Skip to main content

How do I get out of an llc when a great deal of money is invested by the other member?

Miami, FL |

6 yrs ago I opened a specialized school in which I was main owner. I am knowledgable in this particular area (Other member is not), & brought a business plan & expertise into the LLC. A family member invested/loaned $300,000 to help with the initial start up & in return received 1/5 of business ownership.She is still working in the business, refuses to leave, & says she cannot trust me & that she needs to stay to protect her investment. The business is barely profitable & still in debt, though being pd off.Our relationship has become hostile & there are constant power struggles. I either want out or for her to withdraw. How do I get out? I am afraid, because threats of suing me have come up if I leave or start another business on my own. How do I proceed? We have no operating agreement.

Attorney Answers 4

Posted

You need to get an attorney for sure. These matters are factually intensive. Without an operating agreement, the State through its statute, sets forth the rules of operation. So, your starting point will be the staturoy language for the State of formation (Florida?). If there is no operating agreement, there is probably nothing to prevent you from from starting out in your own business.

A common sense approach would be for you to send a letter to the other member(s) that you are withdrawing and assigning any interest you have in the LLC to the other member(s). Send it via certified and first class mail.

Good luck.

This answer is provided for general information only. You should seek advice from an attorney in your jurisdiction. Good luck. Marty Davidoff, emd@taxattorneycpa.com, 732-274-1600

Mark as helpful

5 lawyers agree

Posted

"We have no operating agreement." is the broken record that I see repeated on this site from individuals seeking assistance in resolving issues regarding LLC's. This is the most poisonous ingredient in the failed recipe of most LLC business ventures. Ask yourself what would America be without a Constitution?? A dismal failure!

The typical legal answer would be when there is no operating agreement, look to the governing statutes of your state to determine how to dissolve the business,and/or allow you to withdraw and start over. This will probably not work in your case because your partner has substantial assets, and can (and should) sue you if you try to withdraw/bail out on her $300,000.00 investment.

You need to look deep into your soul and face the stark reality that this is completely your fault, and you have to take full reponsibility for making this business work. Why? BECAUSE YOU BROUGHT A BUSINESS PLAN AND EXPERTISE TO THE LLC AND CONVINCED A FAMILY MEMBER TO INVEST IN IT WITHOUT AN OPERATING AGREEMENT. You need to face the stark reality that you deserve to be sued into oblivion for doing such thing, and you don't deserve to run away from what you have done to your investor who is also a member your family. (You could be sued for everything gross negligence to securities fraud.)

In my opinion, you only have one option. Contact a lawyer and begin negotiating an operating agreement with your partner, no matter what it costs, or how long it takes, and how much @#$ you have to listen to. Educate yourself on the mistakes you have made (if you don't, you will only make the same mistakes again). Swallow your pride and admit unconditionally to your partner that you have screwed up and will do whatever it takes to gain her trust and make this business work.She has every right to distrust you if you represented to that you has superior knowledge on running this business without an operating agreement!

You may not like this advice, but this is my truth for you. This is also an excellent oportunity for your personal growth to become the business leader and educator you were meant to be. You will have to walk through the fire to get there!

Good Luck
Phillip M. Smith Jr.
Los Angeles Tax and Business Attorney
Licensed in the United States Tax Court
Call: 855 IRSTAXBIZ

THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is philsmithjr@worldclasslawyers.com.

Mark as helpful

3 lawyers agree

4 comments

Asker

Posted

Hello Brian, Thank you for your answer. I know there were many mistakes made on both sides, and probably mostly only part since this was my idea. In the beginning my husband and I wanted to have her sign an operating agreement, but she refused, and stated she wanted to have a say in everything, not have any boundaries in what she had to say, but also that she would retire in a few years. I was fine with that because I trusted she would do what she said. My husband is upset about this now because we didn't follow his advice and get a lawyer and write up the agreement. Initially I also wanted to start out smaller, and she wanted a larger space which increased the debt of the business of build out and operations, so there were more loans on her part infused into the business. Another problem is that she will not follow a budget in purchases of inventory and because I trusted her and I did not question how much she purchased. She has overspent by thousands of dollars in this department, and prevented loans (not investments) being paid back to her. I know I should have been checking, and this is an expensive mistake on my part. Any time I bring it up she becomes furious and refuses to address it. And she still refuses to follow a budget in purchasing. When I tried to take over the purchasing she became furious. We also lose clients because I tell them one thing and then she goes and changes it and tells them something else. There is a lot of confusion about who has the final say and what are services are. I like what you said about the Constitution, and I agree with that statement. I do not want to burn bridges, but I believe that in order to make the business work, I either need to step out and she can be fully in charge and hire someone else to do my job, or I need to have the final say and have her retire. Her husband has stated that if I ask her to retire, she will crumble up in a corner and die, and I don't want that. Though we have agreed on different areas of responsibilities before, she does not follow suit and starts telling me how to do things in my department. I don't want to be rude about it and have never stated that "I am the expert" or "this is how it is" because I don't want to hurt her feelings. Also, if a client has a complaint about an employee (who is in my opinion doing a great job), she will tell the client then and there on the spot that that person will not be back (Alluding to that we will fire that person). And then I disagree with her and do not want to fire that person. I have kept the employee and because she made a statement about this employee being fired she tells me that I make her look like a complete idiot. She does not consult me even if the employee was hired by me. I will make sure I begin the process of an operating agreement. Another workable solution for me is if she retires and I run the business, though I know that that is not what she wants. She wants to stay. Thank you again

