Deadlock or Dysfunction? Donahue v. Donahue Reframes LLC Dissolution

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When business owners stop trusting each other, one of the first questions is whether the company can continue—or whether a court can force it to end. A recent Minnesota Court of Appeals decision provides an important answer for LLC owners: conflict alone is not enough. Whether a court may dissolve an LLC depends in large part on how the company is structured and whether its decision-making process is actually in a standstill.

There is a paucity of case law on judicial dissolution under the Revised Uniform Limited Liability Company Act (“RULLCA”). Donahue v. Donahue, No. A25-1227 (Minn. Ct. App. Mar. 16, 2026) offers a thorough look at how courts analyze dissolution requests under Minn. Stat. § 322C.0701. The issue was straightforward: when the owners of an LLC are in serious conflict, can one of them ask a court to dissolve the company? The result in Donahue was also clear—not here. Because the LLC had three equal members and ordinary business decisions could be made by majority vote, the court held that the company was not truly deadlocked and dissolution was not warranted.

The Court’s decision is notable for clarifying a foundational concept that often goes underexamined in LLC disputes: deadlock—the practical driver of many dissolution claims—may be structurally impossible in an LLC with an odd number of members. That principle has significant implications for how attorneys frame dissolution claims, particularly in closely held LLC disputes, and how owners address decision making breakdowns.

The Case: A Breakdown Without a Deadlock: Donahue involved three brothers—equal one-third members of a member-managed LLC that owned recreational farmland. Their relationship deteriorated after one brother built a home on LLC property without securing a finalized agreement to carve out a one-acre parcel. Litigation followed, with competing claims that included fiduciary-duty allegations, derivative claims (ultimately rejected following an SLC investigation) and a request for judicial dissolution. After a bench trial, the district court ordered dissolution of the LLC. The Court of Appeals reversed that portion of the decision, while affirming most other aspects of the judgment.

The Statutory Framework for Dissolution: The court analyzed dissolution under Minn. Stat. § 322C.0701, which allows a court to dissolve an LLC where, among other things it is “not reasonably practicable” to carry on the company’s activities or those “in control” have acted in an oppressive and harmful manner. The district court relied on both grounds. The Court of Appeals rejected each.

“Not Reasonably Practicable” Requires More Than Dysfunction. The district court concluded that dissolution was warranted because the LLC lacked a written operating agreement and the members were in conflict over operations. The Court of Appeals rejected this reasoning.

First, the absence of a written operating agreement does not render an LLC unworkable. Under RULLCA, default statutory rules fill any gaps, and operating agreements may be oral or implied.

Second—and more importantly—the court emphasized that dissolution is a “drastic remedy” appropriate only where the entity is effectively incapable of functioning. Borrowing from persuasive Iowa authority, the court framed the standard as requiring an “unmovable logjam.” That standard was not met here for a simple structural reason: with three equal members, ordinary-course decisions are resolved by majority vote. Because Minnesota law provides that disagreements in the ordinary course are decided by a majority of members, the court held that true operational deadlock was not possible and the LLC could continue functioning despite interpersonal conflict. The evidence confirmed that the company continued to lease farmland, maintain contracts and use the property recreationally. Disagreement, even significant disagreement, was not enough to warrant dissolution.

No “Members in Control” in a 1/3–1/3–1/3 Structure. The district court alternatively relied on oppression by a “member in control.” The Court of Appeals again reversed, focusing on statutory structure. In a member-managed LLC with equal ownership: (i) each member has equal governance rights; (ii) no single member can act unilaterally in the ordinary course; and (iii) control requires the ability to direct company action—not merely influence it. The court concluded that no member was “in control” as required by § 322C.0701. Without a controlling member, the oppression-based pathway to dissolution failed as a matter of law.

