A minority owner of a Michigan limited liability company may discover that owning part of a business does not necessarily mean having a meaningful voice in how the business is operated. The majority owners or controlling managers may remove the minority member from management, terminate the member’s employment, stop making distributions, withhold financial information, pay themselves excessive compensation, transfer business opportunities to another company, or attempt to force the minority member to sell at an artificially low price. Because ownership interests in closely held companies are rarely traded on an open market, the minority member may have no practical way to sell the interest and leave the business.
Michigan law provides an important remedy for this situation. Section 515 of the Michigan Limited Liability Company Act permits an LLC member to bring an action against managers or members in control of the company when their conduct is illegal, fraudulent, or willfully unfair and oppressive toward the company or the member. ¹ If the member establishes a violation, the circuit court has broad equitable authority to fashion a remedy appropriate to the circumstances. Depending on the evidence, that remedy may include an injunction, an accounting, damages, removal of a manager, cancellation of an improper company action, dissolution of the LLC, or a court-ordered purchase of the minority member’s ownership interest at fair value.
Not every disagreement among members constitutes oppression. Michigan courts generally do not intervene merely because members disagree about business strategy, compensation, hiring, distributions, or the company’s future. The critical questions are whether the challenged conduct was undertaken by persons in control, whether it substantially interfered with the plaintiff’s interests as an LLC member, and whether the defendants acted with the intent required by Michigan law. The answers ordinarily depend on the operating agreement, the company’s historical practices, its financial records, and the circumstances surrounding the controlling members’ decisions.
An LLC interest is fundamentally different from stock in a publicly traded company. A public-company shareholder who disagrees with management can usually sell the shares in an established market. A minority owner of a family business, professional firm, construction company, real-estate holding company, manufacturer, or other closely held Michigan LLC ordinarily has no comparable exit. The operating agreement may restrict transfers, other members may possess rights of first refusal, and an outside buyer may have little interest in purchasing a noncontrolling position in a company dominated by people with whom the buyer has no established relationship.
This lack of a ready market gives controlling members considerable leverage. They may control employment, compensation, distributions, access to information, company expenditures, and the timing of any proposed buyout. If the minority owner works for the company, the controlling members may terminate that employment while retaining earnings inside the LLC. The minority member then loses both salary and distributions but remains responsible for protecting an ownership interest that cannot readily be sold.
Controlling members may also characterize company payments in ways that favor themselves. Instead of declaring distributions payable to all members according to their ownership interests, they may take increased salaries, management fees, rent, bonuses, expense reimbursements, consulting payments, or benefits available only to people aligned with the majority. The company may remain profitable on paper while producing little or no economic return for the excluded member.
These circumstances can create what is sometimes described as a “freeze-out” or “squeeze-out.” The objective may be to make continued ownership so financially and personally burdensome that the minority member accepts a below-market buyout. Michigan’s member-oppression statute is designed to give courts the flexibility to address serious abuses of control even when the conduct does not fit neatly within a traditional fraud or breach-of-contract claim.
MCL 450.4515 authorizes a member to file an action in the circuit court for the county where the LLC’s principal place of business or registered office is located. The member must establish that acts of the managers or members in control are illegal, fraudulent, or constitute willfully unfair and oppressive conduct toward the LLC or the member. ¹
The statute defines “willfully unfair and oppressive conduct” as a continuing course of conduct, a significant action, or a series of actions that substantially interferes with the interests of the member as a member. The definition is important because it does not require years of misconduct. A continuing campaign of exclusion can qualify, but so can one sufficiently significant action.
The statute also recognizes that termination of employment or restrictions on employment benefits can contribute to an oppression claim when those actions interfere disproportionately with distributions or other interests held by the affected person as a member. ¹ Termination alone, however, does not automatically establish member oppression. The court must examine whether the employment decision substantially interfered with an ownership interest rather than only an interest held as an employee.
The statute excludes conduct permitted by the articles of organization, an operating agreement, another agreement to which the member is a party, or a consistently applied written company policy or procedure. ¹ Consequently, a member cannot ordinarily establish oppression merely by objecting to an action that the parties expressly authorized in their governing documents. This makes the language of the operating agreement central to almost every member-oppression dispute.
A successful claim ordinarily requires proof that the plaintiff was a member of the LLC, that the defendants were managers or members in control, and that the defendants committed acts that were illegal, fraudulent, or willfully unfair and oppressive toward the company or the plaintiff in the plaintiff’s capacity as a member. The member generally must prove the claim by a preponderance of the evidence.
