Resolving an Owner Dispute or Dissolving a Closely Held Business: A Practical Checklist

Business > Owner Disputes and Dissolution | Published 26 July 2026 - Updated 22 August 2026 | UpLaw - uplaw.us

Two things first, before anything else: read the whole operating agreement, and issue a litigation hold. Everything in this checklist assumes both are done.

Use with Owner Disputes and Business Dissolution: A Comprehensive Guide to Deadlock, Oppression, Buyouts, and Winding Up and The Business Divorce and Dissolution Toolkit.

---

Phase 1 — Read the documents

☐ The operating agreement, bylaws, or partnership agreement — all of it, including every amendment and the record of adoption.

☐ Find and mark these clauses:

• ☐ Buy-sell triggers and the valuation method — and whether it specifies discounts
• ☐ The amendment provision — majority, supermajority, or unanimous
• ☐ Fiduciary duty waivers, exculpation, and indemnification
• ☐ Distribution provisions — especially whether tax distributions are mandatory
• ☐ Information rights
• ☐ Transfer restrictions and rights of first refusal
• ☐ Employment and compensation terms
• ☐ Deadlock mechanisms
• ☐ Dispute resolution — arbitration, forum, fee-shifting
• ☐ Non-compete and confidentiality

☐ Then read the state statute for what cannot be waived — typically the implied covenant and a floor of information rights.

☐ Identify the entity type, because duties differ: partnership · closely held corporation · LLC.

☐ ⚠ In LLC practice the agreement is the law of the case. A downloaded template may have waived the duty of loyalty and permitted majority amendment. Do not assume default rules apply.

---

Phase 2 — Recognize what is happening

☐ Financial statements stop arriving on schedule ☐ Distributions suspended while compensation rises ☐ A new related-party contract appears — lease, management agreement, services ☐ Removal from banking or systems access ☐ Meetings stop being held, or are held without notice ☐ The accountant or bookkeeper changes ☐ Company counsel declines to speak with you ☐ An unsolicited low buyout offer arrives ☐ An amendment is circulated

☐ ⚠ Any three of these together is a freeze-out in progress.

---

Phase 3 — The litigation hold, and what not to do

☐ ⛔ Issue a written litigation hold immediately — to yourself, and demand one from the company. Suspend auto-deletion on email, messaging, accounting systems, and devices. See Issuing a Litigation Hold and Preserving ESI: A Practical Checklist.

☐ ⛔ Do not delete anything. Not one message.

☐ ⛔ Do not access systems you have been told you may no longer access — 18 U.S.C. § 1030.

☐ ⛔ Do not lock a co-owner out, change passwords unilaterally, or remove them from accounts without counsel.

☐ ⛔ Do not remove records, equipment, or funds.

☐ ⛔ Do not contact customers or employees to explain your side.

☐ ⛔ Do not solicit customers or employees — 18 U.S.C. § 1836, 18 U.S.C. § 1839.

☐ ⭐ This case will be decided in part on which owner behaved reasonably. Every act above is expensive and none of them helps.

---

Phase 4 — The books and records demand

☐ Send it in writing, now. Cheap, fast, hard to refuse, and the foundation of everything.

☐ State a proper purpose: "to value my interest and to investigate possible mismanagement and breaches of fiduciary duty."

☐ Request:

• ☐ Financial statements, [5] years plus interim
• ☐ Tax returns with all schedules and K-1s
• ☐ General ledger and trial balance
• ☐ Minutes, written consents, meeting notices
• ☐ Capitalization table; all issuances, transfers, redemptions
• ☐ ⭐ Compensation for every owner, officer, and director — salary, bonus, benefits, reimbursements, perquisites
• ☐ ⭐ All related-party transactions, with contracts and approval records
• ☐ Bank and credit card statements
• ☐ Loan documents, guaranties, security agreements
• ☐ Leases, including any with owner-affiliated entities
• ☐ Governing documents with every amendment
• ☐ Insurance policies, including key-person and buy-sell funding
• ☐ Any valuation or appraisal from the past [5] years
• ☐ Communications with accountants and appraisers about valuation

☐ If refused: ⭐ the refusal is itself evidence. Most statutes provide an expedited proceeding to compel, sometimes with fees.

