Imagine arriving at work to find that your company email no longer works. Your access to the accounting software is gone. The other owner sends a short message: “I will be handling things from here.”
You still own part of the business. Can your partner simply shut you out?
For owners of a New Jersey limited liability company, the answer starts with three separate questions: Are you still a member? Do you have authority to manage the company? What information are you entitled to receive? A password change alone does not resolve those questions.
Start with the operating agreement. It generally governs the relationship among the owners and how the company operates, subject to certain statutory requirements. Where the agreement leaves a gap, New Jersey’s LLC statute supplies default rules.
Those rules distinguish between a company managed by its members and one managed by designated managers. In a member-managed LLC, the default is that each member has equal management rights. In a manager-managed LLC, managers generally control operations. The agreement can change many of these arrangements, so ownership percentages alone do not tell the whole story.
Removal from a management position is also different from loss of membership. The statute expressly provides that a person who stops being a manager does not, for that reason alone, cease to be a member. Review the agreement, any resolutions, and the required approvals before accepting the other owner’s announcement as legally effective.
Access to financial information deserves its own review. In a member-managed LLC, a member generally may inspect and copy records which are material to the member’s rights and duties, on reasonable notice. Members of manager-managed LLCs have a different demand procedure. The request must identify the information sought and a purpose material to the member’s interest, with a direct connection between the two.
For a qualifying demand in a manager-managed LLC, the company must respond within 10 days, identifying what it will provide, when and where, and its reasons for any refusal. That is a response deadline, not a requirement to deliver every requested document within 10 days.
The company may impose reasonable confidentiality and safeguarding conditions. An operating agreement, however, cannot unreasonably restrict statutory information rights. As a practical matter, bank statements or appropriate read-only access may address an information request without giving someone authority to move money. The right to see financial information and the authority to transact should be evaluated separately.
A falling-out also does not automatically justify expelling a member. Indeed, a conflict among members does not establish that continued operation with a specific member is not reasonably practicable. However, removal when an agreement or other statutory ground permits could be the route that needs to be taken.
What should an owner do after discovering a lockout? Four practical steps can help clarify the problem before the dispute disrupts the business.
- Document what changed. Save the lockout messages, identify the systems affected, and record when access stopped. Preserve relevant materials already lawfully in your possession. Ask counsel to address preservation of company records and access logs.
- Request the basis for the decision. Ask who authorized the restriction and which agreement provision, resolution, or other authority supports it. A temporary security measure presents different issues from an attempt to remove an owner from management or conceal transactions.
- Make a specific request for information and access. Identify the records needed, the relevant dates, and why the information matters to your ownership interest. Counsel can frame the demand under the applicable agreement and statute. A request for identified bank statements and financial reports gives the company something concrete to answer.
- Avoid a contest over passwords and cash. Do not respond by transferring company funds to a personal account, deleting records, or trying to bypass access controls. Seek an interim arrangement that addresses payroll, ordinary bills, and necessary information sharing while authority is resolved.
Some situations require faster intervention. If the lockout threatens ongoing operations or there is evidence that records may be destroyed, counsel should promptly assess whether temporary injunctive relief is warranted.
Emergency relief is not automatic. Under Crowe v. De Gioia, a court considers irreparable harm, the settled nature of the underlying legal right, a reasonable probability of success, and the relative hardships. Harm that can be adequately compensated with money ordinarily does not satisfy the irreparable-harm requirement. A concrete explanation of what will happen without immediate relief matters more than the assertion that the other owner is being unfair.
A serious exclusion dispute may also raise oppression issues. New Jersey’s LLC statute permits a member to seek judicial dissolution when those in control engage in oppressive conduct that directly harms the applicant. A changed password alone does not establish that claim. Rather, the surrounding conduct, the agreement, and the effect on the member must be examined.
The statute also authorizes alternatives to dissolution in qualifying proceedings, including a custodian, a provisional manager, or a court-ordered sale of a member’s interest. The availability of a particular remedy requires review of the agreement and facts. A lockout alone does not guarantee a buyout order.
The immediate goal should be to establish what authority each owner has and secure the information needed to protect the investment. Restoring lawful access, reaching a temporary operating arrangement, or negotiating a separation may make sense. The choice should preserve the value of the business while the owners resolve who will control it.
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