It was recently brought to my attention that a new member is actively engaged in illegal business activity which has resulted in both a personal debt and unreported off the books income.
In light of these behaviors, employment status has been terminated.
However, there was a verbal offer of minority membership in exchange for active employment at the company. There was no exchange of money. From what I know about verbal contracts, I am a very worried in regards to his claim. Does the illegal activity give me the right to cancel the verbal offer??
The LLC is Manager Managed. Employee has participated in company for 6 weeks with minimal services have been provided and member has not fulfilled there agreed upon services.
Lawsuit / Dispute Attorney
There was no meeting of the minds nor consideration for what you are saying was an oral contract. And the Statute of Frauds also controls here.
So, do not sign an Operating Agreement without full advice of a hired attorney for the LLC.
I appreciate that you tried to provide enough detail for us to answer. I think the simplest take is to assume he has en enforceable oral contact. I'm not saying he does or doesn't. What the question turns on is the illegal nature of the activity. If his actions truly did have an adverse effect on the LLC, or reasonably could have, then you could have a defense even to a valid breach of contract claim. Leaving aside that he would have a tough time proving damages and certainly a tougher time compelling you to give him a minority interest, you and the LLC seem to have a better position. Best think to do is get a lawyers advice as to documenting your situation and making the best-informed decision regarding this other party. Then the ball will be in his court.
Answering this question does not set up a attorney-client relationship between us. My comments do not constitute legal advice. If you would like to pursue representation, please contact me.