Michigan appellate decisions interpreting the parallel shareholder-oppression statute explain that willfully unfair and oppressive conduct includes an intent requirement. The plaintiff must establish that the controlling person acted with the intent to substantially interfere with the plaintiff’s interests as an owner. ³ An intentional decision is not necessarily the same as an intentional interference with ownership rights. For example, a manager may intentionally reduce expenses, change vendors, close a location, or retain earnings without intending to deprive a minority member of the benefits of ownership.
Intent can rarely be established by a direct admission. It is more commonly inferred from surrounding circumstances. Selective enforcement of rules, inconsistent explanations, concealment of records, benefits directed only to controlling members, abrupt changes from established practices, efforts to pressure the minority member into a discounted sale, and a sequence of actions that progressively removes the minority member from the business may collectively support an inference of oppressive intent.
The challenged conduct must also substantially interfere with an interest held by the plaintiff “as a member.” This requirement separates member oppression from ordinary employment, personal, or contractual disputes. Membership interests commonly include the right to receive distributions when properly declared, exercise contractual voting rights, obtain information authorized by law or the operating agreement, share proportionately in the company’s value, and receive the benefit of ownership rights established by the governing documents.
Michigan courts interpreting the closely related shareholder-oppression statute have recognized that ownership interests arise not only from statutes but also from an entity’s governing agreements. In Madugula v Taub, the Michigan Supreme Court held that violations of rights created by a shareholder agreement could constitute evidence of oppression because the agreement modified the parties’ rights as owners.⁴ The LLC statute similarly directs attention to the articles of organization, operating agreement, and other agreements governing the members’ rights. A contractual violation does not automatically establish oppression, but it can become important evidence when it substantially interferes with a protected ownership interest.
A lockout can occur at several levels. The most obvious form is physical exclusion from the company’s premises, computer systems, financial accounts, meetings, or daily operations. More subtle forms include removing the minority member’s management authority, holding meetings without proper notice, making decisions outside required voting procedures, refusing to provide financial reports, or communicating with accountants and customers without including the minority owner.
Whether a particular exclusion is actionable depends heavily on the operating agreement. A member of a manager-managed LLC does not necessarily possess a right to participate in daily management. If the operating agreement places exclusive management authority in a designated manager, excluding a nonmanager member from operational decisions may be entirely permissible. The same conduct may have a different legal effect in a member-managed company or where the agreement gives the minority member a board position, veto right, officer role, or right to approve specified transactions.
The identity of the person exercising control also matters. MCL 450.4515 addresses acts of managers or members “in control” of the LLC. A defendant’s ownership percentage is relevant, but practical control may depend on voting arrangements, management designations, alliances among members, or authority conferred by the operating agreement. In a genuine 50-50 company, one equal member may have difficulty establishing that the other was a member in control unless the evidence shows that the defendant exercised superior contractual or practical authority. A Michigan business-court decision has treated the existence of control as an essential element and rejected an oppression claim where neither 50-percent member possessed control over the other.⁵
A refusal to provide financial information is often one of the first signs that the relationship among LLC members is deteriorating. Without reliable records, a minority member cannot determine whether the company is profitable, whether distributions have been withheld for legitimate reasons, whether controlling members are receiving undisclosed benefits, or whether company assets are being transferred elsewhere.
The Michigan Limited Liability Company Act requires an LLC to maintain specified records, including a current list of members and managers, copies of its articles and operating agreements, tax returns and financial statements for designated periods, and records concerning contributions and membership interests. Subject to statutory conditions, a member may inspect and copy company records during ordinary business hours for a purpose reasonably related to the member’s interest as a member.⁶
A records request should be made carefully and in writing. The request should identify the categories of documents sought, explain the ownership-related purpose for the inspection, propose a reasonable method for production or inspection, and preserve evidence of delivery. A demand that is tailored to the member’s legitimate concerns is generally more effective than an unrestricted request for every company document ever created.
Failure to provide records does not invariably prove oppression. A company may have legitimate confidentiality concerns, may object to requests unrelated to the member’s ownership interest, or may propose reasonable protections for sensitive customer and employee information. Persistent refusal, selective disclosure, incomplete production, or unexplained destruction of records can nevertheless become important evidence, particularly when combined with questionable payments, undisclosed transactions, or efforts to force a buyout.
Many closely held businesses do not draw a practical distinction between ownership and employment. The founders may expect that each owner will work for the company and obtain the economic benefit of ownership primarily through salary, bonuses, insurance, vehicles, or other employment-related compensation. If the controlling members terminate the minority owner’s employment and stop distributions at the same time, the minority owner may retain an interest that produces no current financial return.
