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How can I terminate my LLC business partner?

Philadelphia, PA |

- The business operates under another name.
- The company is an internet business that has yet to launch, although it is very close to being ready
- The person in questions has not contributed financially
- She has only contributed time and a fair amount of work to the project
- I have an Operating Agreement
- I would like to resolve the matter civilly, however she has been uncooperative
- I am to be meeting with Venture Capitalist for a large cash injection because the business shows promise, however, I dont want this situation lingering.
- I idea, start-up costs, LLC formation, are all out of my pocket

Attorney Answers 4

Posted

Before I respond to your inquiry, I must state that we have not spoken, I have not reviewed the relevant documents and facts, and I do not represent you. Therefore, my discussion below is not a legal opinion, but is informational only. Finally, my discussion applies only to issues to which Pennsylvania, New Jersey or Federal law apply, unless otherwise specified.

That being said, it's impossible to answer your question without reviewing the operating agreement and any other docs that have been signed by you both or by your co-member. You're in a tricky situation; it's highly unlikely that any investor with even minimal sophistication would be willing to invest until the matter is resolved; if they are unaware of the issue, basic due diligence would reveal it.

Is the co-member an employee or only a member? There may be ways to move forward without having to terminate the co-member's ownership; however, you have a fiduciary duty to your co-member to work around, as well. You should speak with an attorney ASAP as the issue is likely to take some time to resolve, and if you are on the cusp of financing and launching, you don't have much time to work with.

If you would like to discuss this matter further, please feel free to contact me at the below address(es) or telephone number.

/Christopher E. Ezold/
The Ezold Law Firm, P.C.
One Belmont Avenue,
Suite 501
Bala Cynwyd, PA 19004
(610) 660-5585
Cezold@Ezoldlaw.com
www.ezoldlaw.com

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Posted

Operating Agreement states that all the work produced by her belongs to the company which I own the majority shares of. It also states that I can terminate her, but must give her value for what her percentage of the company is worth. Also someone can purchase her shares or (%) within the company based on assessed value, which would derived from a valuation of the company. Since we haven't launched yet, the company isn't worth anything. But the completed website, code, social media integration, marketing platform and business model alone has been assessed and appraised to be worth at least 50K. But the problem is it will be worth plenty when we move forward with the launch. I am delaying the launch of the company to avoid a futuristic payout which would be more than quadruple what Im looking to spend to have her walk away without abitration, litigation, or any bad publicity. Also not a single venture capitalists is willing to back the project as it sits until this is resolved. But if I can get her to step away for a lump sum, they have offered 6 figures in capital reserves for expansion.

Posted

The Operating Agreement that you both entered into is what will likely govern the answer to your question. Typically an Operating Agreement states how a Member of an LLC may disassociate from the LLC. However, with that said, often the best method to resolve a partner dispute is to buy out the partner. Since the business has yet to launch, perhaps the cheapest method is to offer her money for her efforts to date (even though she has not contributed monetarily). This is likely the easiest and cheapest method of removing her as a Member of the LLC.

Please let me know if you would like my help with this or would like to discuss this with me please feel free to call me at 215-525-1165 x101.

This response does not create an attorney-client relationship and is not intended to provide legal advice for your specific situation.

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Posted

Operating Agreement states that all the work produced by her belongs to the company which I own the majority shares of. It also states that I can terminate her, but must give her value for what her percentage of the company is worth. Also someone can purchase her shares or (%) within the company based on assessed value, which would derived from a valuation of the company. Since we haven't launched yet, the company isn't worth anything. But the completed website, code, social media integration, marketing platform and business model alone has been assessed and appraised to be worth at least 50K. But the problem is it will be worth plenty when we move forward with the launch. I am delaying the launch of the company to avoid a futuristic payout which would be more than quadruple what Im looking to spend to have her walk away without abitration, litigation, or any bad publicity. Also not a single venture capitalists is willing to back the project as it sits until this is resolved. But if I can get her to step away for a lump sum, they have offered 6 figures in capital reserves for expansion.

Michael Charles Doland

Michael Charles Doland

Posted

Again, another great PA lawyer to interview.

Nancy L. Lanard

Nancy L. Lanard

Posted

You should retain counsel and have him or her review your documents and negotiate a settlement/buy-out with the partner. You may risk losing the investor if you do not act quickly on this. I am happy to help if you want to give me a call. 215-525-1165 x101.

Posted

I agree with my colleagues that the operating agreement is key to the analysis. For future reference, normally when two persons not related by blood or marriage enter business they should have a buy-sell agreement which addresses these issues, including a formula for the buyout. Saving money forming an LLC online has consequences down the road regarding the legal counsel you did not receive.

The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.

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Posted

Operating Agreement states that all the work produced by her belongs to the company which I own the majority shares of. It also states that I can terminate her, but must give her value for what her percentage of the company is worth. Also someone can purchase her shares or (%) within the company based on assessed value, which would derived from a valuation of the company. Since we haven't launched yet, the company isn't worth anything. But the completed website, code, social media integration, marketing platform and business model alone has been assessed and appraised to be worth at least 50K. But the problem is it will be worth plenty when we move forward with the launch. I am delaying the launch of the company to avoid a futuristic payout which would be more than quadruple what Im looking to spend to have her walk away without abitration, litigation, or any bad publicity. Also not a single venture capitalists is willing to back the project as it sits until this is resolved. But if I can get her to step away for a lump sum, they have offered 6 figures in capital reserves for expansion.

Posted

The operating agreement will likely dictate how you proceed. We recently assisted another start-up Internet-based company in the Philadelphia area with a similar situation. In our situation, we were able to remove the CEO amicably without impinging on the company's ability to continue to raise additional capital. Every situation is different, but an attorney will be able to guide you through the process.

Feel free to contact me to discuss your situation.

Brian Carter
bcarter@skarlatoszonarich.com

This response is of a general nature and for information purposes only. You should not rely upon this response without first contacting a qualified attorney who will be able to examine your specific situation. No attorney-client relationship is developed through this exchange. If you would like additional assistance, please do not hesitate to contact me directly at 717-233-1000. You can review my firm more at www.skarlatoszonarich.com.

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Posted

Operating Agreement states that all the work produced by her belongs to the company which I own the majority shares of. It also states that I can terminate her, but must give her value for what her percentage of the company is worth. Also someone can purchase her shares or (%) within the company based on assessed value, which would derived from a valuation of the company. Since we haven't launched yet, the company isn't worth anything. But the completed website, code, social media integration, marketing platform and business model alone has been assessed and appraised to be worth at least 50K. But the problem is it will be worth plenty when we move forward with the launch. I am delaying the launch of the company to avoid a futuristic payout which would be more than quadruple what Im looking to spend to have her walk away without abitration, litigation, or any bad publicity. Also not a single venture capitalists is willing to back the project as it sits until this is resolved. But if I can get her to step away for a lump sum, they have offered 6 figures in capital reserves for expansion.

Asker

Posted

Also if I ask for a Judicial Dissolution, will I still retain ownership rights to everything that has been produced? And more importantly, will I be able to move forward with this project under another name or have to form a new LLC (Because the business is under the clause "doing business as"?

Michael Charles Doland

Michael Charles Doland

Posted

I think you need to consult PA counsel on the state-specific aspects of your matter. In California you mignt be obliged to disclose the offer of capital contribution as part of your fiduciary duty. Mr. Carter appears to be a very good choice.

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