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Recognition of LLC Members that were never part of original LLC formation.

Brooklyn, NY |

I am a majority holder (51%) of an ABC LLC where the other 49% belongs to XYZ LLC with multiple members. When we established the firm and signed the operating agreement, I always dealt with a person, who presented himself as majority holder of XYZ LLC. Now, all of a sudden I am receiving requests for confidential financial information from a third-party (an individual), who claims to have always been the majority holder of XYZ LLC. Given that I never signed any documents with that person and never had any other types of business agreements with him, I do not want to recognize their member status of ABC LLC. Am I obligated by law? Can I claim misrepresentation?

Attorney Answers 4

Posted

I think I would want to explore the specific facts here in more detail. An LLC is free to change membership. If the other company is a member of your LLC, you really do not have any authority over who from that entity can speak on its behalf unless this was some kind of contractual obligation which I highly doubt, but I really would want to make sure I am understanding everything.

Most of us here, including myself, offer a free phone consult so you may want to take advantage of that.

Best regards,
Frank
Natoli-Lapin, LLC
New York, NY
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Posted

When in doubt, refer to the Operating Agreement. If the other 49% member is an LLC, then an authorized representative can request financial and confidential information. Just make sure it is an authorized representative. Get it in writing. You owe the LLC member a duty to provide information upon request and they owe you a duty to conduct themselves in the best interest of ABC LLC.

If I can be of any further assistance, please do not hesitate to contact me at 516-240-8023. I would be happy to help.

This answer is general information only. No legal advice is given in this answer. No attorney-client relationship is established based on this answer. To receive accurate legal advice, please follow up with an attorney.

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Posted

My colleagues comments are on point. I would ask for a proof/evidence as to the ownership of the 49% member. Clearly there should be an Operating Agreement that they could show you as well as an officer's certificate attesting to the validity of the document presented. Put the onus on them to establish who is the appointed "Member Representative" with authority delegated by the LLC to such named person for all matters in regard to the investment in your LLC. How about some Resolutions to show you, etc. In addition, even if arguably not necessary, it still may be in your best interest to make someone sign a confidentiality agreement that is tailored specifically to the information you disclose to them (if you ultimately decide you will or have to). You may find out in your course of dealing that there is a dispute in the other LLC and it may be about "value" of the 49% interest in your LLC and what it means to the disgruntled member seeking information to evaluate what the investment is worth....so I am saying you may amidst a squabble here so be careful lest you get sucked into someone else's mess. Good luck to you.

My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained. Please click "helpful" or "best answer" if my answer added any value or add a "comment" if you have more info for me to help you get a better answer.

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Posted

Essentially you want some proof of ownership. You can also look to the operating agreement to see the procedure of admitting new members/managers (voting rights, notifications, etc.).

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