Michigan law recognizes that employment actions may constitute evidence of oppression when they disproportionately interfere with distributions or other member interests. ¹ The inquiry remains fact-specific. If the operating agreement expressly permits termination, guarantees no employment, or separates employment from membership, the termination may be lawful even if it is financially painful. Conversely, evidence that employment was part of the parties’ ownership arrangement may strengthen an oppression claim, especially where the controlling members continue paying themselves while excluding the minority member from every means of receiving value.
In Loutts v Loutts, a case involving the parallel shareholder-oppression statute, the Michigan Court of Appeals emphasized the importance of the statutory definition and the connection between the challenged conduct and the plaintiff’s interests as an owner.⁷ Later cases likewise stress that employment status is not automatically an ownership right. A plaintiff should therefore document how the termination affected distributions, voting rights, company value, or other membership interests rather than relying only on the loss of wages.
The decision whether to make distributions ordinarily involves business judgment. A profitable company may have legitimate reasons to retain earnings, including debt obligations, working-capital needs, planned expansion, equipment purchases, seasonal fluctuations, or lender restrictions. Courts generally do not substitute their judgment for that of managers merely because a minority member would prefer a distribution.
The analysis changes when controlling members stop distributions while redirecting company value to themselves. Excessive salaries, undocumented loans, related-party rent, personal expenses, consulting payments to family members, bonuses unsupported by performance, or transfers to another commonly owned company may function as disguised distributions. If those benefits are available only to the controlling group, the resulting economic disparity may substantially interfere with the minority member’s ownership interest.
The recent unpublished decision in Simon v Simon illustrates both the importance of proof and the protection afforded to legitimate business decisions. There, the Court of Appeals affirmed the rejection of oppression claims after a bench trial where the trial court credited evidence that challenged payments reflected actual services, legitimate transactions, and reasonable business judgment rather than fraud or bad faith.⁸ Although unpublished decisions are not binding precedent, Simon demonstrates why suspicion alone is insufficient. A minority member generally needs financial records, transaction-level evidence, valuation evidence, or credible testimony showing that the challenged benefits were excessive, unearned, concealed, or intended to deprive the minority owner of value.
Another common oppression scenario occurs when the controlling members cause the LLC to transact with themselves, relatives, or affiliated businesses. A manager may lease property to the company, lend money to it, purchase assets from it, hire a relative, or cause it to use another company owned by the manager. Related-party transactions are not inherently unlawful. They become problematic when the terms are unfair, the decision-maker’s interest is concealed, the transaction was not properly authorized, or the controlling member captures a benefit that should have belonged to the LLC.
Michigan law imposes duties on managers and, in appropriate circumstances, members participating in management. MCL 450.4404 addresses standards of conduct, including duties to act in good faith, with appropriate care, and in a manner reasonably believed to be in the LLC’s best interests.⁹ The operating agreement may modify aspects of the members’ relationships, but it cannot be ignored when evaluating authority, disclosure obligations, approval procedures, or limitations on liability.
Diversion of a business opportunity may support several legal theories. If a manager transfers customers, contracts, employees, intellectual property, equipment, or goodwill from the LLC to a separate company owned by the controlling members, the conduct may harm the LLC directly. It may also oppress the minority member by reducing the value and economic benefits of the member’s ownership interest.
The distinction between harm to the company and harm to the member is important. A claim seeking recovery for an injury suffered primarily by the LLC may be derivative, meaning that the recovery belongs to the company. A direct oppression claim focuses on substantial interference with the plaintiff’s interests as a member. Michigan courts examine the nature of the alleged injury rather than merely the label placed on the claim. In Murphy v Inman, the Michigan Supreme Court clarified the analysis used to distinguish direct claims from derivative claims in the corporate context. ¹⁰ That distinction can influence who must be named as a party, what procedures apply, and who receives any eventual recovery.
The same conduct may sometimes support both direct and derivative theories. For example, diversion of a valuable contract may reduce the LLC’s assets while also forming part of a deliberate plan to eliminate the minority member’s economic participation. Careful pleading is necessary to identify the separate injury supporting each claim and to avoid seeking a personal recovery for damages legally belonging to the company.
The operating agreement is often the most important document in an LLC dispute. It may determine who manages the business, how managers can be removed, what voting percentage is required, whether members have rights to employment, how distributions are calculated, what records must be provided, how interests may be transferred, and whether a buyout is required after specified events.
The agreement may also contain restrictions that substantially affect litigation strategy. It may require mediation or arbitration, select a forum, authorize fee shifting, establish valuation procedures, impose notice-and-cure requirements, restrict competition, or provide a procedure for resolving deadlocks. A minority member should not assume that the statutory default rules control without first examining the signed agreement and all amendments.
