What to Do When Your Business Partner Goes Silent

What can you do when a business partner stops responding?

You can do four things: find out what your company’s documents and the statute let you decide alone, demand the company’s information in writing, call a formal meeting, and, if the deadlock continues, ask a court for the relief the statute for your type of entity allows. Each step builds the record the next one needs.

Start with the documents. For an LLC, Minn. Stat. § 322C.0110, subd. 2 provides: “To the extent the operating agreement does not otherwise provide for a matter described in subdivision 1, this chapter governs the matter.” An operating agreement that sets a tie-breaker, names a manager, or allows expulsion changes every answer below. One limit runs the other way: under subdivision 3 of the same section, an operating agreement may not “vary the power of a court to decree dissolution in the circumstances specified in section 322C.0701, subdivision 1, clauses (4) and (5),” which are the two grounds on which a member may apply for a court order dissolving the company under Minn. Stat. § 322C.0701.

The answer also depends on what kind of entity you own, because Minnesota writes different default rules for LLCs, corporations, and partnerships. The next three sections take each in turn.

How does Minnesota law decide who can act for an LLC?

In a member-managed Minnesota LLC, each member has equal management rights, a majority of members decides ordinary-course disagreements, and anything outside the ordinary course needs every member’s consent. In a two-member company, neither member is a majority, so a silent member blocks every decision that needs a vote.

Minn. Stat. § 322C.0407, subd. 2, sets the member-managed rules: “Each member has equal rights in the management and conduct of the company’s activities,” a difference “as to a matter in the ordinary course of the activities of the company may be decided by a majority of the members,” and “An act outside the ordinary course of the activities of the company may be undertaken only with the consent of all members.” Membership alone does not make you the company’s signer: under Minn. Stat. § 322C.0301, subd. 1, “A member is not an agent of a limited liability company solely by reason of being a member.”

I advised one owner of a 50/50 LLC with no signed operating agreement, whose co-member had stopped answering, against signing a contract for the company until that owner’s authority was confirmed, because acting without clear authority could create personal liability or expose the company to claims from the co-member.

The rules change in other management structures. In a manager-managed LLC, subdivision 3 provides: “Except as otherwise expressly provided in this chapter, any matter relating to the activities of the company is decided exclusively by the managers.” Even there, “The consent of all members is required to” dispose of “all, or substantially all, of the company’s property” outside the ordinary course, “undertake any other act outside the ordinary course of the company’s activities,” and “amend the operating agreement.” The members can also act on the managers: “A manager may be removed at any time by the consent of a majority of the members without notice or cause.” In a board-managed LLC, subdivision 4 makes a majority of the governors in office a quorum and allows written action “signed by the number of governors that would be required to take the same action at a meeting of the board of governors at which all governors were present.” A written action of LLC members works the same way for member votes.

How do the voting rules work in a Minnesota corporation?

In a Minnesota corporation, a silent director or shareholder whose presence is needed for a quorum can stop the board or the shareholders from acting by staying away. A quorum of the board is a majority of the directors, a quorum of shareholders is the holders of a majority of the voting power, and written action without a meeting needs every signature unless the articles allow fewer.

For the board, Minn. Stat. § 302A.235 provides that “A majority, or a larger or smaller proportion or number provided in the articles or bylaws, of the directors currently holding office is a quorum for the transaction of business.” With two directors and no smaller number set in the articles or bylaws, one absent director leaves the board without a quorum. Board written action under Minn. Stat. § 302A.239, subd. 1, takes the signatures of “all of the directors” unless the articles allow action by “the number of directors that would be required to take the same action at a meeting of the board at which all directors were present.” You can still put the question on the calendar: under Minn. Stat. § 302A.231, subd. 4, “Unless the articles or bylaws provide for a different time period, a director may call a board meeting by giving at least ten days’ notice.”