---

Phase 5 — Characterize the claims

☐ Direct claims — the injury is yours. Freeze-out, breach of the agreement, denial of buyout rights, denial of information. Recovery goes to you.

☐ Derivative claims — the injury is the company's. Looting, excessive compensation, usurped opportunity, self-dealing. Recovery goes to the company — which the majority still controls.

☐ ⚠ Pair derivative claims with a buyout demand, so the recovery raises the value the buyout converts to cash.

☐ Check the derivative prerequisites: pre-suit demand or futility · continuous ownership · adequate representation · court approval of settlement.

☐ ⭐ Check the closely held exception — many states allow otherwise-derivative claims to proceed directly where there is no creditor prejudice or multiplicity risk.

☐ Screen the fiduciary theories:

• ☐ Corporate opportunity — was an opportunity within the company's line taken personally, without disclosure and disinterested approval?
• ☐ Self-dealing — is the related-party transaction at market, approved by disinterested decision-makers, and documented?
• ☐ Competition while an owner
• ☐ Use of company assets, information, or personnel for personal benefit
• ☐ Implied covenant of good faith and fair dealing — the workhorse where express duties were waived

☐ Screen the federal overlays:

• ☐ Securities — only where the majority lied to acquire the interest: 15 U.S.C. § 78j, 17 CFR Part 240, 15 U.S.C. § 78t, pleading under 15 U.S.C. § 78u-4 and Tellabs. ⚠ Fiduciary breach without deception is not securities fraud — Santa Fe Industries v. Green; scienter required — Ernst & Ernst v. Hochfelder.
• ☐ Trade secrets — 18 U.S.C. § 1836
• ☐ Computer access — 18 U.S.C. § 1030
• ☐ Forum — 28 U.S.C. § 1332, 28 U.S.C. § 1367
• ☐ Arbitration — 9 U.S.C. § 2, 9 U.S.C. § 3, Concepcion, Morgan v. Sundance

---

Phase 6 — Valuation

6A — Fix the standard first

☐ ⭐ Fair value — proportionate share of the going concern, typically without minority or marketability discounts. ☐ Fair market value — hypothetical willing buyer and seller, with discounts. ☐ The standard comes from, in order: the buy-sell agreement · the statute · case law for this proceeding. ☐ ⚠ A buy-sell specifying "fair market value as determined by an appraiser" has agreed to discounts, whether the drafter knew it or not. ☐ On a $6M company, a 30% stake is $1,800,000 at fair value and roughly $1,080,000 with 25% and 20% discounts. ⭐ Win the standard before arguing the multiple.

6B — Fix the date

☐ Candidates: the wrongful act · filing · trial · a triggering event. ☐ ⭐ Argue for a date preceding the freeze-out, and for reversal of post-dispute self-dealing.

6C — Normalize

☐ Owner compensation above or below market ☐ Personal expenses run through the company — vehicles, travel, family on payroll, memberships ☐ Related-party rent above or below market ☐ Non-recurring items — litigation, one-time gains, casualty ☐ Discretionary spending a buyer would eliminate ☐ Deferred maintenance and required capital expenditure ☐ Working capital adequacy ☐ Officer life insurance premiums and proceeds

☐ ⭐ A company reporting $400,000 while overpaying its majority owner by $500,000 has normalized earnings of $900,000. At 4× that is $3.6M instead of $1.6M — the whole case, in one schedule.

6D — Experts

☐ Retain a credentialed appraiser and, where the books need reconstruction, a forensic accountant. ☐ ⭐ Consider a single joint appraiser with an agreed scope, standard, and date. Dramatically cheaper, and frequently produces a number both sides accept. ☐ Where two experts are used, agree the standard, date, and document set in advance — most divergence comes from assumptions, not skill.

