You own part of the company. They stopped treating you like it.

NY LLC LAW § 1102 · BCL § 624

What a freeze-out looks like.

The pattern is consistent across industries. A two- or three-owner business, often started by friends or family, with an operating agreement that was never finished or a shareholder agreement nobody has read in years. One owner runs the day-to-day and controls the bank accounts, the books, and the payroll. The other owner, usually the one with the smaller percentage or the one not working in the business, gradually loses access: removed from the bank, dropped from the accounting software, excluded from meetings, not told about a lease renewal or a new contract. Distributions that used to arrive quarterly become "we need to reinvest." The controlling owner's salary goes up. Sometimes a new entity appears that does the same work with the same customers.

None of that changes what you own. An LLC membership interest, corporate shares, or a partnership interest entitles you to information, to your share of distributions when they are made, and to the controlling owner's good faith. The freeze-out is an attempt to make those rights expensive to exercise. The first counter-move is to exercise the cheapest one: the right to see the books.

LLC members: LLC Law § 1102.

If the business is a New York limited liability company, Limited Liability Company Law § 1102 requires the company to keep, and lets any member inspect and copy on reasonable request for any purpose reasonably related to the member's interest, a defined set of records: the current list of members with their contributions and interests, the articles of organization and all amendments, the operating agreement and amendments, and the company's federal, state, and local income tax returns and financial statements for the three most recent fiscal years. The statute sets a floor that the operating agreement can expand but, as to these core records, cannot eliminate.

Three years of tax returns and financial statements are the heart of it. Those documents show you the revenue, the expenses, the salaries, the related-party payments, and what was available to distribute. A controlling member who refuses to produce them is refusing a right the statute makes explicit, and a court will enforce it.

Operating agreements commonly grant broader rights, such as access to the general ledger, bank statements, and contracts, and commonly require regular financial reporting to members. Read yours before sending the demand, and invoke the agreement alongside the statute.

Corporate shareholders: BCL § 624.

If the business is a corporation, Business Corporation Law § 624 gives a shareholder of record the right, on written demand stating a proper purpose, to examine the minutes of shareholder meetings and the record of shareholders, and the right on written request to receive the corporation's most recent annual balance sheet and profit-and-loss statement and any interim statements distributed to shareholders. The corporation has a short period to comply and may require an affidavit that the purpose is related to the corporation's business. A court may compel inspection in a summary proceeding if the corporation refuses.

The statutory list is narrow, and in a closely held corporation the books you need are broader: the general ledger, the bank statements, the payroll register, the contracts with the controlling shareholder's other businesses. New York courts have long recognized a common-law right of a shareholder to inspect corporate books and records for a proper purpose, beyond the statutory list, and investigating suspected mismanagement or waste is a proper purpose. A demand that invokes both § 624 and the common-law right, and states the purpose with some specificity, is much harder to refuse than a bare request for "the financials."

Partners: the right to the books, in words. If there is no entity, or the entity is a general partnership, the Partnership Law governs. New York's Partnership Law provides that the partnership books are to be kept at the principal place of business and that every partner has access to them and may inspect and copy them at any time. Partners also owe one another a duty to render on demand true and full information of all things affecting the partnership, and each partner is accountable to the others as a fiduciary for any benefit derived from the partnership's business without consent. We describe these rules in words; the principle is that a partner has an unconditional right to the books and to an honest accounting from the partner who keeps them.

Limited partners in a limited partnership have parallel, statutorily defined inspection rights, and the partnership agreement typically adds detail.

Withheld distributions.

Information is the first right. Money is the second. The rules here depend on the documents, and the honest answer is that a minority owner often cannot compel a distribution directly. In an LLC, distributions are made when the members (or managers, in a manager-managed company) decide to make them, subject to the operating agreement; in a corporation, dividends are declared by the board. A court will generally not order a distribution just because the business is profitable.

What the law does not allow is a controlling owner using that discretion to take the minority's share by other means: paying himself an excessive salary, running personal expenses through the business, paying an affiliate above market, or declining distributions to pressure the minority into a cheap buyout. Those are breaches of fiduciary duty, and in a close corporation or LLC the controlling owner owes the minority a duty of loyalty and good faith. Tax distributions deserve a separate mention: an operating agreement that requires distributions sufficient to cover members' tax on pass-through income is a contract, and withholding them while you owe tax on profits you never received is a breach with real damages.

The books are how you find out which of these is happening. A salary that doubled the quarter the distributions stopped, a management fee to the controlling owner's new entity, a company credit card with a lot of restaurant charges: these show up in the general ledger, and they turn a complaint about "no distributions" into a specific claim for specific amounts.

The proper written demand.