For shareholders, Minn. Stat. § 302A.443 sets the quorum at “The holders of a majority of the voting power of the shares entitled to vote at a meeting,” unless the articles or bylaws set another number. An owner holding exactly half the shares is not a majority and cannot make a quorum alone. Shareholder written action under Minn. Stat. § 302A.441, subd. 1, takes “all of the shareholders entitled to vote on that action” unless the articles of a corporation that is not publicly held provide otherwise.

What can one partner do alone in a general partnership?

A partner in a Minnesota general partnership can bind the partnership in the ordinary course of its business without the other partners, which is more authority than an LLC member has by default. Acts outside the ordinary course still need every partner’s consent.

Minn. Stat. § 323A.0301 provides that “Each partner is an agent of the partnership for the purpose of its business.” The limit is in clause (2): an act “which is not apparently for carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership only if the act was authorized by the other partners.” An act for apparently carrying on the ordinary course of the business binds the partnership, “unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority.” An act outside that ordinary course needs the other partners’ authorization, silent partner included.

Minn. Stat. § 323A.0401 gives each partner “equal rights in the management and conduct of the partnership business” and provides that an ordinary-course difference “may be decided by a majority of the partners,” while “An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the consent of all of the partners.” A written partnership agreement can change these rules, as explained in partnership voting rules.

How do you get the company’s records when your partner holds them?

Minnesota law gives every co-owner a statutory route to the company’s information, on conditions that vary by type of entity, and in a member-managed LLC it puts the duty to share information on each member who has it. Make the request in writing, describe what you want and why, and keep a copy.

In a member-managed LLC, Minn. Stat. § 322C.0410, subd. 1, lets a member, “On reasonable notice,” inspect and copy “any record maintained by the company regarding the company’s activities, financial condition, and other circumstances, to the extent the information is material to the member’s rights and duties.” The statute adds that “The duty to furnish information under clause (2) also applies to each member to the extent the member knows any of the information,” which reaches a silent member who keeps the books. In a manager-managed or board-managed LLC, subdivision 2 gives those subdivision 1 rights to “the managers or governors and not the members.” A member there may obtain information “as is just and reasonable” only if the member seeks it “for a purpose material to the member’s interest as a member,” makes a “demand in a record received by the company, describing with reasonable particularity the information sought and the purpose for seeking the information,” and the information sought “is directly connected to the member’s purpose.”

A shareholder of a Minnesota corporation that is not publicly held has, under Minn. Stat. § 302A.461, subd. 4, “an absolute right, upon written demand” to the share register and the core corporate documents, which the corporation “shall make available within ten days after receipt by an officer of the corporation of the written demand.” Other records require a “proper purpose.” The details are in a shareholder’s right to corporate records. For a general partnership, Minn. Stat. § 323A.0403 provides that “A partnership shall provide partners and their agents and attorneys access to its books and records.”

What duties does a silent co-owner still owe?

A member of a member-managed Minnesota LLC owes the company a duty of care, and every LLC member owes the contractual obligation of good faith and fair dealing. Shareholders of a closely held Minnesota corporation owe one another honest, fair, and reasonable conduct. Whether a particular silence falls short of those standards turns on the facts.

Under Minn. Stat. § 322C.0409, subd. 3, the duty of care of a member of a member-managed LLC “is to act with the care that a person in a like position would reasonably exercise under similar circumstances and in a manner the member reasonably believes to be in the best interests of the company.” Subdivision 4 requires every member to act “consistently with the contractual obligation of good faith and fair dealing, including acting in a manner, in light of the operating agreement, that is honest, fair, and reasonable.” In a manager-managed LLC, the picture changes for a member who is not a manager: under subdivision 7, “A member does not have any fiduciary duty to the company or to any other member solely by reason of being a member.” The broader rules are in fiduciary duties in an LLC.

For corporations, Minn. Stat. § 302A.751, subd. 3a, directs a court deciding relief to consider “the duty which all shareholders in a closely held corporation owe one another to act in an honest, fair, and reasonable manner in the operation of the corporation.”

How can a court end a deadlock with a silent co-owner?

