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I am buying a 50% interist a LLC in tx i will be 50% member, will i have the same control and benifits as the other owner?

Pasadena, TX |
Attorney answers 3

Posted

You did not indicate whether the LLC would be a partnership or a corporation, what the nature of the business was, or whether this is some form of security offering. This might be helpful in providing you advice.

I am HUGE opponent of "50/50" business relationship, because I have been forced to litgate them for years when they go bad. The result is like a divorce, it leaves a bad taste in everyone's mouth.

First of all, there is no such thing as "50/50." Someone is going to have more influence over the business than the other party. Second, there is no realistic way to resolve any profound disagreement between the parties unless you have a dispute resolution provision in your agreement. Third, if you do have a profound dispute, your investment capital is still tied up in the LLC with possibly no way to get it out.

All this being said, if you really want to be investor in this LLC find yourself a really good attorney to negotiate on your behalf that will protect your investment, and allow you to quickly recover it plus your profit if a dispute does occur.

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 philsmithjr@worldclasslawyers.com.

Bryant Keith Martin

Bryant Keith Martin

Posted

I agree completely on the problem of 50-50 partnership. I usually suggest in a corp that one extra share be issued to someone, either the prime mover or a trustworthy mediator type.

Bryant Keith Martin

Bryant Keith Martin

Posted

P.S. The dispute resolution clause is also essential.

Posted

Due to the inherently flexible nature of limited liability companies in Texas, your question is very difficult to answer without a great deal more information and a review of the LLC's company books. This is certainly a situation where you want to be fully aware of your rights and obligations, so please consult with a business attorney prior to entering into this business relationship.

There are, however, several things to know about LLCs in Texas that could affect one member's relationship to another. First, you did not mention whether the LLC is member-managed or manager-managed. In the event that this is a manager-managed LLC, operation and control of the LLC is typically vested in the managers and not the members of the LLC. Obviously, if an owner was just a member of the LLC rather than a manager, he or she would have very limited involvement in the operation and control of the LLC's business decisions. Sometimes there are certain decisions made by the managers that require approval of the members (e.g. major business transactions and termination of the LLC), but these rights are spelled out in the LLC's company agreement (previously called "regulations" and sometimes improperly referred to as an "operating agreement" or "bylaws").

Second, Texas LLCs can have different classes of membership and these classes can have different rights under the terms of the company agreement. For example, while two members may have equal equity interests (50/50), one interest may hold voting rights while the other is non-voting. Clearly, this would remove the control of one of the members.

Third, the distribution rights in an LLC can be modified through the company agreement as well, which can result in one 50% member having a right to receive more than 50% of the distributions.

The list of rights that can be modified are certainly too lengthy to address in a short post such as this, but I hope that after reviewing the points above, you are able to see that 50% in an LLC might not be as straightforward as it initially sounds. I highly recommend that you sit down with an attorney and have him/her review the documents and advise you of exactly what you are getting into by purchasing that interest.

Best of luck!

The content provided in this post is for informational purposes only and is shall not be construed as legal advice. Additionally, nothing in this post may be construed to create an attorney-client relationship between Mr. Walters and any other person or entity.

Bryant Keith Martin

Bryant Keith Martin

Posted

You are being a bit provincial. "Operating Agmt" may be improper under TX law but that term is defined in the CA Corp Code as "any Agmt between all of the members as to the affairs of " an LLC. I think it is used that way in most states. See the CCH Guide to Limited Liability Companies Para 208.

Brian Edward Walters

Brian Edward Walters

Posted

The question arose in Texas and concerns a Texas LLC. Using California terminology is simply not appropriate in this case and would only confuse the issue. There are any number of different terms for these agreements in different states, but the terminology in this response is correct under the Texas Business Organizations Code.

Posted

You need to look to the terms of the company agreement ("operating agreement"). It would certainly help to discuss with an attorney as well. Good luck!

This attorney can be contacted via email at kcaldwell@caldwellakin.com or via phone at 817.305.7170. The above answer does not constitute, and should not be construed as, legal advice.

Kamryn Maris Caldwell

Kamryn Maris Caldwell

Posted

I hope this answer was helpful. If so, please remember to mark it as a "good answer," and remember to designate a "best answer."