---

Phase 7 — Provisional relief and posture

☐ Consider an injunction against further compensation increases, distributions, asset transfers, or new related-party contracts pending resolution. ☐ Consider an accounting as a standalone remedy. ☐ ⭐ Ask for a custodian or provisional director rather than a receiver or dissolution — many states permit a neutral to break ties or manage without dissolving, and courts grant it far more readily. ☐ ⚠ Do not seek relief that damages the business. Freezing payroll harms your own asset and reads badly. ☐ Plead dissolution as the alternative, not the demand. Courts respond to preservation, not destruction. ☐ Check the arbitration clause before filing anywhere.

---

Phase 8 — Mediation

☐ Go early. ⭐ Business divorces settle in mediation at a high rate because both sides can see the asset deteriorating. ☐ Bring the normalization schedule, not a narrative. ☐ Agree the valuation standard and date first. The number follows. ☐ Consider baseball arbitration on price — each side submits a number, the neutral picks one — which drives both toward defensibility. ☐ Bring a term sheet, not a demand: price mechanism, payment terms, guaranty releases, releases, and a closing date. ☐ ⚠ Internalize the cost of not settling. Litigated business divorces consume a meaningful percentage of enterprise value on both sides, from a deteriorating business.

---

Phase 9 — Structuring the buyout

☐ Redemption or cross-purchase? ⭐ Model both. The tax result differs materially for both sides on the same dollar amount — 26 U.S.C. § 736, 26 U.S.C. § 754, 26 U.S.C. § 704, 26 U.S.C. § 1361.

☐ Funding: cash · bank financing · seller note · insurance proceeds · earn-out.

☐ Note terms: rate · term · amortization · security and UCC filings · acceleration · subordination to institutional debt · covenants limiting distributions and new debt · financial reporting until paid.

☐ ⚠ Solvency analysis for any large redemption. A redemption that leaves the company unable to pay debts is exposed if it later fails — 11 U.S.C. § 547, 11 U.S.C. § 548.

☐ ⭐ Release every personal guaranty, or obtain indemnity with security. The lease guaranty is usually the largest — see Negotiating and Exiting a Commercial Lease: A Practical Checklist.

---

Phase 10 — Closing

☐ Purchase agreement executed; interest transferred on the books ☐ Every guaranty released or indemnified — lease, bank line, equipment, vendor accounts ☐ Removed from bank signatory cards, credit cards, merchant accounts, payroll ☐ State filings updated — registered agent, officers, managers ☐ Insurance updated; key-person and buy-sell policies addressed ☐ Intellectual property assignments confirmed in writing ☐ Systems and data access transferred on a defined date, with written acknowledgment ☐ Customer and employee communications agreed — who says what, when ☐ Note documents executed with security agreement and filings ☐ Tax allocation and reporting agreed; who signs final returns ☐ Mutual general releases, carving out the buyout obligations ☐ Non-disparagement; confidentiality of terms ☐ Records custody agreed ☐ ⭐ A signed closing checklist

---

Phase 11 — If the answer is dissolution

☐ The dissolution event — vote, agreement trigger, or judicial decree ☐ File the statement of dissolution. The entity continues for wind-up purposes ☐ Cease ordinary business except as needed to wind up ☐ Notify creditors following the statutory procedure exactly — it starts the bar date ☐ Collect receivables; liquidate assets. ⭐ Consider a going-concern sale first; it is nearly always worth more ☐ Pay creditors in statutory priority. ⚠ Owners are last; early distributions are clawed back ☐ Reserve for contingent liabilities — leases, guaranties, warranties, employment claims, pending litigation ☐ Final tax returns and payroll filings; cancel registrations, permits, licenses ☐ Distribute the remainder per the agreement or statute ☐ File articles of termination; preserve records for the statutory period ☐ ⚠ If the company is insolvent, dissolution is the wrong tool. Bankruptcy provides orderly priority — 11 U.S.C. § 727, 11 U.S.C. § 1129

