Is a verbal agreement enforceable for an LLC Operating agreement if there was no employment agreement included in the LLC filing

Asked over 2 years ago - Los Angeles, CA

- a verbal agreement was made to pay me $X/mo in exchange for running the company.
- an LLC was formed after the agreement started. I became 49% equity holder of the partnership, but it was not written into the LLC papers.The agreement was honored and paid by the company with checks signed by the majority holder for the first 2 years.
- year 3, 4 and 5, I started signing the checks. When the economy tanked and the company was not making as much money, I did not pay myself consistently, only when funds were available.
- year 6, the majority stakeholder is claiming I had no right to pay myself, nor am I owed any of the back due monies for those times when I did not pay myself in previous years.
- the majority holder is now claiming that any monies I did pay myself, I took without authority.

Additional information

clarification: I am legally 49% stakeholder on the LLC papers. I meant to say that the verbal agreement for monthly salary was not put into an Employment Agreement. Furthermore, I did receive a K1 showing these monies were paid for each year.

Attorney answers (4)

  1. Robert Kenneth Morrow

    Contributor Level 9

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    Answered . Let me ask you a few questions:

    1) Was your compensation treated as W-2 salary or was it treated as distributions or guaranteed payments from the LLC? True partners cannot receive a salary from their own partnership, so hopefully the payments were treated as distributions or guaranteed payments.

    2) Did your 49% stake in the LLC result in your receiving K-1s each year? If you actually owned a stake in the LLC, including interests in its profits and capital, then you should have been treated like a partner and issued a K-1 each year.

    3) Did you record on the company's books a payable to you for years 3, 4, and 5? I assume that you were responsible for the company's bookkeeping. Hopefully you noted the accumulating monies owed somehow.

  2. Andrew Kevin Jacobson

    Pro

    Contributor Level 16

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    Answered . If the majority owner had been cutting checks for your employment, he's going to have a hard time maintaining that suddenly you get nothing for your work. However, there are a lot of factual issues that need to be discussed with an attorney well-versed in business matters. Luckily, there are a lot of good ones on Avvo from Los Angeles who will probably be adding their opinions. Make an appointment to see one of them.

    www.bayoaklaw.com. 510-208-5500. This answer does not create an attorney-client relationship. It is not legal... more
  3. Linscott Roberts Hanson

    Contributor Level 13

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    Answered . The law does not favor unwritten contracts - the terms are so hard to prove. In fact we have, in every State, a holdover from long ago called the Statute of Frauds. Its sets forth certain kinds of agreements which must be in written form to be enforceable. The contract itself does not have to be in writing IF there is a memorandum of the terms of the contract which is signed by the person who denies the existence of the contract. I'll provide a link below to a short discussion of the statute. Be sure to have your speakers turned on.

    California's Statute of Frauds, found at Cal.Civ.Code ยง1624. Contacts falling within the enforcement of the Statute of Frauds include promises to answer for the debt or duty of another (surety bonds) , contracts not to be performed within one year, (your contract is a multi-year contract) contracts to sell any interest in real property, contracts not to be performed within the lifetime of the promisor and contracts for the sale of goods for $500 or more.

    You've told us the contract is not in writing, so, if you want to try to enforce it, you must find written evidence of the terms, signed by your partner who denies its existence.

    You're going to have to have a lawyer on this one, an experienced contract attorney to assist you in assembling and organizing the various documents that will help you prove your case.

    Answering your question on AVVO, does not create a lawyer-client relationship between us. I am an Illinois lawyer... more
  4. Michael Charles Doland

    Contributor Level 20

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    Lawyers agree

    Answered . I have seen the facts posted above. The advice the other attorneys offer is good. You lack of funds make this a real difficulty. In a lawsuit, which you cannot afford, your argument is logical, but certainly no "slam dunk."

    The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may... more

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