When 50-50 Isn’t Deadlock: New York Court Rejects Corporate Dissolution

By: Jeffrey M. Haber 

Not every disagreement among the owners of a closely held corporation warrants judicial dissolution. Although Business Corporation Law (“BCL”) §§ 1104 and 1104-a authorize dissolution in circumstances involving shareholder deadlock, internal dissension, or oppressive conduct, dissolution remains a drastic remedy. Particularly under BCL § 1104, the critical question is whether the disagreement has translated into a genuine deadlock that prevents the corporation from successfully and profitably conducting its affairs. A corporation that continues to operate successfully may therefore survive a dissolution petition notwithstanding serious disagreements among its owners.

That principle was at the center of the dispute involving Neptune Equities, Inc., a profitable corporation whose sole asset was a fully leased Brooklyn commercial property. Matter of Coven v. Neptune Equities, Inc., 2026 N.Y. Slip Op. 06114 (2d Dept. Oct. 21, 2026). Despite dissension between the holders of its two 50% ownership interests, the courts concluded that the disagreement had not impaired Neptune’s successful and profitable operation and therefore did not justify dissolution.

Coven provides an occasion for this Blog to examine the statutory grounds for judicial dissolution under BCL §§ 1104 and 1104-a, the circumstances in which shareholder dissension rises to the level warranting dissolution, and the principles governing a court’s exercise of discretion in granting that extraordinary remedy.

Applicable Principles

Section 1104 of the BCL grants a court the power to order the dissolution of a corporation “when the holders of shares representing one-half of the votes of all outstanding shares of a corporation entitled to vote in an election of directors,”[1] establish that “the directors are so divided respecting the management of the corporation’s affairs that the votes required for action by the board cannot be obtained”,[2] or that “there is internal dissension and two or more factions of shareholders are so divided that dissolution would be beneficial to the shareholders.”[3] The primary issues for determination under BCL § 1104 are whether a deadlock actually exists[4] and whether such deadlock poses “an irreconcilable barrier to the continued functioning and prosperity of the corporation.”[5] 

Dissolution is generally appropriate where the complained of internal dissension and/or deadlock impedes the daily functioning of the corporation,[6] and, as noted, poses “an irreconcilable barrier to the continued functioning and prosperity of the corporation.”[7] Notwithstanding, “dissolution and forced sale of corporate assets should only be applied as a last resort.”[8] 

“In determining whether dissolution is in order, the issue is not who is at fault for a deadlock, but whether a deadlock exists.”[9] “[T]he underlying reason for the dissension is of no moment, nor is it at all relevant to ascribe fault to either party.”[10] “Rather, the critical consideration is the fact that dissension exists and has resulted in a deadlock precluding the successful and profitable conduct of the corporation’s affairs.”[11] 

Even if dissension and/or deadlock exists, allegations that a petitioner acted in bad faith by creating the underlying disputes to justify dissolution “constitute a defense to a dissolution proceeding,” and therefore require a hearing to determine the issue.[12] 

Notably, the mere failure to attend shareholder meetings or disagreements with the shareholder who exercises control over the corporation’s daily management do not amount to dissension between shareholders sufficient to warrant dissolution.[13] Conversely, where “[t]he disagreements which developed and the intensity of their discord [become] so great that efficient management [becomes] impossible,” dissolution pursuant to BCL § 1104 is warranted.[14] 

Under BCL § 1104-a, the court is authorized to dissolve a corporation on two grounds: (a) when the directors representing “twenty percent or more of the votes of all outstanding shares of a corporation … present a petition of dissolution,”[15] and (b) a court finds, inter alia, that “[t]he directors or those in control of the corporation have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders … [or that] [t]he property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control of the corporation.”[16]

The underlying purpose of Section 1104-a is to enable minority shareholders of closely held corporations to obtain relief, when they are either being denied participation in or excluded from corporate management, being refused employment by the corporation, or being refused payment of any dividends.[17] Accordingly, as long as the corporation’s “stock is not traded on a securities market,”[18] BCL § 1104-a – also known as the involuntary dissolution statute – “permits dissolution when a corporation’s controlling faction is found guilty of ‘oppressive action’ toward the complaining shareholders.”[19] Whether conduct is oppressive sufficient to warrant dissolution is best understood against the backdrop of the purpose of the BCL § 1104-a, which by limiting relief only to those corporations not traded on the securities’ market, is meant to apply to closely held corporations.[20] As the Court of Appeals observed:

[i]t is widely understood that, in addition to supplying capital to a contemplated or ongoing enterprise and expecting a fair and equal return, parties comprising the ownership of a close corporation may expect to be actively involved in its management and operation … Unlike the typical shareholder in a publicly held corporation, who may be simply an investor or a speculator and cares nothing for the responsibilities of management, the shareholder in a close corporation is a co-owner of the business and wants the privileges and powers that go with ownership. His participation in that particular corporation is often his principal or sole source of income. As a matter of fact, providing employment for himself may have been the principal reason why he participated in organizing the corporation. He may or may not anticipate an ultimate profit from the sale of his interest, but he normally draws very little from the corporation as dividends. In his capacity as an officer or employee of the corporation, he looks to his salary for the principal return on his capital investment, because earnings of a close corporation, as is well known, are distributed in major part in salaries, bonuses and retirement benefits.[[21]]

Accordingly, oppressive conduct falls within the scope of BCL § 1104(a)(1) if it substantially defeats the reasonable expectations held by minority shareholders upon committing their capital to the particular enterprise.[22]

In determining whether expectations are reasonable, the court must determine what a respondent knew or should have known regarding the petitioner’s expectations in joining the corporation.[23] Oppressive conduct only arises if the respondent’s conduct objectively defeats those expectations.[24] 

Once a petitioner has established a prima facie showing of entitlement to dissolution, it is within the court’s discretion whether to issue an order granting dissolution without a hearing. BCL § 1111(a).

Matter of Coven v. Neptune Equities, Inc.

Neptune Equities, Inc. is a New York corporation whose sole asset is a fully leased commercial property in Brooklyn. Respondent, Staci Broder owns 50% of Neptune. The remaining 50% belonged to Walter Coven, who died intestate in Florida in 2016. Coven’s widow (“petitioner”) was appointed personal representative of his estate. Under Florida law, she is entitled to half of the estate, while petitioner’s two sons from a prior marriage are entitled to the other half.

Acting on behalf of the estate, petitioner controlled its 50% interest in Neptune. The estate, however, owed approximately $1.1 million on an outstanding judgment. Against that backdrop, petitioner commenced a proceeding under BCL § 1104(a) seeking judicial dissolution of Neptune.

At trial, the evidence showed that Neptune was profitable, its Brooklyn property was fully rented, and the corporation was operating successfully. Petitioner’s own appraisal valued the company at approximately $7.4 million. She nevertheless contended that dissolution was warranted based, in part, on an alleged deadlock concerning Neptune’s management and directors.

The motion court rejected that position. It concluded that a March 2022 meeting, purportedly held to elect directors, could not provide a basis for dissolution because petitioner had not established that the meeting, which was conducted remotely, was authorized under Neptune’s bylaws. The motion court also emphasized that one of the beneficiaries of the estate’s Neptune shares, did not want the corporation dissolved or its property sold.

In the motion court’s view, dissolution was unnecessary because less drastic alternatives were available. The estate could satisfy the outstanding judgment by selling a portion of its Neptune shares or borrowing against them. Once the shares of estate were distributed, the sons’ interest, when combined with petitioner’s 50% ownership, could also resolve the asserted management deadlock. Following the nonjury trial, the motion court denied the petition and dismissed the proceeding. Petitioner appealed. The Second Department affirmed.

The Court held that the motion court “did not improvidently exercise its discretion in denying dissolution.”[25] The Court found that the “evidence before the [motion] court demonstrated that the dissension between the petitioner and [respondent] was not sufficient to warrant dissolution.”[26] Applying the principles above, the Court concluded that dissolution was not warranted because “the record fail[ed] to demonstrate that the dissension between [respondent] and the petitioner precluded the successful and profitable conduct of the corporation’s affairs.”[27]

Takeaway

Coven reinforces that judicial dissolution under BCL § 1104 is not warranted merely because shareholders are divided or unable to agree on matters of corporate governance. The relevant inquiry is whether the dissension has resulted in an actual deadlock that prevents the corporation from successfully and profitably conducting its affairs. Thus, even serious disagreements between equal shareholders may fall short of the statutory standard where the corporation continues to function and prosper.

That distinction was particularly important in Coven because Neptune’s 50-50 ownership structure presented the classic setting in which deadlock might be expected. Yet the Court focused not simply on the ownership percentages or the existence of disagreement, but on the practical effect of the dispute on the corporation. Neptune was profitable, its Brooklyn property was fully leased, and the record did not establish that the dissension between its owners interfered with the successful and profitable operation of the business. In other words, there may have been a dispute between the shareholders, but there was no corresponding paralysis of the corporation.

Therefore, Coven illustrates an important distinction between shareholder deadlock and corporate dysfunction. BCL § 1104 is not simply a mechanism for resolving an impasse between equal shareholders. The disagreement must have consequences for the corporation sufficient to justify the extraordinary remedy of dissolution. Where the corporation continues to operate successfully notwithstanding disagreements among its owners, the existence of those disagreements does not, standing alone, require the court to terminate an otherwise viable enterprise.