A Minnesota court can dissolve an LLC when it is not reasonably practicable to carry on its activities under its governing documents, and it can dissolve a corporation or order other relief when the directors are deadlocked and the shareholders are unable to break the deadlock. In both, the court can order a buyout instead of shutting the company down in the cases the statutes name.

For an LLC, Minn. Stat. § 322C.0701, subd. 1, allows a court, on application by a member, to dissolve the company on the ground that “it is not reasonably practicable to carry on the company’s activities in conformity with the articles of organization and the operating agreement.” A separate ground applies when those in control “have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant.” In that second kind of proceeding, subdivision 2 provides that “the court may order a remedy other than dissolution, which may include the sale for fair value of all membership interests a member owns,” and subdivision 3 places it “in a court within the county in which the registered office of the limited liability company is located.” The mechanics are covered in LLC member buyout procedures and dissolving a Minnesota LLC.

For a corporation that is not publicly held, Minn. Stat. § 302A.751 lets a shareholder sue when “the directors or the persons having the authority otherwise vested in the board are deadlocked in the management of the corporate affairs and the shareholders are unable to break the deadlock,” when those in control “have acted in a manner unfairly prejudicial” toward a shareholder, or when “the corporate assets are being misapplied or wasted.” Under subdivision 2 the court may order one side to sell all of its shares to the corporation or the moving shareholders “if the court determines in its discretion that an order would be fair and equitable to all parties.” If a buy-sell agreement or bylaw already sets the terms, “the court shall order the sale for the price and on the terms set forth in them, unless the court determines that the price or terms are unreasonable under all the circumstances of the case.” Before dissolving, subdivision 3b requires the court to “consider whether lesser relief suggested by one or more parties, such as any form of equitable relief, a buy-out, or a partial liquidation, would be adequate.” The suit belongs “in a court within the county in which the registered office of the corporation is located.” More on these remedies is in deadlock remedies.

A general partner can ask for a judicial determination under Minn. Stat. § 323A.0801 that “another partner has engaged in conduct relating to the partnership business which makes it not reasonably practicable to carry on the business in partnership with that partner,” or that “it is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement.” Either determination is one of the events on which, under that section, “A partnership is dissolved, and its business must be wound up.”

When can a silent owner be expelled?

A silent member of a Minnesota LLC can be expelled under the operating agreement, by the unanimous consent of the other members in a few narrow situations the statute lists, or by court order. Silence alone is not one of the grounds for a member vote.

Minn. Stat. § 322C.0602 lists the events that end membership. A member is dissociated when “the person is expelled as a member pursuant to the operating agreement,” or when “the person is expelled as a member by the unanimous consent of the other members if” one of four listed conditions exists: it is unlawful to carry on the company’s activities with the person, the person has transferred all of their transferable interest other than for security purposes or under an unforeclosed charging order, the member is a corporation that has filed a certificate of dissolution, had its charter revoked, or had its right to conduct business suspended and has not cured it after the company’s notice, under conditions the statute sets, or “the person is a limited liability company or partnership that has been dissolved and whose business is being wound up.” Outside those cases, the route is clause (5): “on application by the company, the person is expelled as a member by judicial order because the person” has engaged in “wrongful conduct that has adversely and materially affected, or will adversely and materially affect, the company’s activities,” has “willfully or persistently committed” a material breach of the operating agreement or the member’s statutory duties, or has engaged in conduct that “makes it not reasonably practicable to carry on the activities with the person as a member.” The statute names the company as the applicant, so in a 50/50 company, check what the operating agreement says about who may act for the company in bringing it. Under Minn. Stat. § 322C.0603, subd. 1, when a person is dissociated, “the person’s right to participate as a member in the management and conduct of the company’s activities terminates,” but, subject to other sections the statute names, “any transferable interest owned by the person immediately before dissociation in the person’s capacity as a member is owned by the person solely as a transferee.”

For a general partnership, Minn. Stat. § 323A.0601 allows expulsion “on application by the partnership or another partner” by judicial determination on similar grounds, so a partner can bring the case alone.

What steps protect the business while you wait?

