Forums: Discussions for entrepreneurs and small business.

Hey All,

I have a tough one here.  3 other people an I started a 4 person LLC. last year.  Our shared %'s were 30-30-30 & 10. The 10% share guy was "bought out" and removed 6 months ago.  The company was by no means profitable at the time and he didn't put forth any effort to grow or maintain the business.  He ultimitley left in a peacefull manor and no money was exchanged.  From day one every partner except for the "10%'r" had an equal monitery investment.  Partner #1 and Partner #2 have always done most of the required work with promises from partner #3 that he would get it together.  (He was needed initially for the money!) Over the last year partner #3 has virtually fell off the face of the earth, will not return phone calls, and has only sent an apology email because of his lack of professionalism and work ethic to #1 and #2.  #1 & #2 continue to try and reach partner #3 with no luck.  My question is can we now just start a new company under a new name LLC to avoid any possible buyout with #3?  The company is still not profitable and to be honest the bank account is about empty.  We feel our options are to give him a couple grand or to just start a new LLC.  Having a new LLC name will have zero effect on our actual product and I (#1) have the product name trademarked personally.  If we do change our LLC name, boot #3, and keep the same product does #3 have any recourse.  Hopefully that wasnt too confusing and I sincerely appreciate any replies.

Dahmen

It is a tough one, and I would only give my 5 cents on that one, since your case obviously needs a lawyer.

First of all, it all depends on your Operating Agreement. Do you have one? If you do you will be able to consider your options based on what you guys have put there. If you don't then depending on what state your LLC is registered you will need to see what the law says. Usually there is something like "default" operating agreement (I am not sure about the accuracy of the term) defined by the state law that the state uses in disputes.

Technically, if you split off and don't reach agreement with your third partner you risk to be sued in case your business is successful. I think your best shot is to bring a lawyer and try to reach out to the third partner. Hopefully you guys have a clause in the operating agreement stating that all partners must do actual work, and not just participate financially. If you do you can prove that he violated the operating agreement and threaten him with a lawsuit (I know, I sound nasty, but ditching your partners like that is nasty too). If you don't its a good lesson to be learned.

Hope thats helpful.