Published by BCR Law on May 1, 2026
Typically, when members of an LLC find themselves in disputes, the operating agreement is the first place to turn, with the interpretation of the agreement and other relevant governance documents the key factor in reaching resolution.
But when an LLC falls apart and the ownership picture is fuzzy—no signed operating agreement, unclear or unambiguous governing documents, a messy paper trail, signed documents are few and far between, competing memories—what looks like a partnership spat quickly becomes a high-stakes evidentiary exercise. Courts don’t like to invent ownership out of thin air, so sifting through scraps of paper, bank records, and even late-night emails becomes the only way to figure out who really owns what.
The Statutory Backdrop: Same Problem, Different State Rules
Not every state approaches these disputes the same way. The governing statutes per state set the stage for how much wiggle room a judge has when an LLC implodes.
Delaware. Delaware’s LLC Act casts a wide net on what counts as an “agreement.” It can be written, oral, or even implied by conduct. Del. C. § 18-101(9). That flexibility gives the Court of Chancery plenty of room to reconstruct ownership out of partial documents and years of course of dealing. Delaware judges also have strong tools, like judicial dissolution, if the company can’t be salvaged, as Delaware courts may dissolve an LLC if it is no longer “reasonably practicable” to carry on its business. Del. C. § 18-802. Delaware statute also allows for the modification or elimination of fiduciary duties in an operating agreement, provided the implied covenant of good faith and fair dealing is preserved. Del. C. § 18-1101(e). Business valuation experts may be retained by parties to help the court determine company valuations and ownership interests. Additionally, membership interests may be assigned or transferred unless expressly restricted by the governing documents. See Del. C. § 18-702. However, the transfer of a membership interest does not automatically guarantee membership of the transferee to the LLC. See id.
Colorado. Like Delaware, Colorado law and the Colorado LLC Act also permit LLCs to exist without a written operating agreement, but Colorado courts must fall back on statutory defaults when members don’t write their own rules. The courts will also look to verbal or implied agreements, the conduct of members, and member contributions (whether financial, property, or services). Expect Colorado judges to lean heavily on bank records, tax filings, and witness testimony when the paperwork is thin. For instance, in De Koning v. De Koning, the court relied on testimony and historical evidence to establish ownership percentages in the absence of signed documentation, and, like in Delaware cases, the court considered the expert testimony of a business valuation expert retained by a party. See De Koning v. De Koning, 2012 Colo. Dist. LEXIS 2118, at *14 (2012). Membership interests may be assigned or transferred unless expressly restricted by the governing documents; however, the assignee or transferee must still subsequently be admitted as a member. C.R.S. 7-80-702.
New York. New York is extremely fussy when it comes to formalities. For instance, New York courts have warned that an operating agreement signed only by members doesn’t necessarily bind the LLC itself—the LLC itself, as a separate entity, must also sign. See Matter of Wythe Berry LLC v. Goldman, 230 A.D.3d 1081, 1083 (1st Dep’t 2024). That can leave a serious issue if business owners thought they had an operating agreement when, legally speaking, the company didn’t. New York judges still look at conduct and documents similar to Delaware and Colorado, but they tend to put more weight on formalities and are quicker to implement default rules pursuant to statute in the absence of formal evidence. Indeed, New York courts often emphasize that the absence of an operating agreement subjects the LLC to default rules, which may leave members at the mercy of statutory provisions, particularly in cases of deadlock or dissolution. See Spires v. Lighthouse Solutions, LLC, 4 Misc. 3d 428, 433 (N.Y. 2004).
What Judges Actually Dig Through
When ownership is murky, related litigation quickly turns into detective work. Lawyers pull together whatever evidence they can to tell the story of the LLC. Crucial pieces of evidence can come from a variety of sources.
Formation papers—articles or certificates of organization, plus any amendments—are often a starting point for both sides. These don’t always list ownership shares, but they at least confirm who set the company up. Drafts and stray writings relating to the business—an “almost” operating agreement, a term sheet, or even email threads—can be pieced together into something resembling a contract. Often, a draft document, accompanied by emails involving the relevant parties who are sending and receiving these drafts, can show knowledge of the documents and agreements—or even an “agreement” to their content. Even so, courts have limitations on what types of documents can be introduced as evidence, so even collecting these drafts and emails is not a guarantee that the court will accept them as evidence of an agreement.
Besides governing documents, money trails, such as bank statements, wire transfers, and checks that can be correlated to the business operations, are powerful pieces of evidence—they show who actually put skin in the game versus those who may not have. Similarly, tax filings are often treated as strong evidence of ownership, though they’re not ironclad.
Judges may also look at how the parties acted, not just what they wrote down. Day-to-day behavior—who signed contracts, who got distributions, who managed employees, as well as minutes, resolutions, meeting records, or member consents—all of these things can help create a picture of ownership.
Judges may also look to outside opinions to get an unbiased evaluation of the LLC. Often, with messy ownership disputes, there is uncertainty around the monetary value of a business or of the ownership interests. Experts are commonly retained to assist with this, and courts often give their documentary reports and witness testimony significant weight.
Even with all the evidence presented, it’s not unusual for courts to end up with a patchwork picture: bank records pointing one way, tax filings another, and oral testimony trying to fill in the gaps.
