UPDATED 12/26/13: Part 2 of Mahler's interview of Professors Landeo and Spier can be found here.

At the New York Business Divorce Blog, Peter Mahler has posted Part 1 of his interview with Professors Caudia Landeo and Kathryn Spier on the issue of "shotgun" buy-out mechanisms to resolve deadlock between 50% members of an LLC.

As Mahler explains:

In states such as New York, the problems are greatly exacerbated by the absence of a statutory buy-out remedy in deadlock dissolution cases — unlike dissolution cases brought by oppressed minority shareholders where the statute gives the corporation or the other shareholders the ability to avoid dissolution by acquiring the complaining shareholder’s stock for fair value. The LLC laws in New York and many other states likewise have no statutory buy-out mechanism in dissolution proceedings.
The difficulties with deadlock cases also frequently stem from the absence of a “natural” buyer and seller, that is, each of the 50% owners may be vying to buy out the other; from the owners’ divergent valuations of the business assets and operations, which may be tied to the owners’ personal know-how and/or their transient relationships with customers and vendors; and from the challenges, expense and time involved in getting appraisals for closely-held firms in an adversarial environment.
When both deadlocked owners are potential buyers, and under the right circumstances, the “shotgun” buy-out mechanism can be one of the most efficient means of getting to a business separation. For those not familiar with the shotgun, it’s when owner #1 sets the buy-out price and owner #2 has the option either to buy or sell at that price. Lawyers who prepare shareholder agreements sometimes feature the shotgun in the agreement’s buy-sell provisions, its exercise being made contingent on specified trigger events.

Issues such as buyout in the event of deadlock are uncomfortable to discuss, and therefore often ignored by business partners embarking on an exciting new venture together. All too often this oversight leads to complex and expensive litigation that could have been avoided altogether with a small amount of foresight and willingness to face the worst-case scenario.