MCL 450.4515 expressly excludes conduct permitted by an operating agreement or another agreement to which the member is a party. ¹ This exclusion gives controlling members a powerful defense when the disputed action was contractually authorized. It does not necessarily protect conduct exceeding the authority granted, violating required procedures, or using contractual power as part of a broader scheme designed to substantially interfere with another member’s protected interests.
The parties’ course of dealing may also matter. Years of consistent practices concerning compensation, draws, tax distributions, access to records, and management responsibilities can provide context for interpreting ambiguous provisions. A sudden departure from those practices immediately after a personal conflict or buyout demand may support an inference that the change was intended to disadvantage the minority member.
If a violation is established, the circuit court may grant relief it considers appropriate under the circumstances. MCL 450.4515 provides a nonexclusive range of remedies. The court may dissolve and liquidate the LLC, cancel or alter provisions in the articles of organization or operating agreement, cancel or enjoin company resolutions or other acts, direct or prohibit future conduct, order the purchase of the member’s interest at fair value, or award damages to the company or the member. ¹
This broad remedial authority reflects the equitable nature of an oppression action. In Madugula, the Michigan Supreme Court held that a claim under the parallel shareholder-oppression statute is an equitable claim for the court to decide, even when the plaintiff requests money damages.⁴ The structure of the LLC statute is substantially similar, and its remedies likewise allow the court to respond flexibly to the particular wrongdoing established.
Dissolution is available but is not inevitable. Courts often regard dissolution as a serious remedy because it may destroy an otherwise viable business, affect employees and customers, and reduce the value available to all owners. Where the underlying business remains profitable, a buyout, injunction, accounting, or governance remedy may better separate the parties while preserving enterprise value.
A court-ordered buyout can provide the most practical solution when the relationship is irreparably broken. Valuation, however, may become a major dispute. The parties may disagree about the valuation date, treatment of company debt, normalization of insider compensation, application of discounts, value of goodwill, effect of pending contracts, and whether diverted opportunities should be restored to the company’s valuation. Qualified valuation and accounting professionals may therefore play a central role.
An injunction may be necessary before final judgment if company assets, records, customers, or opportunities are at immediate risk. A minority member may seek orders preserving records, restricting extraordinary transactions, preventing transfers outside the ordinary course, requiring access to information, or maintaining the status quo. The specific relief available will depend on the evidence and the requirements governing temporary restraining orders and preliminary injunctions.
Minority members should not delay after discovering potential oppression. MCL 450.4515 establishes a specific limitations rule for an action seeking damages. Such an action must be commenced within three years after the claim accrues or within two years after the member discovers or reasonably should have discovered the claim, whichever occurs first. ¹
In Frank v Linkner, the Michigan Supreme Court held that these are alternative statutes of limitations. A member seeking damages must satisfy the earlier deadline. ² The Court also held that an LLC member-oppression claim accrues when the defendant’s conduct substantially interferes with the plaintiff’s interests as a member, even if the plaintiff has not yet experienced a readily calculable financial loss.
This rule can create a trap. A minority member may wait for a company to be sold, liquidated, or valued before believing that damages are sufficiently definite. Under Frank, the claim may have accrued much earlier, when the substantial interference with membership interests occurred. ² Each challenged action should therefore be analyzed separately to determine its date, discovery, effect, and relationship to any continuing course of conduct.
Members should also avoid assuming that repeated conduct automatically revives old claims. New acts may create new claims, but the continuation of consequences from an earlier act does not necessarily restart the limitations period. Prompt evaluation is particularly important when a member has been removed from management, denied records, deprived of distributions, or presented with a coercive buyout proposal.
The first priority is to preserve evidence and understand the governing documents. The member should obtain the articles of organization, every version of the operating agreement, amendments, membership certificates, contribution records, tax documents, meeting minutes, written consents, employment agreements, buy-sell agreements, and relevant communications. The member should preserve emails, text messages, accounting reports, bank information lawfully available to the member, and communications concerning changes in employment, management, distributions, or ownership.
The member should prepare a chronology identifying when each significant event occurred. That chronology should distinguish actions affecting employment from actions affecting membership. It should record when the member learned of each transaction because discovery dates may affect the limitations analysis. It should also identify the individuals who made or approved each decision and the authority they claimed to exercise.
A carefully framed written demand can clarify the dispute and create a useful record. Depending on the circumstances, the demand may request access to specified records, an explanation of distributions and compensation, correction of unauthorized actions, notice of future meetings, restoration of contractual rights, or negotiation of a fair-value buyout. The demand should ordinarily avoid inflammatory accusations unsupported by existing evidence.
