When multiple members run an LLC together, disagreements are almost inevitable. But what happens when those disagreements escalate? Can a partner sue another partner in an LLC?
The short answer is: Yes, one LLC partner (or member) can sue another if there’s evidence of wrongdoing, breach of fiduciary duty, fraud, or violations of the operating agreement.
This article covers:
- When a partner can sue another partner in an LLC
- Common reasons for member lawsuits
- Types of lawsuits (direct vs. derivative)
- How operating agreements affect legal actions
- How to reduce the risk of internal disputes
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What Is a Partner in an LLC?
In an LLC, the term “partner” usually refers to a “member” — someone who owns a share in the business. LLC members have rights and responsibilities outlined in:
- The LLC operating agreement
- State LLC laws
- General business practices
When those rights are violated, legal action may be an option.
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Can a Partner Sue Another Partner in an LLC?
Yes. One LLC member can sue another in either of the following ways:
- Direct Lawsuit – When the suing partner has been personally harmed
- Derivative Lawsuit – Filed on behalf of the LLC when the business itself is harmed by another member’s actions
In both cases, a lawsuit must be based on a valid legal claim such as:
- Breach of the operating agreement
- Misuse of company funds
- Fraud or misrepresentation
- Breach of fiduciary duty
- Failure to uphold management obligations
- Self-dealing or conflict of interest
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Common Reasons Why LLC Members Sue Each Other
1. Unauthorized Withdrawal of Funds
– When one partner uses LLC funds for personal expenses
2. Violation of the Operating Agreement
– Ignoring agreed-upon voting rules, profit sharing, or roles
3. Business Sabotage or Negligence
– Harmful decisions or mismanagement affecting the company’s survival
4. Fraud or Misrepresentation
– Providing false information to other partners or to clients
5. Breach of Fiduciary Duty
– Acting in bad faith or prioritizing personal interest over the company’s best interest
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Direct vs. Derivative Lawsuits
| Type of Lawsuit | Filed By | Against Whom | Purpose |
|---|---|---|---|
| Direct Lawsuit | Individual partner | Another member | Seeks personal compensation |
| Derivative Lawsuit | Partner on behalf of LLC | A member, manager, or third party | Seeks damages for the company |
Most states require that members attempt to resolve the dispute internally before filing a derivative lawsuit.
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Does the Operating Agreement Matter?
Yes — it’s the most important document when it comes to internal lawsuits.
The operating agreement:
- Defines member roles and responsibilities
- Establishes profit sharing and voting rights
- Outlines dispute resolution procedures
- May include mediation or arbitration clauses
- Can waive or limit certain legal rights
If your LLC has no operating agreement, state default rules will apply — which can complicate lawsuits.
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Legal Consequences of Suing Another Partner
While suing a business partner may be necessary in some cases, it comes with serious risks:
- Legal fees and time-consuming court processes
- Possible countersuits
- Damaged business reputation
- Dissolution of the LLC (in severe cases)
That’s why many LLCs include conflict resolution clauses (mediation or arbitration) in their operating agreement.
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How to Avoid Legal Disputes Between LLC Partners
- Create a strong, detailed operating agreement from day one
- Set clear roles, responsibilities, and voting rights
- Maintain accurate financial records
- Communicate regularly and transparently
- Address disagreements quickly, before they escalate
Need help creating or updating your operating agreement? FormLLC can help.
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Final Thoughts
Yes, a partner can sue another partner in an LLC — but it should be a last resort. The best defense against internal disputes is a well-written operating agreement and strong communication.
If you’re starting an LLC with others, protect yourself and your business by setting clear expectations and resolving issues early.
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