In a LLC, can a partner fire a an employed partner if he has a majority ownership
Dallas, TX |
In an LLC Partnership, where two of the three partners are actually employed and working day to day within the business, can one partner, combining his ownership with the silent third partner, and excuse the third from employment?
It depends on what your operating agreement says. You need to look closely as to the terms and provisions contained in the operating agreement. In addition, if there is an employment agreement that would be controlling. You need to sit down with corporate counsel before doing anything this drastic. There is just to much at stake and you do not want to make a mistake.
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Texas now calls the "operating agreement" the "company agreement." It controls the relationship between the "members". There are no "partners" in a Texas LLC. They might be taxed like a partnership but they are not partners in the legal sense. If the company agreement does not talk about voting rights of members or state a control percentage, then the Texas Business Organizations Code controls the relationship. A lawyer would need to know a lot more facts than you provide to answer your question. Whether the LLC is member-managed or manager-managed will be important. Bottom line, it is possible that two members could vote their interests to terminate the employment of a third member. But, you need to consult an attorney experienced in business organizations. DISCLAIMER: This is not intended as specific legal advice and does not create an attorney/client relationship.
There are really two distinct issues here:
1) How to you fire the partner as an employee and
2) How to you remove the partner as a member of the LLC
The first answer will depend on what the employment agreement says between the LLC and the partner. If he can only be fired "for cause" then you will need to find a reason to fire him.
The second answer depends on what is written in your operating agreement, and if you have none, based on what the default LLC statutes say in Texas on how to remove a member of an LLC. Because firing him as an employee and keeping him on as a partner can result in a tricky situation, you may want to look into both issues before you proceed further.
Legal disclaimer: The above information is not legal advice and should not be relied upon as legal advice. No representations are made in the above communication nor may any information contained herein be used in a court of law as a representation upon which you may rely.
Check your company agreement. It should deal with situations involving firing LLC members as employees and with removing LLC members from the LLC. In the typical LLC, it would be possible for the LLC members (who are also likely the managers) to vote to fire the employee. However, it usually must be done following certain formalities, like having a called meeting with appropriate notice to all members and managers and having a formal vote. You really need some legal help to sort out this situation.