50/50 Partners in a Texas LLC. Partner would not meet any work obligations/duties, but also refused to leave the business. Several offers ranging from reimbursing any money the partner contributed, to asking the partner to take a leave of absence were refused. Several buyout offers were also refused.
*The LLC was not profitable and never collected any revenue. It only had debt*
Therefore I dissolved the LLC. Opened a single member LLC and transferred the DBA to the new LLC.
Essentially, the same business under a new LLC. The business name and idea were mine.
If I am sued by my previous partner, will they be entitled to any future profits from the newly formed LLC?
Much of this depends on what the Operating Agreement of the 50/50 TX LLC says. Also, it depends on what was stated in the Certificate of Termination. If the LLC was not terminated in accordance with the Texas Business Organizations Code and that option was selected in the Certificate of Termination, the other owner may have a claim against you. You need to seek an attorney who specializes in TX LLCs.
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I agree that the formation and governing documents are important. Those documents almost never say anything really helpful for a situation like you describe.
In general, LLCs can dissolve and also members (owners) can divorce each other - or stop doing business together. It is very common for divorcing members to sue one-another in situations like you describe. I do sincerely hope that it is not something that happens to you.
Because the judicial system usually assumes a suit is filed in good faith and with merit, pretty much anyone can file a suit even if it is baseless. Judges almost never have a real opportunity to measure the merit in a new lawsuit until after most of it is done. Thus, many baseless claims survive in court for a period of time that can be months to two years or more. So the right question is not whether you can be sued. The best questions are about cost and how to cause a resolution.
I have handled lots of cases like that - and I can say you should divide liability into two categories: (i) the cost of the litigation to sort things out, and, (2) the cost, if any, to resolve the dispute with the other party. Resolution can be a settlement or a judgment. The cost of litigation is the wrangling back and forth and it can range from very little (because a solution is found or one party abandons) or very expensive (because a member is willing to play "chicken" and see who blinks). Ultimately, you only get to manage part of that because the other side is capable of causing things to happen.
Steven C. Earl
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