Asker

Posted

Clarification: $30,000 was investment and $270,000 was loan, and again, I really appreciate your advice, my goal is always to grow and become a better leader.

Asker

Posted

I want to let you know that for truth resonates with me, it has always been my intention and intent on paying her back. I have even written checks to her, and she has thrown them on the floor stating I don't want your money. Though these are difficult times, I still want to do the right thing by her, and me.

Phillip Monroe Smith

Phillip Monroe Smith

Posted

Based upon your additiona comments you may be well advised to seek a consult with an attorney, and possible employ some form of mediation with you partner to resolve your conflicts and disputes. I truly appreciates you responses. Phillip M. Smith Jr. Los Angeles Tax and Business Attorney Licensed in the United States Tax Court Call: 855 IRSTAXBIZ

Posted

This is a complex situation both from the problems with the structure of the LLC and the question of how to characterize the $300,000 paid by the family member. It is not the kind of question that can adequately be answered in an online forum. You should contact an experienced business lawyer in your area for help.

Disclaimer: This answer is provided for informational purposes only, does not constitute legal advice, and does not create an attorney-client relationship. Actual legal advice can only be provided after completing a comprehensive consultation in which all of the relevant facts are discussed and reviewed.

Mark as helpful

3 lawyers agree

Posted

I am an experienced llc, corporate and business transactions attorney licensed in FL and NY and have handled transactions regarding schools. If your llc is located in or organized under the laws of FL or NY, I would be pleased to advise you regarding this matter upon completion of my law firm's conflicts of interests and background checks and signature and delivery to my firm of its prescribed engagement letter agreement. See www.orlinlaw.com .

Disclaimer: Karen J. Orlin is licensed to practice law only in FL and NY and maintains the principal place of business of her law firm, Karen J. Orlin P.L., in Coral Gables, FL. In accordance with ethics rules applicable to attorneys, Ms. Orlin advises you that she does not "specialize" in any area of law, but the areas of concentration of her practice include limited liability company, corporate, and business transactions law. Karen J. Orlin has provided the above response to your question and other information on the website of Karen J. Orlin P.L. for general educational and informational purposes only. That response and other information are not intended to constitute, and do not constitute, legal advice nor a solicitation for the formation of an attorney-client relationship; no attorney-client relationship is created through your use of this website or the website of Karen J. Orlin P.L., or your receipt of the above response or other information. Anyone accessing this website, the website of Karen J. Orlin P.L. or the above response should not act upon any information or statement contained in any of them without first seeking legal counsel licensed to practice in the jurisdiction in which the person accessing this website resides or is organized or formed. Further, that response, information or statement is general in nature, and may not apply to any particular factual or legal circumstances. The attorney-client relationship can only be formed by the execution of an engagement letter countersigned by Karen J. Orlin P.L. In addition, unsolicited e-mails and information sent to Karen J. Orlin P.L. or Karen J. Orlin do not create an attorney-client relationship with Karen J. Orlin P.L. or Karen J. Orlin, will not be considered confidential, and may be disclosed to others pursuant to the Privacy Policy of Karen J. Orlin P.L. Karen J. Orlin P.L. and Karen J. Orlin accept clients only in accordance with certain formal procedures, and render legal advice only after completion of those procedures. Karen J. Orlin P.L. and Karen J. Orlin do not seek to represent anyone desiring representation based upon accessing this website or the website of Karen J. Orlin P.L. in any jurisdiction where either website fails to comply with applicable laws and ethical rules. In addition, Karen J. Orlin does not seek to practice law in any jurisdiction in which she is not properly authorized to do so.

Mark as helpful

1 lawyer agrees

Civil rights topics

Top tips from attorneys

What others are asking

Can't find what you're looking for?

Post a free question on our public forum.

Ask a Question

- or -

Search for lawyers by reviews and ratings.

Find a Lawyer

Browse all legal topics