A member should also evaluate the economic objective before litigation begins. Some owners want to return to management. Others want a fair buyout, payment of withheld distributions, protection against further dissipation, or an orderly dissolution. Identifying the desired result helps determine whether early negotiation, mediation, emergency injunctive relief, an inspection action, or a full oppression lawsuit is the appropriate path.
Many disputes arise because an LLC’s operating agreement does not address foreseeable changes in the owners’ relationship. An agreement prepared when everyone is optimistic may say little about termination of an owner’s employment, prolonged disability, retirement, divorce, deadlock, misconduct, or the desire of one member to leave.
A well-developed operating agreement should clearly identify management authority, reserved voting matters, information rights, distribution policies, standards for related-party transactions, procedures for approving compensation, and events triggering a buyout. The agreement should also establish a workable valuation method. A formula that appears simple when the company is formed may become unfair after years of growth, changes in debt, or development of substantial goodwill.
Companies should follow their documents consistently. Meetings should be properly noticed, significant decisions documented, conflicts disclosed, and related-party transactions supported by legitimate business reasons. Compensation should correspond to actual services, and personal expenses should not be passed through the company. Financial records should distinguish salaries, loans, distributions, reimbursements, rent, and management fees so that the owners can understand how value is being allocated.
Transparency does not eliminate business disagreements, but it often prevents those disagreements from becoming oppression claims. A controlling member who can demonstrate consistent procedures, complete records, fair dealing, and a reasoned business basis for disputed decisions is in a substantially stronger position than one who operated informally and documented transactions only after litigation began.
A minority member who has been excluded from a Michigan LLC is not necessarily without a remedy. Michigan’s member-oppression statute gives circuit courts broad authority to address illegal, fraudulent, and willfully unfair and oppressive conduct by managers or members in control. The statute can reach a continuing freeze-out campaign as well as a single significant action that substantially interferes with protected membership interests.
The strength of a claim depends on more than proof that the relationship has become hostile. The minority member must connect the challenged conduct to interests held as a member, establish the defendants’ control and intent, address the authority provided by the operating agreement, and support allegations of financial misconduct with reliable evidence. The member must also act promptly because the limitations period for damages may begin before the amount of financial loss can be calculated.
For controlling and minority owners alike, early legal review can make a substantial difference. Once records disappear, assets are transferred, deadlines expire, or the parties take entrenched positions, resolving the dispute becomes more difficult and expensive. A careful evaluation of the governing agreements, financial evidence, ownership rights, and available equitable remedies can help determine whether the best response is negotiation, a records demand, a structured buyout, injunctive relief, or an action under MCL 450.4515.
This article provides general information concerning Michigan law and is not legal advice. The rights and remedies available in a particular LLC dispute depend on the operating agreement, the company’s management structure, the challenged transactions, and the applicable limitations periods.
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Sources:
1-Michigan Limited Liability Company Act, MCL 450.4515. https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-450-4515
2- Frank v Linkner, 500 Mich 133; 894 NW2d 574 (2017). https://law.justia.com/cases/michigan/supreme-court/2017/151888.html
3- Franks v Franks, 330 Mich App 69; 944 NW2d 388 (2019).
https://case-law.vlex.com/vid/franks-v-franks-no-886408600
4- Madugula v Taub, 496 Mich 685; 853 NW2d 75 (2014). https://law.justia.com/cases/michigan/supreme-court/2014/146289.html
5- Sargent Docks & Terminal, Inc v Webber, Saginaw Circuit Court Case No. 11-014229-CB, Opinion and Order Regarding Defendants’ Motion for Summary Disposition No. 3, issued August 7, 2015. www.courts.michigan.gov/4a52f7/siteassets/business-court-opinions/c10-2015-11014229-cb-3-(aug-7,-2015).pdf
6- Michigan Limited Liability Company Act, MCL 450.4503. https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-450-4503
7- Loutts v Loutts, 298 Mich App 21; 826 NW2d 152 (2012). https://caselaw.findlaw.com/court/mi-court-of-appeals/1692125.html
8- Simon v Simon, unpublished per curiam opinion of the Court of Appeals, issued November 21, 2025 (Docket No. 367260). https://law.justia.com/cases/michigan/court-of-appeals-unpublished/2025/367260.html
9- Michigan Limited Liability Company Act, MCL 450.4404. https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-450-4404
10- Murphy v Inman, 509 Mich 132; 983 NW2d 354 (2022). https://law.justia.com/cases/michigan/supreme-court/2022/345758.html