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How to remove a LLC member from managing a business when the partners are experiencing irrevocable differences.

Redmond, WA |

I'm thinking of hiring a CPA to do the books and a manager to run the store instead of the current business partner since I have an evidence; bank account statements & and loans taken out without my signature (he took my name off the business account long enough to take a loan out in the business name) he is spending company money on himself and doesn't have the company's best interest in mind. How do I go about this and can this be done?

Attorney Answers 4

Posted

The starting point for addressing your concerns will be what does your Operating Agreement or LLC Agreement say about the removal of members, or the disassociation of a member (there is usually a list of events that will trigger a member's disassociation). The LLC Agreement provides the rules by which the members have agreed to live by, and each LLC can vary how they address these situations.

I recommend that you review this document with a knowledgeable business attorney and utilize his or her services to assist the company in addressing these serious issues that you have identified.

The above response is commentary regarding a general legal question. It is not intended to be legal advice specific to the reader's individual situation nor does it create an attorney-client relationship between the author and any reader. You are encouraged to contact a qualified and knowledgeable attorney to discuss your specific legal situation.

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3 comments

Asker

Posted

There is nothing about removing members only buying out, it is a DIY Operating Agreement for the state of Washington and I trusted the other person enough to write or change it and I signed it... Unfortunately I also signed he had 51% when I actually put all the money in it and he doesn't even manage it half the time. I should of kept the majority but was naive and trusted a friend.

Michael Thomas Smith

Michael Thomas Smith

Posted

These can be hard lessons learned in hindsight, as legal documents should be prepared and reviewed by competent legal counsel who look out for your interests. This may be an uphill battle as a minority owner in the business, and you may need to utilize the courts to seek a remedy for a potential breach of fiduciary duty by the other member. You might also consider seeking the appointment of a temporary receiver to run the company during the course of the litigation so that neither side does anything to jeopardize or hinder the business (this may depend on the size and nature of your business and the amounts at stake).

Asker

Posted

I just need to mitigate damage to myself. The company isn't making money, and partner is behind 5,000 in payroll taxes and 2,000 in electricity bills, and who knows what else. He will NOT buy me out and he will NOT go by anything in the operating agreement. Very unreasonable. Sounds like my last choice is to perform a lawsuit to have him sign papers saying I'm no longer responsible for company debt, especially since he closed out joint company bank account and he opened his own up, now I don't have any access to the money.

Posted

This is a situation where the LLC Agreement rules the day. Refer to the paragraph regarding removal, disassociation, dissolution, etc. Then, bring it to an attorney to assist with the LLC dissolution.

My firm has dealt with these types of matters many times before, and it can get messy, so it is always advisable to have an attorney review the LLC agreement and proceed from there.

Legal disclaimer: The answer provided are for informational purposes only. Responses are not intended to constitute legal advice. Answers provided should not be relied upon in lieu of consultation with an attorney. At no point do responses provided establish an attorney client relationship. Answers may differs if additional facts were provided.

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Asker

Posted

The business partner is not abiding by the OA. So I'm thinking going to court request the books have the forensic accountant find the evidence of misconduct and at that point make a motion to remove the business partner for breach of fiduciary duties.

Asker

Posted

I have heard of a situation of where both partners are removed from managing the business (money, etc) and a third party management comes in to perform those duties while the partners dispute issues, has your firm heard or seen this happen?

Sean Ryan Kennedy

Sean Ryan Kennedy

Posted

As previously stated, the LLC Agreement will dictate how this advances. Most agreements will provide member the right to review the books. If this is the case, and the member is denying you this right, a court can enforce the production of the books. In a dispute, the parties can move for removal of a manager and request a temporary receiver be appointed to run the company in the interim.

Posted

Does the LLC have an attorney? The operating agreement should specify how you go about this, and yes it can be done.

I may be guessing or not licensed in your state. No atty/client relationship exists. I earn my living collecting points for "helpful" answers.

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Posted

I agree with Mssrs. Kennedy and Smith. However, I will add that if you never got around to completing, signing and retaining an actual LLC Operating Agreement, then the statutory rules would apply in the State of Washington. Those can be accessed on the internet, at: http://www.leg.wa.gov. Go to the top right of the screen to "search" and type in "limited liability company" and choose the button for "document" and then in the box below choose "RCW". The statutes governing LLC's will come up, and you can save the entire chapter to your computer. Each statute is very short, and I think fairly easy to understand. After reading the entire chapter, you will know the procedures that govern in case you don't have a separate Operating Agreement. In terms of the immediate day, however, I would hire independent counsel. The "company attorney" may advise that s/he cannot represent one of you against the other, and depending upon who hired that attorney in the first place on behalf of the LLC, it just is probably a good idea for you to get some other advice.

Without knowing all of the details, reviewing documents, and interviewing witnesses, no person should assume that this Answer constitutes specific legal advice for any specific legal situation. No attorney-client relationship is created by posting general legal responses on this site.

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