The call to my office usually sounds the same. Two or three people started a company. It worked. Then the person with the login credentials and the checkbook stopped returning calls, stopped making distributions, put a relative on payroll, and, when asked, offered to buy the other member out for a number nobody could take seriously.
There’s no fraud anyone can point to. Nothing was stolen in a way that would interest a prosecutor. The caller just owns an asset they can’t get at, can’t value, and can’t sell.
Minnesota has a statute for exactly this. It’s Minn. Stat. § 322C.0701, and the remedy most people have never heard of is the one that actually fixes the problem.
The statute, and the ground that matters
Section 322C.0701 lets a member of a Minnesota LLC petition a court for dissolution, or, more usefully, for something short of dissolution.
Under subdivision 1, clause (5), a member may seek relief when the managers, governors, or those members in control of the company:
- “have acted, are acting, or will act in a manner that is illegal or fraudulent”; or
- “have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant.”
That second ground is the one that decides most real disputes. You don’t have to prove fraud. You have to prove oppression that is directly harmful to you, and the freeze-out above is what the word describes.
The remedy worth reading twice: a court-ordered buyout
Subdivision 2 is where I start when I evaluate one of these cases. A court isn’t limited to dissolving the company. It may instead order “a remedy other than dissolution, which may include the sale for fair value of all membership interests a member owns . . . to the limited liability company or one or more of the other members.”
The court may order an alternative remedy “in any case where that remedy would be appropriate under all the facts and circumstances of the case.”
Think about what that does to the fight. The minority member almost never wants the company destroyed. The problem is that they own something illiquid that the majority controls, and the majority has no reason to pay a real price for it. Section 322C.0701 supplies the reason: a court can compel the purchase, and the statute measures the price at fair value, not at whatever was offered.
That changes the whole negotiation. A majority member who was happy to wait out a frozen-out partner forever now faces a court setting fair value on a record the majority doesn’t control. In my experience, the tone changes the day that becomes real.
Two catches. The remedy is discretionary. Subdivision 2 says the court “may order a remedy other than dissolution, which may include” a sale at fair value. You have to earn it on the facts. And § 322C.0701 is thinner than its corporate counterpart. Unlike Minn. Stat. § 302A.751, subd. 2, it supplies no valuation date, no deadline for the parties to agree on price, and no cross-reference to a statutory fair-value procedure. Those gaps get litigated.
What “oppressive” looks like in the wild
Oppression deliberately isn’t defined by a checklist, because people are endlessly creative about it. Here are the patterns I see again and again:
- Termination of employment where the member’s compensation was the practical return on the investment
- Elimination of distributions while the majority takes salary, bonuses, or “consulting fees”
- Exclusion from information: no financials, no access to books, no answers
- Removal from management contrary to the parties’ original understanding
- Related-party dealing: leases, service contracts, or payroll for insiders on non-market terms
- Dilution through capital calls timed so the minority can’t participate
- Lowball buyout offers presented as the only way out
The common thread: the majority is pulling the company’s value out through channels the minority can’t reach, while the minority’s interest earns nothing.
As for where the case goes: venue is in the county where the LLC maintains its registered office, and subdivision 3 also provides that other members need not be named as parties unless personal relief is sought against them. That detail matters when you’re deciding how aggressive the pleading should be.
Read your operating agreement before you read the statute
This is the step that most often changes my answer, and it comes first.
Minnesota’s LLC act is largely default law. A well-drafted operating agreement may already contain a buy-sell provision with a defined valuation method and trigger events; a deadlock mechanism (shotgun clauses, appraisal, mandatory mediation); distribution obligations that turn “no distributions” from a grievance into a breach of contract; information rights beyond the statutory baseline; and transfer restrictions that decide whether you can sell to a third party at all.
If a buy-sell exists and the trigger has occurred, the contract claim is frequently faster and cheaper than the statutory petition. If the operating agreement is silent, or there isn’t one (which is common), § 322C.0701 is the path.
Now a caution that cuts the other way, with a big exception. An operating agreement can limit your options: transfer restrictions that decide whether you may sell at all, a contractual buy-sell price you’re stuck with, deadlock procedures you have to run before you do anything else. Read it before you assume you can go the way you want.
But it can’t take the § 322C.0701 petition away from you. Minn. Stat. § 322C.0110, subd. 3, lists what an operating agreement may not do, and clause (7) is right on point:
“An operating agreement may not: . . . (7) vary the power of a court to decree dissolution in the circumstances specified in section 322C.0701, subdivision 1, clauses (4) and (5).”
