By virtue of their experience with the business venture and their expertise, the joint owners may themselves be in the best position to accurately pinpoint the value of the assets. While publicly traded companies often have active markets for ownership, closely held companies may be very difficult for outside investors and/or appraisers to evaluate.
Placing an accurate value on the business assets of a closely held company can be a difficult task. In both situations, the court may be called upon to determine the appropriate remedy and to design an asset-valuation procedure. It may also occur when a deadlock clause was included in the business agreement but the grounds for dissociation or dissolution are not clear. Irreconcilable differences among joint owners are all too common in business entities, including closely held companies such as general partnerships and LLCs. In practice, the resolution of business deadlock might involve the dissolution of the business entity or the dissociation of joint owners. While many joint owners foresee possible deadlocks and include resolution mechanisms in their business agreements, others fail to do so. Judicial involvement arises in the absence of privately contracted divorce clauses. In 2006, Cohen withdrew $230,000 from the company coffers. Mizrahi brought suit seeking judicial dissolution of the LLC, alleging that Cohen had breached his fiduciary duty and embezzled funds. In addition to determining that the LLC should be dissolved, the court held that it was its duty “ to provide a mechanism for the liquidation and distribution of assets.” Commentators argue that the court’s decision reflects the current trend of more active participation by judges in the design of resolution mechanisms for business divorce. In 1999, Ronald Mizrahi and Ezra Cohen, a dentist and an optometrist who were related by marriage, formed a limited liability company (LLC) to purchase and develop property in Brooklyn, New York. The mixed-use structure housed four residential units and seven commercial units. Mizrahi established his practice in a spacious unit on the second floor of the building while Cohen occupied a first-floor storefront unit. Because the LLC operating agreement required unanimous approval for business decisions, seemingly minor obstacles escalated into major problems. Conflicts arose over the monthly rents that Mizrahi and Cohen were paying to the LLC for use of their office space. When Cohen fell behind in his financial contributions, Mizrahi advanced sums of money to the LLC to avoid defaulting on its loans.
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