How These Cases Get Framed in Court
When things blow up, more often than not, there end up being more issues to sort through than were raised initially. Accordingly, there are a variety of legal and equitable causes of action that lawyers can file on behalf of the LLC or one of the members.
Some of the most common can include:
• Declaratory judgment: “Tell us who owns what.” This is the cleanest way to get a court ruling on percentages and perhaps the most asserted cause of action in a murky ownership dispute.
• Breach of contract: Even if the operating agreement is shaky or incomplete, courts may enforce what exists.
• Breach of fiduciary duty: Often asserted against a member or manager accused of self-dealing, interference with other members’ business relations, skimming money, or freezing out others.
• Accounting: Courts can order a deep dive into the books to figure out who owes what.
• Unjust enrichment: If one party pumped in money or labor without compensation, this claim fills the gap where no contract exists.
• Conversion or theft: This claim is perhaps the least asserted—reserved for the more extreme cases where funds or assets were flat-out misappropriated.
• Judicial dissolution: When there’s no way forward on determining who owns what, or if the members’ interests can be determined but it is in the best interest of one or more of the members or the company, one or more members can ask the court to shut down the LLC and distribute what’s left.
Each jurisdiction has its quirks. Delaware is relatively flexible, giving weight to statutory defaults but affording more flexibility to avoid those defaults; Colorado leans on statutory defaults but offers parties room for flexibility; New York is stricter about formalities and leans heavily on statutory defaults. But across the board, these are the building blocks of litigation required to determine unknown ownership interests—and, if necessary, take additional action.
A Few War Stories (Simplified)
Delaware: Robinson v. Darbeau, C.A. No. 2019-0853-KSJM (Del. Ch. Mar. 1, 2021). The Delaware Court of Chancery found an implied-in-fact LLC agreement and recognized membership/manager rights based on the parties’ conduct (even though a final written agreement was not executed). Robinson, C.A. No. 2019-0853-KSJM, at *19–20. An implied LLC agreement was found because the court determined the defendant operated the LLC alongside the plaintiff, who, along with the LLC, referred to the defendant as a “Co-Owner” and “Co-Director” in countless situations and presented the defendant as a co-equal to clients and the public. The defendant also contributed to the LLC’s operations, performing various administrative tasks and contributing financially to the LLC. Id. at *17–19.
Colorado: LaFond v. Sweeney, 343 P.3d 939 (Colo. 2015). The Colorado Supreme Court emphasized that, when there is no controlling operating agreement for an LLC, the Colorado Limited Liability Company Act, Colo. Rev. Stat. § 7-80-101 et seq. (“LLC Act”), supplies the default rules. LaFond is regularly cited for the proposition that the LLC Act controls in the absence of an operating agreement, with Colorado courts falling back on the default statutory rules more and giving weight to informal conduct less than Delaware. However, the court still found that prior conduct of the parties and verbal agreements were binding where unambiguous (“we conclude that LaFond and Sweeney must split L&S’s portion of the contingency fee and any other profits . . . including statutory attorneys’ fees, according to their verbal profit-sharing agreement in the absence of an operating agreement that provides otherwise”). LaFond, 343 P.3d at 949. Colorado, therefore, represents a sort of “middle ground” jurisdiction between Delaware and New York in certain circumstances.
New York: Matter of Wythe Berry LLC v. Goldman, 230 A.D.3d 1081 (1st Dep’t 2024). The New York Appellate Division, First Department, held that an LLC that did not itself execute or adopt an operating agreement was not bound by it (“a nonsignatory LLC is a nonparty to an agreement among its members only”) and refused to find that ambiguous side agreements between the members dictated the members’ rights. 230 A.D.3d at 1083. Thus, the members were subject to default rules. See id. New York courts, even more so than Delaware and Colorado, can often be the strictest (and fussiest) about formal documentation and default rules controlling.
How to Avoid the Nightmare
The cleanup job that litigation tends to play in issues like these is expensive, time-consuming, and emotionally draining. Thankfully, there are easy steps LLCs can take now to help prevent the likelihood of a battle in the future.
- Sign a written operating agreement—and make sure all members and the LLC sign it too. Don’t just pass drafts around.
- Keep clean records of contributions. Capital ledgers, receipts, and membership certificates aren’t paperwork for paperwork’s sake—they’re protection.
- Match your tax filings to reality. If someone’s getting a K-1, that’s powerful evidence of membership. Don’t hand them out casually.
- Paper your deals. Buying out a member? Admitting a new one? Put it in writing, signed by all.
- If you’re already in a mess, build a record now. Gather drafts, bank records, and emails before they disappear.
Final Thoughts
When LLC members split and no clear operating agreement exists, courts are left piecing together a jigsaw puzzle from bank statements, emails, and half-finished contracts. Delaware, Colorado, and New York all have their own flavors of how they handle these disputes, but the common thread is this: the more informal you are on the front end, usually, the more expensive it will be to sort out later.
An LLC breakup doesn’t have to feel like a courtroom drama—but if it does, the winner is often the one with the thicker, cleaner stack of documents. Whether you’re planning ahead or currently going through a business separation, getting experienced legal advice is key. Our experienced team is here to help navigate all aspects of business divorce. In addition, we welcome the opportunity to review your LLC or partnership’s governing documents to ensure you and your company are prepared to efficiently handle any future business divorce.