Clause (5) is the illegal, fraudulent, or oppressive conduct ground this whole article is about. It can’t be waived. Two neighboring restrictions in the same subdivision matter just as much: an operating agreement may not “unreasonably restrict the duties and rights stated in section 322C.0410” (the information rights below, § 322C.0110, subd. 3(6)), and it may not “unreasonably restrict the right of a member to maintain an action under sections 322C.0901 to 322C.0906.” § 322C.0110, subd. 3(9).
So the operating agreement shapes the fight: what you can sell, at what price, and what you have to do first. It doesn’t end it.
What I have clients do before filing
The evidence you’ll need is evidence the other side controls, and their interest in preserving it drops the moment they know you’re serious. So the order matters.
- Make the books-and-records demand in a record, and make it specific. Minnesota LLC members have statutory information rights under Minn. Stat. § 322C.0410, and in a manager-managed or board-managed company the written demand isn’t just good practice. It’s the statutory prerequisite. Subdivision 2(2) conditions the right on a member who “makes a demand in a record received by the company, describing with reasonable particularity the information sought and the purpose for seeking the information.” Subdivision 2(3) then gives the company ten days: within ten days it “shall in a record inform the member” what it will provide and when and where, or state “the company’s reasons for declining.” A proper demand does two things. It may get you the financials, and a refusal or a silent eleventh day is itself evidence.
- Document the pattern, with dates. Oppression is a course of conduct, not a single act. The timeline is the case.
- Preserve your own records now. Emails, texts, the original operating agreement, capital contribution records, distribution history, tax returns and K-1s.
- Don’t resign, and don’t sign anything. Resigning from employment or management can weaken your position materially. So can a release buried in a routine-looking document.
- Get an independent view of value before you negotiate. The majority’s number is an opening position, not an appraisal.
- Watch the clock. Claims have limitations periods, and delay also undercuts the equitable footing that a court-ordered buyout depends on.
If you’re the majority member
Read the same statute from your side, because the exposure is lopsided and most of the defenses get built ahead of time. Pay distributions consistently or document a legitimate business reason not to. Keep related-party transactions at market terms, documented and approved. Honor information requests, and honor the clock. A proper demand under § 322C.0410, subd. 2, obligates a manager-managed or board-managed company to respond in a record within ten days, and stonewalling is the single most persuasive evidence of oppression I can put in front of a court. It’s also free to avoid.
Beyond that, get a real operating agreement with a real buy-sell. A defined valuation mechanism protects the majority at least as much as the minority, because it replaces a court’s fair-value determination with the parties’ own. And take a serious buyout position early. The cheapest way out of a § 322C.0701 case is the one that happens before it’s filed.
Why this keeps coming up in Minnesota
Minnesota’s economy is thick with closely held companies (contractors, manufacturers, professional practices, distributors, family real estate holdings) formed by people who trusted each other and used a form document, or none. The LLC became the default entity, and the operating agreement became the thing everyone meant to finish later.
Those companies run fine for years. What they lack is a plan for the day one owner wants out and the others don’t want to pay. Section 322C.0701 is the legislature’s answer to that day, and the best thing about it is that the exit doesn’t require killing the business.
Madgett Law, LLC represents Minnesota LLC members on both sides of ownership disputes: freeze-outs, buyout valuation, deadlock, and the business-divorce negotiation that comes before litigation. If you’re locked out of a company you own a piece of, or you’re the operator facing a claim, send us a message or call 612-470-6529.
Sources: Minn. Stat. § 322C.0701 (events causing dissolution; grounds on application by a member; alternative remedies including sale for fair value; venue and parties); Minn. Stat. § 322C.0110, subds. 1–3 (operating agreement — scope, function, and limitations; restrictions, including clauses (6), (7), and (9)); Minn. Stat. § 322C.0410, subd. 2 (member information rights in a manager-managed or board-managed company; demand in a record; ten-day response); Minn. Stat. ch. 322C generally (Minnesota Revised Uniform Limited Liability Company Act) (Minnesota Office of the Revisor of Statutes). This article is general legal information about Minnesota law, not legal advice, and reading it does not create an attorney–client relationship. Available remedies depend on the operating agreement, the entity’s history, and the specific conduct at issue. No outcome is promised or implied.