---

Phase 12 — Prevention, for anyone still on good terms

☐ A buy-sell agreement with triggers: death · disability · retirement · withdrawal · termination of employment · divorce · bankruptcy · deadlock ☐ A valuation method and standard, stating expressly whether discounts apply ☐ Payment terms and insurance funding ☐ A deadlock breaker — neutral tiebreaker, mediation, or shotgun ☐ Transfer restrictions, including spousal consent and a divorce trigger ☐ ⭐ Mandatory tax distributions — this single clause removes the most coercive tool in the freeze-out playbook ☐ Employment terms, and the effect of termination on ownership ☐ Information rights on a schedule ☐ A conscious decision about fiduciary duties — waived, narrowed, or preserved ☐ Related-party transaction approval requirements ☐ ⚠ A supermajority or unanimity amendment provision, so the deal cannot be rewritten mid-dispute ☐ Avoid 50/50 without a tiebreaker — the most common structural cause of business divorce

---

The deadline and sequence table

Step	Timing	Why
Litigation hold	Day one	Deletion converts a winnable case into sanctions
Books and records demand	Week one	Cheap, fast, and the foundation of everything
Forensic normalization	Before any number is discussed	The schedule is the case
Valuation standard fixed	Before the number	Worth more than any other argument
Derivative pre-suit demand	Per state rule	Dismissal risk if skipped
Provisional relief	Early	Stops the bleeding
Mediation	Early	Settlement rate is high; the asset is shrinking
Statute of limitations	Varies by claim	The claim
Creditor bar date in wind-up	Per statute	Cuts off unknown claims

---

Who does what

The owner, day one. Read the agreement. Issue the hold. Take nothing. Counsel, week one. The books and records demand, and the claim characterization. The forensic accountant. Normalization — the schedule that decides the money. The appraiser. Valuation, on an agreed standard and date. The mediator. The forum where most of these actually end. The tax adviser. Redemption versus cross-purchase, modeled both ways. The lender's counsel. Guaranty releases, which are forgotten until years later.

---

Failure modes, ranked

1. No buy-sell agreement.
2. 50/50 with no tiebreaker.
3. Self-help — deleting, taking, locking out, soliciting.
4. No litigation hold.
5. Negotiating a number before fixing the valuation standard.
6. Skipping normalization.
7. Never sending the books and records demand.
8. Mischaracterizing a derivative claim as direct, or the reverse.
9. Demanding dissolution instead of a custodian.
10. Ignoring the arbitration clause before filing.
11. Not modeling the tax structure of the buyout.
12. Closing without releasing guaranties.
13. Distributing to owners before paying creditors in a wind-up.
14. Winding up an insolvent company informally.
15. Waiting. Every month of deadlock costs money nobody recovers.

---

Appendix A — The freeze-out sequence, and the counter to each step

The majority does this	It looks like	You do this
Terminates your employment	A personnel decision	Document the timing and stated reason. In a closely held company, salary was the return on investment — that is the oppression claim
Removes you from the board	Governance	Demand notice of meetings in writing; note every decision made without it
Suspends distributions	"Reinvesting in growth"	Compare against compensation increases in the same period. ⭐ The pairing is the story
Raises their own compensation	Market adjustment	Get comparable compensation data. The excess is a normalization add-back and a derivative claim
Leases the building from their own entity	An arm's-length deal	Get a market rent appraisal. Above-market rent is self-dealing and an add-back
Buys services from their other company	Vendor selection	Demand the contract, the approval record, and the pricing basis
Circulates an amendment	Housekeeping	Check the amendment provision. ⚠ Do not sign anything
Offers a low buyout	A generous exit	⭐ Do not counter with a number. Counter with a valuation process

---

Appendix B — The proper purpose paragraph

Copy this. It is the sentence that makes a books and records demand work.

