Getting out of LLC with no operating agreement

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Latest post 08-26-2009 8:19 AM by Drew. 8 replies.
  • 08-25-2009 10:11 AM

    • Ken Bo
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    • KS
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    Getting out of LLC with no operating agreement

    Hi, I am in an internet business with two other partners. We formed an LLC a couple years back and now I am trying to exit because I no longer believe the business will be the money maker that we thought it once was.

    We do not have an operating agreement and I wanted to know what I must do to either get rid of a majority of my shares (sell, giveaway, transfer, combination of all three) and if they can force me to do this without my consent.

    I don't want to be the partner that doesn't stay invoved but just takes a check but I also want to make sure that I am not forced out for lack of involvment.

     

     

  • 08-25-2009 11:01 AM In reply to

    Re: Getting out of LLC with no operating agreement

    As long as you want to get out without taking any money with you it should be an easy matter for the three of you to file an amendment to the LLC deleting you from the LLC.

    You can find the Certificate of Amendment right here:

    http://www.kssos.org/f...

    It's when you want to leave with money that things get not so easy.

    Because when you want what they have and they say no, there isn't a whole lot you can do about it unless you want to spend many thousands on a lawyer.

    Talk it over with the other members.

    If you are collecting a paycheck without doing anything I'm sure they'll let you out if it doesn't cost them anything.

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • 08-25-2009 11:07 AM In reply to

    Re: Getting out of LLC with no operating agreement

    This is but one example of why you really want to have a well drafted charter and bylaws done by an experienced attorney rather than using the bare bones documents in some incorporation forms kit.

    You can try to sell your member interests to someone else, assuming anyone would want to be a minority member of a small, and apparently not terribly successful, LLC with 2 other people they don't know. Moreover, you'd need to make sure that your sale doesn't violate federal and state securities laws, so you'd want to consult a securities lawyer for help with.

    Obviously, you can sell your member interests back to one of the two existing members, if you can agree on a price. Or, if you don't care about the price, you could just give your interests to them.

    But finding a buyer or just giving away the member interests won't relieve you of any obligations you may still have to the LLC.

    You might also be able to sue to force the sale of the business and divide up the proceeds to get your share of what it is worth. See a local business attorney about that.

  • 08-25-2009 11:11 AM In reply to

    • Ken Bo
      Consumer
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    • KS
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    Re: Getting out of LLC with no operating agreement

    Thanks for the information. I guess I am still left with one question though. What if I do nothing? If I hold my 33% of the company and don't do anything. Will I still make 33% as the company payouts are given or can they just say "you are not doing anything therefore you make no money and we are going to take your 33% back".I know this isn't the nicest thing to do, but if it comes down to giving up all of it for nothing or collecting a paycheck then obviously I would like to get paid.

    The business is actually formed in Missouri.

  • 08-25-2009 1:18 PM In reply to

    Re: Getting out of LLC with no operating agreement

    Ken Bo:
    can they just say "you are not doing anything therefore you make no money and we are going to take your 33% back".

    They can certainly say that and since they are two to one, they can probably make it stick.

    Your recourse would depend entirely on the LLC articles and whatever the startup situation was.

    If you are currently collecting a paycheck and not actively participating in the day to day operations and nobody is saying boo, why is this an issue?

     

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • 08-25-2009 5:14 PM In reply to

    • Ken Bo
      Consumer
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    • Joined on 08-25-2009
    • KS
    • Posts 3

    Re: Getting out of LLC with no operating agreement

    It is only an issue because we are not collecting a paycheck. Basically we have been doing this on the side for 2 years and have never taken a payout even though we are making money. My partners are not interested in taking a paycheck until it reaches a much larger amount. I have a difference in opinion which is why I am leaving, but I am not wanting to forgo 2 years worth of work for nothing.

    A buyout would be great, but what would be their incentive if they can just force me out for free.

    I think I need to look up the signed documents and see what things are in there.

    I appreciate it all the help. You have given me some insite on how this works.

     

  • 08-25-2009 5:31 PM In reply to

    • Drew
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    • Joined on 03-30-2000
    • PA
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    Re: Getting out of LLC with no operating agreement

    If there is a potential of a payout I think you are unwise to just give stock away or to even show your cards to other two players. Sometimes doing nothing is a good plan ....

    You may be better off to sit back a while and see if the operation does take off a bit more.  If it does they may be most happy to buy you out and/or not have you sell a 1/3 to somebody who wants to be super active in the firm.

     

     



  • 08-26-2009 4:00 AM In reply to

    Re: Getting out of LLC with no operating agreement

    Ken Bo:
    If I hold my 33% of the company and don't do anything. Will I still make 33% as the company payouts are given or can they just say "you are not doing anything therefore you make no money and we are going to take your 33% back"

    In general, if they make a distribution the members in respect of their member interests (basically like declaring a corporate dividend on stock), then you must be included unless there is something in your charter or by-laws that says something different.

    However, they can probably avoid that problem simply by paying out all the earnings to the two other members as salary for the work they are doing. Since you are not doing any work, they wouldn't pay you a salary and you'd not get anything. Even worse, you still get hit with one-third of the income (before the "salary" amounts) from the LLC on your tax return because for federal tax purposes, those "salaries" are not treated as salaries and thus not deducted from the income of the LLC. They are treated instead as distributions to the LLC members who get them.

  • 08-26-2009 8:19 AM In reply to

    • Drew
      Consumer
    • Top 10 Contributor
    • Joined on 03-30-2000
    • PA
    • Posts 49,498

    Re: Getting out of LLC with no operating agreement

    While taxagent is virtually always right,  and yes 2 could shift taxes to 3d who gets no benefit, I see additional points.

    To be involved does't alway mean that one puts in similar amounts of physical work. Its quite possible that one co owner brought extra financing, credity worthyness, specific technical or marketing insight, name recognization  or something else to the table.

     

    Further , I do agree that depending on how things are managed , 2 owners could quite well do things so as get paid themselves and not pay the 3'd. And it might not be visible pay but "benefits" and reimbursed expenses and all that fuzzy stuff like cash.

     

    You may want out because you see limited prospects---but that's a poor bargaining chip.  If you posture it that you see a great future and you want to cash out to an ( in the wings) outside buyer who will take a much more aggressive role in firm --perhaps the two insides will take a special interest in not having a 3d hand in stew and cash you out on better terms?  Its the value of an unacceoptable alternative that may count to them.

     

    So in a sense its wise to stay current with how boooks are handled , keep copies, and especially how cash is handled..........



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