An LLC (Limited Liability Company) usually involves multiple partners that make up the ownership and have equally invested in a business venture. With any joint business venture, you have coinciding personalities and business goals; if the business isn’t turning a profit or it’s running into issues, you can imagine the problems that can potentially rise and lost interest from the partners. On the other hand, the business can become wildly successful early, warranting business partners to claim larger shares because they have invested more time and attention. Leading us to a final point, if one of these two instances occurs, then the other members of the business may need to take action. If severe enough, the member can demand the intervention of the LLC due to them being governed by state laws. Stated below will be a few common ways a member of an LLC can deal with a problematic partner.
The first approach to dealing with members of an LLC should be to see if they can work out their differences with the disagreeing partners. Having a candid conversation about how the business and its interests can accelerate will help prevent disgruntled partners. If coming to an internal agreement starts to seem improbable, then the member may agree to sell their share of the company. Furthermore, solving an internal issue between the partners is the cheapest and quickest way to resolve the problems that lead to member disagreements within an LLC.
Once determining that a verbal agreement is unlikely to happen, another way to solve this issue would be to see if the partner(s) breach their fiduciary duties. Placing the business (LLC) over their financial needs is the duty that all members owe—having an agreement in place such as operating agreement pins all partners liable to execute their fiduciary duty to the business. Ergo if the disruptive business partner is in breach, then a court claim would have extreme merit leaving the courts an easy decision to expel the partner from the business. Let’s say there is no breach, and the next step would be to seek illegal conduct. If the behavior is in question and negatively affects the business, that would make it impractical to keep the member a part of the company. Suppose the partner has engaged in an activity that harms the company, in wrongful or illegal conduct, or in an action that makes a future relationship with the business impractical. In that case, the industry can sue to have the member expelled indefinitely.
Enara Law Business Attorneys
Finally, for more on what you should do in handling the members of an LLC, good or bad, contact our office at 602-687-2010. We are open twenty-four hours a day, seven days a week. You can schedule a consultation here or email us directly at [email protected].