"I hold a []% [membership interest / shareholding] in [Company]. Pursuant to [the operating agreement § __ and] the applicable provisions of [state] law, I demand inspection and copying of the records listed below. My purpose is to value my interest and to investigate possible mismanagement, waste, and breaches of fiduciary duty, including but not limited to the compensation paid to officers and owners and the terms of transactions between the Company and entities affiliated with any owner. I am prepared to execute a reasonable confidentiality agreement covering non-public information. Please produce the records within [] days, or state in writing the specific basis for any refusal as to each category."

☐ ⭐ The confidentiality offer removes the most common stated basis for refusal. ☐ ⚠ Do not add the litigation theory. Proper purpose, not a preview.

---

Appendix C — The settlement term sheet skeleton

Bring this to mediation instead of a number.

1. Structure. [Redemption by the Company / cross-purchase by [owner]] of []% interest. 2. Price mechanism. A single appraiser [named / selected by ], applying [fair value] as of [date], with the normalization adjustments described in Schedule A, and no minority or marketability discount. 3. Payment. $[] at closing; balance by promissory note over [] years at []%, secured by [], with acceleration on default and subordination to []. 4. Reporting. The Company delivers annual and quarterly financials to the seller until the note is paid. 5. Covenants. No distributions above tax distributions, and no new indebtedness above $[], while the note is outstanding. 6. Guaranties. ⭐ All guaranties by the seller are released at closing, or indemnified with [security]. Schedule B lists them. 7. Employment. [Terminates on __ / continues through ]; accrued compensation of $[] paid at closing. 8. Restrictive covenants. [Non-solicitation of employees and customers for __ months; confidentiality perpetual as to trade secrets.] 9. Releases. Mutual general releases, carving out the obligations created here. 10. Tax. The parties agree to report the transaction as [] and to make [no] election under 26 U.S.C. § 754. 11. Closing. Within [_] days, per the closing checklist attached.

---

Appendix D — The five things to do in the first week

☐ 1. Read the whole agreement, and mark the ten clauses in Phase 1.

☐ 2. Issue the litigation hold, to yourself and to the company.

☐ 3. Send the books and records demand.

☐ 4. Write a dated chronology — every distribution, every compensation change, every related-party contract, every meeting held or not held, with the source document for each line.

☐ 5. Do nothing else. ⛔ No emails to customers. No access to systems you have been told to stay out of. No removal of anything. No signature on anything.

⭐ A dispute handled in that order, in that first week, is worth a great deal more than the same dispute handled in the reverse order over the following year. The documents already exist. The only question is whether you collect them before or after the other side has had time to think about them.

---

Related Documents

Articles

• The Business Divorce: What Happens When Partners Stop Agreeing
• The Lease That Outlives the Business: What a Small Business Signs and Cannot Undo
• Buying a System, Not a Business: What a Franchise Agreement Actually Commits You To
• The Non-Compete in Retreat: Blue Pencils, Trade Secrets, and the Employee Who Walks

Guides

• Owner Disputes and Business Dissolution: A Comprehensive Guide to Deadlock, Oppression, Buyouts, and Winding Up
• Commercial Leasing for Small Business: A Comprehensive Guide to Terms, Build-Out, Guaranties, and Exit
• Franchising: A Comprehensive Guide to Disclosure, the Agreement, Operations, Renewal, and Termination
• Divorce and Dissolution: A Comprehensive Guide to Grounds, Property, Support, and Parenting

Checklists

• Negotiating and Exiting a Commercial Lease: A Practical Checklist
• Evaluating, Buying, and Exiting a Franchise: A Practical Checklist
• Issuing a Litigation Hold and Preserving ESI: A Practical Checklist
• Documenting and Pursuing a Fair Housing Complaint: A Practical Checklist

Toolkits

• The Business Divorce and Dissolution Toolkit
• The Commercial Lease Toolkit
• The Franchise Purchase and Dispute Toolkit
• The Self-Represented Litigant's Toolkit