Subject: What to Do When Your LLC needs a Divorce
A limited liability company is a popular corporate form for a business. Most small businesses are an LLC.
An LLC is usually run by a few members and each member has limited personal liability.
Something that most members of an LLC do not contemplate when forming the business, is what happens when the members of an LLC no longer get along.
The easy options if a member no longer wants to be part of the LLC is as follows:
1. The other member(s) agree to dissolve the LLC and end the business;
2. A member or members agree to buy out the dissatisfied member and the business continues;
3. An outside party agrees to buy out the member and the business continues;
4. The dissatisfied member just voluntarily walks away from the business;
In the above scenarios, the dissatisfied member is able to walk away from the business without it being a big issue.
If the other members and the dissatisfied member can not agree on an exit strategy, then the courts need to get involved.
The dissatisfied member can bring an action to dissolve the LLC and disband the business.
However, convincing a court that an LLC needs to be dissolved is not easy. Neither is expelling a dissatisfied or bad member.
Unless, the operating agreement states otherwise, a member of an LLC cannot be kicked out of the LLC.
And if the LLC is operating as it was meant to and not losing money, then the Court will not dissolve the corporation.
So, what options is the dissatisfied member left with?
At that point, the dissatisfied member is usually being pushed out of the business and is being treated unfairly. The dissatisfied member is probably not getting their share of the profits either.
The dissatisfied member can start a derivative lawsuit on behalf of the LLC for mismanagement. The dissatisfied member can also sue the managing member(s) of the LLC for breach of their fiduciary duty to him.
The best thing to do is speak to a lawyer when forming the LLC and address these type of issues before it is too late.
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