The answers to your questions are in your contract.Have a business attorney review it. While you may not be an voting member or have management rights, you have an economic interest in the business which gives you legal rights that should be governed by your contract.
Phillip M. Smith Jr.
Los Angeles Tax and Business Attorney
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is firstname.lastname@example.org.
The question of the 5% membership may be one of dispute. Do you have a WRITTEN contract (LLC Operating Agreement) for this 5%, or an LLC Membership Certificate? If neither, your majority member may question your very ownership. An oral contract is valid, but difficult to prove.
A majority member of an LLC owes a fiduciary duty to all minority members. Any opportunities that arose during the existence of this LLC belong to the LLC itself.
Having said the above, he could close the LLC and start a new one without you, provided that you are distributed 5% of the net assets of the existing LLC.
Your rights as a member of the LLC are defined in the LLC's Operating Agreement.
Generally speaking, the LLC cannot just dilute or eliminate your membership share. However, the LLC could elect to dissolve itself and wind up pursuant to the provisions of the Operating Agreement.
Frank W. Chen is licensed to practice law in the State of California. The information presented here is general in nature and is not intended, nor should be construed, as legal advice. This posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, consult your own attorney.