The circumstances surrounding the estate further illustrate the point. The estate’s $1.1 million judgment obligation created a need for liquidity, but that did not necessarily require dissolution of Neptune. The motion court identified less drastic alternatives, including selling a portion of the estate’s Neptune shares or borrowing against them. It also recognized that the eventual distribution of the estate’s shares could change the ownership dynamic and resolve the asserted governance problem. Those circumstances supported leaving the profitable corporation intact rather than forcing the sale of its principal asset.

Coven thus gives meaningful effect to the principle that dissolution is a remedy of last resort. A court confronted with shareholder dissension should look beyond the disagreement itself and examine whether it has actually impaired the corporation’s ability to conduct its business and whether less drastic alternatives are available. A dispute among shareholders should not be confused with dysfunction of the corporation they own. Even in the seemingly paradigmatic case of a 50-50 ownership dispute, dissolution is not warranted where the business continues to operate successfully, and the alleged deadlock does not preclude the profitable conduct of its affairs.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm.

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[1] BCL § 1104(a).

[2] BCL § 1104(a)(1).

[3] BCL § 1104(a)(3).

[4] In re Dream Weaver Realty, Inc., 70 A.D.3d 941, 942 (2d Dept. 2010); Matter of Kaufmann, 225 A.D.2d 775, 775 (2d Dept. 1996); Matter of Goodman v. Lovett, 200 A.D.2d 670, 671 (2d Dept. 1994).

[5] Matter of Kaufmann, 225 A.D.2d at 775; Matter of Goodman, 200 A.D.2d at 671.

[6] See generally Hayes v. Festa, 202 A.D.2d 277, 277 (1st Dept. 1994).

[7] Matter of T.J. Ronan Paint Corp., 98 A.D.2d 413, 421 (1st Dept. 1984).

[8] Matter of Klein Law Group, P.C., 134 A.D.3d 450 (1st Dept. (2015), quoting Matter of the Dissolution of 168½ Delancey Corp., 174 A.D.2d 523, 526 (1st Dept. 1991) (internal citations omitted).

[9] Matter of Kaufmann, 225 A.D.2d at 775.

[10] Dream Weaver Realty, 70 A.D.2d at 942; Matter of Kaufmann, 225 A.D.2d at 775; Matter of Goodman, 200 A.D.2d at 671.

[11] Matter of Goodman, 200 A.D.2d at 670-71.

[12] Myers v. Gold, 77 A.D.2d 652, 653 (2d Dept. 1980) (internal citations omitted); Matter of Rappaport, 110 A.D.2d 639, 641 (2d Dept. 1985). But see Matter of Eklund Farm Machinery, Inc., 40 A.D.3d 1325, 1326-27 (3d Dept. 2007) (summarily granting dissolution despite allegations that petitioner acted in bad faith by “creat[ing] dissension to obtain dissolution” where the record clearly established that the petitioner was completely excluded from control and operation of the corporation by respondent).

[13] In re Parveen, 259 A.D.2d 389, 391 (1st Dept. 1999); Nelkin v. H. J. R. Realty Corp., 25 N.Y.2d 543, 549 (1969).

[14] Application of Sheridan Const. Corp., 22 A.D.2d 390, 391 (4th Dept. 1965), aff’d, 16 N.Y.2d 680 (1965).

[15] BCL § 1104-a(a).

[16] BCL § 1104-a(a)(1), (2).

[17] Matter of Blake v. Blake Agency, Inc., 107 A.D.2d 139, 144 (2d Dept. 1985).

[18] BCL § 1104-a(a).

[19] Matter of Kemp & Beatley, Inc., 64 N.Y.2d 63, 68 (1984).

[20] Id. at 71-72 (“As the stock of closely held corporations generally is not readily salable, a minority shareholder at odds with management policies may be without either a voice in protecting his or her interests or any reasonable means of withdrawing his or her investment. This predicament may fairly be considered the legislative concern underlying the provision at issue in this case; inclusion of the criteria that the corporation’s stock not be traded on securities markets and that the complaining shareholder be subject to oppressive actions supports this conclusion.”).

[21] Id. at 71 (internal quotation marks omitted).

[22] Id. at 72; see also Hoffman v. S.T.H.M. Realty Corp., 207 A.D.3d 722, 723 (2d Dept. 2022); Matter of Twin Bay v. Kasian, 153 A.D.3d 998, 1002 (3d Dept. 2017).

[23] Id. at 73.

[24] Id.

[25] Slip Op. at *1, citing BCL § 1111.

[26] Id.

[27] Id. at *2.