Firing 25% owner in startup LLC

Asked almost 4 years ago - Clearfield, UT

I own a startup business that I started with my cousin. He is a web designer and I had no clue how that world worked. I gave him 25% to help me get it going, but I still paid him for his work. I gave him $3400 which was actually overpaying and he obviously hasn't invested a dime. Beyond this the project went 5 months past when it was supposed to be complete. Long story short, I need him gone and I don't want him to get another dime.

I talked with him a few days ago and broke the news. At first he said he would sign over his shares, then after "thinking about it" he wants a ridiculous buyout. I am wondering if there are any approaches to this that can assure he gets no additional money. Start a new company? License site/software to a company started by my wife?

Attorney answers (2)

  1. Jason C Hunter

    Pro

    Contributor Level 11

    Answered . I recommend that you consult with an attorney. I have helped clients negotiate a number of these matters with some success--especially in small businesses where one person and their capital investment is key to the success of the business. The first place we start is a review of the governing documents (operating agreement, articles, offering documents, etc.). If there are provisions is those documents, negotiate using them (or around them, if necessary). If you have no operating agreement, you default to the provisions of the Utah Code. If you are a majority owner, put the most in, etc., I think it is very likely that you can find a way to buy him out, or drive down the value of his ownership interest, or discourage him from pursuing the aggressive buyout he apparently wants. You need to be careful to avoid problems (e.g., a lawsuit against you), but it is likely you can find a way to deal with him on terms acceptable to you.

    Gather your documents and consult with an attorney.

    Best,

    JASON C. HUNTER
    jhunter@padrm.com
    www.hunterestategroup.com
    www.padrm.com
    Direct: 801.350.9013
    Cel: 435.669.2150

    Salt Lake City Office:
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    Salt Lake City, UT 84111
    Office: 801.350.9000

    Ogden Office:
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    Ogden, UT 84401
    Office: 801.528.6660

  2. Thomas H Gimer

    Contributor Level 13

    Answered . He may be unrealistic, but he's right. If he's 25% owner of the LLC, and you truly want to eliminate his equity position (as opposed to just his work for the company), then you need to follow proper procedures for buy-out. Check operating agreement and if no OA (or OA is silent) then LLC Act.

    NOTE: The response given does not form an attorney-client relationship and it is provided solely as the opinion of the author. It is for informational purposes only, not legal advice, in accordance with the AVVO terms and conditions. If a legal opinion or representation is desired, please seek independent legal counsel.

    REQUEST: Please give this answer a "thumbs up" if you find it valuable.

    Tom Gimer, Esq. -- licensed in DC and MD -- 202.556.4LAW (4529)

    http://gimerlaw.com

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