Two decisions issued by the Delaware Court of Chancery in May 2026 serve as a timely reminder that LLC and joint venture agreements frequently contain governance gaps that create serious risks when member or manager relationships break down. Together, the decisions address two of the most common failure points in LLC governance: what happens when managers deadlock and whether a dominant founder can unilaterally reshape the board. While the decisions deal with the application of Delaware law, the lessons are important for anyone dealing with joint ventures or LLCs anywhere.
Deadlock and the Limits of Contractual Workarounds
In re Dynamk Fund Advisors LLC, No. 2026-0002-JTL (Del. Ch. May 20, 2026), Vice Chancellor Laster addressed the law governing judicial dissolution in the context of a deadlocked LLC. The decision reinforces several points to keep in mind when forming joint ventures, private funds, or closely held operating companies.
First, the Court reiterated that LLCs are not purely contractual. Although Delaware LLC agreements enjoy extraordinary flexibility under the Delaware LLC Act, Delaware statutes retain ultimate authority over dissolution. Provisions that purport to eliminate or severely restrict the availability of judicial dissolution do not entirely foreclose a member’s ability to seek court intervention. Second, the Court cautioned that provisions designed to prevent dissolution in a deadlocked LLC can lead to untenable and dysfunctional outcomes, and signaled that such provisions will not insulate a deadlocked entity from judicial relief indefinitely. Third, before finding that a true deadlock exists, the Court examines carefully how authority is allocated under the LLC agreement. The specific allocation of decision-making power among managers and the procedures specified for breaking ties can be dispositive. Any LLC member may petition for judicial dissolution where it is no longer reasonably practicable for the business to continue under its existing governance structure.
Voting Agreements and Board Removal: Governance Formalities Enforced
In Ropko v. Burdi, C.A. No. 2024-1193-PAF (Del. Ch. Mar. 16, 2026), the Court addressed a founder’s attempt to use a voting agreement to remove the two other members of a three-manager board. The Executive Chairman of McNeil Investment Group, LLC had signed a written consent purportedly on behalf of the other managers, invoking a voting agreement that required the managers to vote in the same manner as him on board matters.
The Court found in favor of the removed managers on every issue. The key holdings carry direct lessons for LLC drafting. A voting agreement or proxy must include language of clear agency appointment to authorize one party to vote on behalf of another in their capacity as a manager. Language that merely requires members to vote consistently with a third party falls short of that standard. The Court also firmly rejected a futility argument, declining to excuse compliance with governance formalities on the grounds that the other managers would have opposed the removal in any event. As the Court stated, when an alternative entity agreement prescribes how its governing body must act, the governing body may not ignore it. Finally, the Court enforced the operating agreement’s fee-shifting provision, awarding the managers their reasonable attorneys’ fees.
Action Items
Taken together, these decisions underscore the importance of precision in LLC governance drafting. Deadlock provisions should be designed with the realistic scenario of a full relationship breakdown in mind, not just temporary disagreements. Tie-breaking mechanisms, buyout rights, and dissolution procedures should be expressly specified rather than left to implication. Voting agreements that are intended to give one party authority to act for another must do so in unambiguous agency terms. And fee-shifting provisions, which are increasingly common in LLC agreements for closely held entities, joint ventures, and fund vehicles, will be enforced as written. For any entity currently operating under an LLC agreement that lacks clear deadlock resolution or removal mechanics, these decisions are a prompt to revisit and strengthen those provisions before a dispute arises.