The Court’s Key Insight: Deadlock Requires Structural Possibility. The most important takeaway from Donahue may be implicit, but is also unmistakable: deadlock is not just a factual condition—it is a structural one. In a three-member LLC governed by majority rule, two members can always outvote one, thus a decision will always be made (even if contentious) and, therefore, a true, unbreakable deadlock cannot exist for ordinary-course matters. This principle drove the reversal.

Taking It a Step Further: What Happens in a 50/50 LLC? The logic of Donahue points directly to a different conclusion in a two-member (50/50) LLC. Deadlock becomes structurally possible in a two-person 50/50 LLC because there is no majority, ordinary course decisions require agreement, and disagreement results in true paralysis. That is the textbook definition of an “unmovable logjam.”

Unlike Donahue, where a majority could act, a 50/50 entity can reach a point where no operational decisions can be made, no exit mechanism or tie breaker exists, and the LLC cannot function in any meaningful sense. Under the Donahue framework, that scenario would strongly support a finding that it is “not reasonably practicable to carry on the company’s activities” thereby warranting dissolution.

Deadlock in Extraordinary Matters Is Not Enough—But It Can Compound the Problem: Donahue also addressed an argument that unanimity-required matters (such as conveyance of property) created a deadlock. The court rejected that argument, reasoning that if unanimity is required and not achieved, the motion simply fails—it does not create a deadlock.

But in a 50/50 LLC, that logic cuts differently. Where the company requires unanimous consent for key actions, and where all decisions—ordinary and extraordinary—require agreement, the inability to agree is not limited to discrete transactions—it pervades the entire enterprise.

Thus, while Donahue minimizes the significance of deadlock in unanimity contexts, those same circumstances may be dispositive in a two-member structure.

Oppression Analysis Also Changes: The “member in control” analysis also shifts in a 50/50 setting. While neither member has formal control, courts in other jurisdictions have recognized that mutual veto power can function as practical control, a co-owner may leverage that power to exclude or oppress the other, and oppression may arise from blocking conduct, not just affirmative acts. Although Donahue rejects “control” in a three-member context when the alleged control group was the minority (one of three and not two of three), it leaves open how Minnesota courts will approach this issue where each member can prevent any company action and one member uses that power opportunistically.

For the Business Owner: Donahue v. Donahue clarifies that judicial dissolution under Minnesota law is not a remedy for strained relationships, poor communication, or even persistent conflict. Instead, it is reserved for something more fundamental: a structural breakdown rendering the LLC incapable of functioning. In a three-member LLC governed by majority rule, that breakdown may be impossible to prove. In a 50/50 entity, it may be inevitable. For practitioners, the lesson is clear: dissolution arguments begin not only with the facts of the dispute—but also with the architecture of the LLC itself.

For business owners, the takeaway is practical. If your LLC has an odd number of members and majority-rule governance, internal conflict may not be enough to justify judicial dissolution. But if ownership is split 50/50 and the governing documents lack a tie-breaker or exit mechanism, the risk of true deadlock is much greater.

From a litigation perspective, Donahue reinforces a familiar but underappreciated reality. The most dissolution-prone entities are two-member LLCs with equal ownership and no exit mechanism or tie breaker provisions. Those entities present exactly the “unmovable logjam” that the Court of Appeals suggested is required.

RULLCA provides that “consideration must be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.” Minn. Stat. § 322C.1201. Thus, when other unresolved issues arise under RULLCA, looking to decisions from other states that have adopted the Act is not only prudent, but consistent with the statute’s express directive.

Just as important, this is where Minnesota law stands now. Business owners should not assume the rules will remain static. Courts may continue to develop this area, and different facts or future decisions could change how these disputes are analyzed. That is why it is important to work with legal counsel when forming an LLC, drafting governance provisions, or navigating owner disputes.

Brandon M. Schwartz is a Board-Certified Civil Trial Specialist focusing his practice on business litigation involving shareholder disputes, member disputes, derivative actions, and business-to-business litigation in Minnesota, Iowa, Wisconsin, Arizona, and Massachusetts. He is also a Board Certified Family Law Advocate and represents business owners going through divorce.