Every remedy begins with a written demand that satisfies the statute, and the freeze-out usually persists because the demand was never made correctly. Texts asking "can I see the numbers?" do not trigger § 1102 or § 624. A compliant demand does:

• In writing, to the company at its principal office, with a copy to the controlling owner and to counsel if known, by a method you can prove.
• Identifies you as a member, shareholder of record, or partner, with your interest.
• States the purpose: to value your interest, to evaluate the company's financial condition, to determine whether distributions have been properly calculated, to investigate possible self-dealing. Be specific; a specific purpose supports the common-law right.
• Lists the records: the statutory items by name, then the ledger, bank statements, payroll register, related-party contracts, and the like, with date ranges.
• Cites the authority: § 1102, § 624, the Partnership Law's access rule, and the operating or shareholder agreement's provisions.
• Offers the affidavit a corporation may require.
• Sets a deadline consistent with the statute and states that a court order will be sought if it passes.
• Reserves all claims, so the demand is not read as a waiver of anything.

For co-op and condo owners the same statute applies in a different setting; see co-op and condo books and records requests.

A worked example.

Two friends form a Long Island contracting LLC, sixty-forty. The sixty percent member runs it; the forty percent member contributed $80,000 and works elsewhere. For three years each received quarterly distributions. In year four the distributions stop, the minority member is removed from the bank portal, and the majority member says revenue is down. The minority member hears from a former employee that the company is busier than ever and that the majority member bought a boat.

A demand under § 1102 and the operating agreement asks for three years of tax returns and financial statements, the general ledger and bank statements for the same period, the payroll register, and any agreements with entities the majority member owns. The majority member's lawyer produces the tax returns and, after a second letter, the ledger. The ledger shows the majority member's guaranteed payments tripled in year four and a "consulting fee" to a new LLC he owns. That is the case: a breach of fiduciary duty and of the operating agreement's distribution provisions, with a damages figure that can be calculated. Most freeze-outs settle within weeks of that discovery, usually by a buyout at a number informed by the real books.

Escalation, in words.

When the demand is refused or the books reveal misconduct, the remedies escalate. A court proceeding to compel inspection is the first and fastest. An accounting action asks the court to require the controlling owner to account for the business's finances and pay over what is owed. A derivative action is brought by the minority owner on behalf of the company against the controlling owner for breaches of fiduciary duty, such as self-dealing or waste, with any recovery going to the company. A direct action seeks the minority owner's own damages for breach of the operating or shareholder agreement, including withheld tax distributions.

The furthest step is dissolution. A court may dissolve an LLC where it is no longer reasonably practicable to carry on the business in conformity with the operating agreement, a standard New York courts apply narrowly. For a corporation, holders of a sufficient minority of shares may petition for dissolution on the ground that the controlling shareholders have engaged in illegal, fraudulent, or oppressive conduct toward them, or have looted or wasted corporate assets, and the corporation or other shareholders may respond by electing to buy the petitioner's shares at fair value. For partners, dissolution and a winding-up accounting are available where a partner's conduct makes continuing the business impracticable. In practice, the credible threat of a dissolution or oppression proceeding is what produces a fair-value buyout, which is how most freeze-outs end.

Why the letter comes first. Three reasons. The statutes require a written demand before a court will act on an inspection claim, so the letter is a legal prerequisite, not a courtesy. The letter produces the evidence; you cannot plead self-dealing with specificity until you have seen the ledger, and a lawsuit filed on suspicion alone is weak and expensive. And the letter changes the controlling owner's calculation: once counsel is involved and the statutory clock is running, the cost of continued stonewalling is a summary proceeding he will lose, with the court's view of his good faith already formed. Many controlling owners, on advice, open the books and start talking about a buyout at that point.

What a demand letter does here.

Our owner demand letters are drafted to trigger § 1102, § 624, or the partnership access rule, and the governing agreement, with the formalities each requires. They state a specific proper purpose, list the records with date ranges, address the affidavit, set the statutory deadline, reserve claims for withheld distributions and fiduciary breaches, and state the next step if ignored. Where distributions have been withheld in breach of a tax-distribution clause or other mandatory provision, the letter demands those amounts as well.

When a letter is not the right tool: if you have already made a compliant written demand that was refused, the next step is the court application, not a second letter. If the business has no assets and the controlling owner is judgment-proof, the books may confirm that and the practical remedy may be a walk-away. If the dispute is really about an unpaid debt the company owes you rather than your ownership rights, see commercial collections demand letters. And when the numbers are large or the misconduct is serious, a letter is the opening move in a litigation strategy that needs counsel beyond the letter. See how our flat-fee demand letters work.

Before you send anything.

• Locate and read the operating agreement, shareholder agreement, or partnership agreement, including any buy-sell provisions.
• Collect every financial document you ever received: K-1s, prior financial statements, distribution records, bank statements from when you had access.
• Write a timeline of when access was cut and what was said.
• Do not sign anything the controlling owner sends, including a "routine" amendment or consent, without advice.
• Keep communications in writing from here on.