Put every request in writing, demand a formal meeting, keep running the business within your authority, and avoid any move that looks like a lockout. A court weighing dissolution, a buyout, or expulsion will look at how each owner behaved during the silence.

1. Write it down. Send each request by email and a delivery method you can prove, and keep a log of every call, text, and letter. In the matter I described above, my first advice was to preserve all communications with the co-member.
2. Demand a meeting. In an LLC, Minn. Stat. § 322C.0407, subd. 5, provides that “Any member may demand a meeting of the members to take action requiring consent of members under this chapter upon not less than 20 days’ notice to each member in a record of the date and time of the meeting.” Check the current statute and your operating agreement for the notice period before you send the demand. In a corporation, a shareholder holding “ten percent or more of the voting power of all shares entitled to vote” may demand a special meeting under Minn. Stat. § 302A.433, subd. 2, “by written notice of demand given to the chief executive officer or chief financial officer of the corporation and containing the purposes of the meeting.” A meeting the silent member skips gives you a dated record.
3. Stay within your authority. Pay ordinary bills and keep customers served. Leave decisions outside the ordinary course for a vote, written consent, or a court.
4. Act in good faith. Minn. Stat. § 322C.0409, subd. 4, binds you, too, to conduct “that is honest, fair, and reasonable.” In a corporation case, Minn. Stat. § 302A.751, subd. 4, lets the court award “reasonable expenses, including attorneys’ fees and disbursements,” against a party that “acted arbitrarily, vexatiously, or otherwise not in good faith.”
5. Know your exit. A partner “has the power to dissociate at any time, rightfully or wrongfully,” under Minn. Stat. § 323A.0602, and in a partnership at will that notice dissolves the partnership under § 323A.0801. Leaving is wrongful only if “it is in breach of an express provision of the partnership agreement” or, “in the case of a partnership for a definite term or particular undertaking,” the partner withdraws “before the expiration of the term or the completion of the undertaking,” subject to an exception the statute lists, and “A partner who wrongfully dissociates is liable to the partnership and to the other partners for damages caused by the dissociation.”

How should an operating agreement plan for an absent owner?

An operating agreement or shareholder agreement should say what happens when an owner stops participating: who breaks a tie, what triggers expulsion, and what price a buyout uses. Minnesota law gives those written terms weight, but by default an LLC’s operating agreement can be amended only with every member’s consent, so the time to write them is before anyone goes silent. In the 50/50 LLC I described above, one owner had put in far more capital than the co-member, and without a signed operating agreement the default rules did not reflect that economic deal. The default management rule gives each member “equal rights in the management and conduct of the company’s activities,” and it says nothing about who contributed more.

The statute lets the agreement do the work a court would otherwise do. Minn. Stat. § 322C.0602 recognizes expulsion “pursuant to the operating agreement,” so an agreement can name a period of non-participation as a trigger. For corporations, Minn. Stat. § 302A.751, subd. 3a, provides that written agreements “including employment agreements and buy-sell agreements” are “presumed to reflect the parties’ reasonable expectations concerning matters dealt with in the agreements.” The catch is timing: under Minn. Stat. § 322C.0407, subd. 2, “The operating agreement may be amended only with the consent of all members,” unless the operating agreement itself provides otherwise, and a silent member will not sign. Useful terms include a named tie-breaker or deadlock procedure, notice by email to a stated address, a non-participation expulsion trigger, and a buyout price formula. The full list is in what an operating agreement should include.

A co-owner who goes silent does not freeze a Minnesota business forever. The company’s own documents decide first, the statutes fill the gaps, and a court can step in on the grounds each statute lists: dissolution, a buyout in the cases the statutes name, and, for an LLC member or a general partner, expulsion by judicial order on the application the statute requires. The written record you build in the meantime is what each of those steps relies on. If you would like a second set of eyes on your operating agreement or your options with an unresponsive co-owner, email Aaron Hall at aaron@aaronhall.com with a brief description of the situation. More on ownership and governance is on the company control page.