § 702, the test is whether it is “not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.” When your business partner starts acting like Logan Roy, LLC Law § 702 becomes your exit strategy.
Quick Takeaways
Before diving deep, here’s what LLC members need to know: “Not reasonably practicable” goes beyond simple disagreements, it encompasses breach of fiduciary duty, fraudulent conduct, and systematic misconduct that makes continued operation unworkable under your governing documents. The § 702 analysis often stems from the breakdown of trust between members, not just external business challenges.
For LLCs, the standard is the statutory “not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.” Courts apply an objective, contract‑centered analysis that looks first to the LLC’s purpose and decision framework. The absence of an operating agreement can make dissolution more likely when disputes arise.
Understanding the Impracticability Doctrine for New York LLCs
Running an LLC requires trust, good faith, and adherence to fiduciary duties owed primarily to the LLC by managers and, in some contexts, controlling members, as shaped by the operating agreement. When these foundations crumble through open repudiation, misconduct, fraud, or systematic breaches of duty, continuing the business becomes not just difficult but legally not reasonably practicable.
In New York, impracticability under § 702 in the context of LLC dissolution encompasses situations where member misconduct has made it not reasonably practicable to continue operating the business in accordance with its original purpose and the governing documents. This includes scenarios where fraud, breach of fiduciary duty, improper distributions, or other bad faith conduct has destroyed the trust and cooperation necessary for the LLC to function. New York courts do not import corporate “oppression” doctrine into § 702; the focus remains on whether the LLC can function as its articles and operating agreement require.
When Member Misconduct Creates Impracticability
Breach of Fiduciary Duty as Grounds for Dissolution
Managers and controlling members owe fiduciary duties of loyalty and care, generally to the LLC and as modified by the operating agreement. When these duties are systematically breached, the LLC cannot function as intended. Consider a managing member who diverts LLC opportunities, misuses company funds by diverting them to their competing businesses, or manipulates distributions for personal gain. That conduct fundamentally undermines the trust and cooperation required for the LLC to function. This pattern of self-dealing, much like the shifting loyalties, promotions, demotions, disparate treatment and power plays seen in ‘Succession’, can make continued business operation legally not reasonably practicable. Courts look for patterns of conduct that fundamentally undermine the LLC’s operation.
Fraudulent Inducement and Ongoing Fraud
When an LLC is formed based on fraudulent representations, or when fraud permeates its ongoing operations, dissolution may be the only remedy. Remember when Logan promised Kendall the company would be his, using that promise to keep him loyal and invested, only to reveal it was never real? That’s fraudulent inducement in the corporate world.
Fraudulent inducement occurs when a member makes material misrepresentations to induce others to join the LLC, execute contracts, make capital contributions, or accept uneven distributions. Perhaps a member misrepresented revenue, concealed liabilities, or utilized capital in ways that benefited one member over the others. When the truth emerges, the defrauded members find themselves in a business fundamentally different from what they agreed to join, and often in different economic positions than what was agreed upon.
Ongoing fraud presents even clearer grounds for § 702 dissolution. When members discover their partner has been falsifying financial records, hiding income, or misrepresenting the LLC’s performance to cover their misconduct or continue to make distributions to themselves, much like how the Roy children repeatedly discovered hidden debt, secret deals, and undisclosed arrangements their father made, trust evaporates completely. An LLC cannot function when members must constantly verify every representation and guard against deception from their supposed partners. Fraud supports dissolution when it prevents the LLC from operating in conformity with the articles or operating agreement.
Improper Distributions and Financial Misconduct
LLCs depend on fair treatment of members according to their operating agreements and statutory requirements. When members make improper distributions to themselves, whether through direct payments, disguised compensation, or unauthorized benefits, they create conditions showing it is not reasonably practicable to continue in multiple ways. Think of Logan Roy’s approach to money at Waystar: “Everything is mine,” while everyone else fights for scraps. When an LLC’s controlling member adopts this mentality, the business becomes legally not reasonably practicable for other members.
Consider an LLC where the managing member pays themselves excessive “management fees” that were never authorized, takes “loans” that are never repaid, or makes distributions to themselves while claiming the LLC lacks funds to distribute to others. These actions make it not reasonably practicable for the LLC to function fairly for all members. When financial misconduct becomes systematic, dissolution may be the only way to protect innocent members’ interests.
