I was wondering when forming a Partner AGREEMENT LLC HOW ARE BUSINESS DECISIONS MADE, BECAUSE I FORMED A BUSINESS WITH A RELATIV

Asked about 2 years ago - New York, NY

I was wondering when forming a Partner AGREEMENT LLC, HOW ARE BUSINESS DECISIONS MADE, BECAUSE I FORMED A BUSINESS WITH A RELATIVE WHo SAYS THEIR IN CONTROL OF HOW THINGS RUN IN THE BUINESS. I MADE THE BUINESS NAME, BUT THE PERSON PAID FOR THE FUNDS TO STARTUP THE COMPANY FOR THE LLC. Now since they paid, their name was on top of paper, they put my name on it second, now what I want to know legally who has the say so in business maters, is it equal legal grounds or since they paid for it and name at the top of paper do they have more of a say in what happens with the business or under law is it that both have equal legal share of decisions. The reason I ask this, because this person is acting like its their business alone or that they have more say in the business, is it equal say in it

Attorney answers (3)

  1. Simon W. Reiff

    Contributor Level 11

    3

    Lawyers agree

    Answered . I agree with the prior answer -- your rights are almost completely determined by whatever is in the LLC Operating Agreement. Nearly every multiple-member LLC operating agreement is slightly different, with some providing for completely equal management rights by all members, and others providing for nearly no right to manage for one or more members. However, even if you are a member of a manager-managed LLC or otherwise have been given limited management rights under the operating agreement, you still have the right to participate in its management at least indirectly through your membership voting powers, and with respect to certain key transactions, as set forth in New York's LLC Law (available at http://law.justia.com/codes/new-york/2010/llc/).

    In the event an operating agreement was never executed -- a common but very risky decision made by new business owners -- the situation becomes much more complex and challenging to resolve, and requires close examination of both the LLC Law as well as the facts specific to your situation. For instance, under Section 503 of the LLC Law, the profits and losses of an LLC are allocated on the basis of contributions made by each of the members to the LLC. However, Section 501 states that contributions include cash, property, and services, so if you provided services while your relative provided money, it isn't obvious (in the absence of an operating agreement saying so) what the rights of the parties are.

    I strongly urge you to take every document in your possession relating to the company to a commercial (business) litigation attorney immediately for advice on how to proceed. The most important documents include the articles of organization, the operating agreement, and any proof of payments into or out of the company (bank statements, credit cards, check ledgers, etc.), as well as contracts between the LLC and anyone else, and emails or other communications between you and your relative dealing with the business. These documents will help you and any attorney you retain evaluate the answers to your questions and figure out what you can do to protect yourself, including negotiating with your relative and hopefully getting things back on the right track so that you can focus on running and building your business. In my opinion, this is a critical situation that could determine whether your business survives or fails, and whether the time, effort, and money you have put in (and plan to put in going forward) will be worth it or not. The cost of legal services here to help you evaluate your situation and get it back on track will be quite small compared to the amount you stand to lose if you don't get this problem fixed.

    Best of luck in getting a good resolution to this situation and getting your business back on track!

  2. Linscott Roberts Hanson

    Contributor Level 13

    4

    Lawyers agree

    Answered . The answer to your question should be in your company’s Operating Agreement.

    When legislation authorizing LLCs was first being crafted in various States, one of the objectives was to create a new, far more flexible for of company. LLCs are supposed to allow the forming members to enter into a contract as to how they will operate the company - for instance, who will be in control? Or, if the ownership is equally divided, how will disputes between the owners be resolved? Is there an escape mechanism allowing a member who is unhappy with the way things are being run to depart, and receive some payment for his or her investment in the company?

    The law offers owners the option of creating an Operating Agreement which answers these, and dozens of other questions in whatever way they wish - not the restrictions of a traditional corporate model.

    You haven’t told us anything about your company’s Operating Agreement. To find the answer(s) to your question(s) you should consult a New York business attorney (assuming the company is formed in New York). Be sure to take with you copies of both the Articles of Organization and the Operating Agreement of the company. In the unlikely event that the Operating Agreement does not answer your questions, the attorney can also tell you the default rules that apply to the company.

    It would have been better if you were represented by an attorney when the company was being formed, so you could have had more of a say in the drafting of the Operating Agreement.

    Answering your question on AVVO, does not create a lawyer-client relationship between us. Under the rules of the... more
  3. Michael Martin Zaitz

    Contributor Level 7

    Answered . It depends largely on what is provided in the company's operating agreement. I strongly advise you to seek legal counsel to guide and advise you.

    PLEASE NOTE: This response is for general purposes only and does not establish an attorney-client relationship,... more

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