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How do you dissolve a limited liability company business due unethical practices from a partner in a LLC business?

Asked over 2 years ago - Chicago, IL

The LLC has two members. Last week one 50/50 member has used money from the LLC bank account, has locked the other 50/50 member out of the business, and has served a notice to get the 50/50 member off the lease.

The operating agreement says.

Removal. No Member may be removed as a Member of the Company.

Dissacociation. A Member shall have the right to dissociate from the Company for any of the reasons provided in the law. The dissociating Member shall issue written notice of the dissociation to the Other Members of the Company and such Other Members shall have the right of first refusal to purchase the dissociating Member’s Percentage Interest as determined at the time of dissociation.

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Attorney answers (2)

Arieh Mordechai Flemenbaum

Reputation Level 12

Answered over 2 years ago. Business Attorney in Chicago, IL.

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I agree with my colleague that you probably have to get an injunction - an action to stop the other member from taking any additional acts on behalf of the LLC while you sort things out. You are also likely to need to take legal action to resolve your dispute over your ownership and interest in the LLC.

As 50/50 members of an LLC, unless the operating agreement provides otherwise, both you and the other member have the right to enter into contracts on behalf of the LLC and use the LLC bank account for the LLC's business purposes. As 50/50 members, there is no statutory solution if you are deadlocked. In general, members stuck in a deadlock have the following 3 options:

1. The members can agree to dissolve the LLC: Based on the actions of the other member, I assume that he/she will not agree to dissolving the LLC, liquidate and split the remaining assets after winding up the LLC's business;

2. One member can buy the other member's interest in the LLC: Again, I assume the other member will not be willing to buy you out and/or pay the fair market value for your interest;

3. You have to resort to a law suit to either determine what is the reasonable course of action or proceed with a judicial dissolution of the LLC.

Unfortunately, it looks as though you and the other member disagree as to how to run the business. Rather than dealing with this deadlock, the other member began taking steps to "remove" you as a member. The injunction will stop the member from further draining the LLC of its funds and taking steps to "remove" you, and a lawsuit can force the issue of dissolution and/or a buyout of your interests.

This answer is for informational purposes only and is not intended to be legal advice nor does it establish an attorney-client relationship. You must consult a business lawyer or litigator to obtain legal advice that is tailored to your circumstances and facts. Please feel free to contact me if you would like an initial consultation with one of the business lawyers at Griffith & Jacobson, LLC. Good luck to you.

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