Deadlock Compounded by Bad Faith
While simple deadlock between members might not always justify dissolution, deadlock combined with bad faith conduct often does. When 50/50 members reach an impasse, and one member exploits that deadlock for personal advantage, the situation becomes legally not reasonably practicable.
Bad faith in deadlock situations manifests in various ways. A member might refuse to attend meetings to prevent quorum, withhold consent to routine decisions to extract concessions, or use their blocking power to harm the LLC unless their improper demands are met. This weaponization of governance rights transforms manageable disagreement into dissolution-worthy facts under § 702. Note that “deadlock” is not listed in § 702, but courts treat true governance paralysis that defeats the operating agreement’s decision framework as evidence that carrying on is not reasonably practicable.
The Legal Framework for LLC Dissolution in New York
Statutory Foundation: LLC Law § 702
The key provision for LLC dissolution is LLC Law § 702, which allows members to seek judicial dissolution when it is “not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.” While this language doesn’t explicitly mention fraud or breach of fiduciary duty, courts have consistently held that such misconduct can render continued operation “not reasonably practicable.” The analysis is objective and contract‑centered. New York courts have made clear that corporate “oppression” standards are not imported into § 702.
The statute’s broad language gives courts flexibility to address various forms of member misconduct. When fraud, breach of fiduciary duty, or other bad faith conduct makes it not reasonably practicable for members to work together toward the LLC’s purposes, courts can find that continuing the business is not reasonably practicable.
The Leading Case: Matter of 1545 Ocean Avenue, LLC
The (currently) seminal case interpreting New York’s § 702 standard for LLCs is Matter of 1545 Ocean Avenue, LLC (2010). While the case involved a real estate LLC with member disputes, its principles apply broadly to situations involving misconduct. The court established that “reasonably practicable” focuses on the ability to achieve the stated business purpose, and member misconduct that prevents achievement of that purpose can justify dissolution.
The court emphasized that the standard is objective, and it is not just about whether members want to continue, but whether the LLC can reasonably continue given the circumstances. The First Department has adopted the 1545 Ocean Avenue test, creating alignment across departments. When trust has been destroyed through fraud or breach of duty, when financial misconduct has undermined member relationships, or when bad faith conduct prevents normal business operations, courts can find that continuation is not reasonably practicable.
Judicial Dissolution When There’s No Operating Agreement
The absence of an operating agreement makes LLCs particularly vulnerable to dissolution when misconduct occurs. In Amici v. Mazza (2025), the court addressed deadlock between two LLC members where trust had completely broken down. Without an operating agreement to provide governance mechanisms or dispute resolution procedures, the court found dissolution warranted under § 702.
Spires v. Lighthouse Solutions LLC (2004) established that when an LLC lacks formal governing documents, courts must determine whether continuation is “reasonably practicable” based on statutory requirements and the actual conduct of members. When that conduct involves breaches of statutory duties, fraud, or systematic misconduct, the absence of an operating agreement leaves the LLC without tools to address the problems, making dissolution more likely.
Where there is no written operating agreement, statutory defaults effectively function as the operating agreement for § 702 purposes. Without an operating agreement defining member rights, duties, and remedies for misconduct, courts have broader discretion to find that carrying on is not reasonably practicable. The default statutory duties become more important, and breaches of those duties carry greater weight in dissolution proceedings.
The Bottom Line
Dissolving an LLC based on member misconduct and the “not reasonably practicable” standard is a serious remedy for serious problems. When fraud, breach of fiduciary duty, improper distributions, or other bad faith conduct destroys the trust necessary for business operations, New York law provides a path to dissolution through LLC Law § 702.
New Jersey Sidebar: Parallels Under RULLCA
New Jersey’s RULLCA uses nearly identical language, authorizing dissolution when it is not reasonably practicable to carry on the company’s activities in conformity with the certificate of formation and the operating agreement. NJ courts apply the same objective, contract‑centered lens and often employ interim tools such as status‑quo orders, limited custodians, or neutral forensics. There is no statutory buyout mechanism for LLCs, so negotiated exits commonly follow once valuation and governance facts are clarified.
Key Cases Referenced
Matter of 1545 Ocean Avenue, LLC, 72 A.D.3d 121 (2d Dept 2010)
Amici v. Mazza, 234 A.D.3d 1170 (3rd Dept 2025)
Spires v. Lighthouse Solutions, LLC, 778 N.Y.S.2d 259 (2004)
