When members of a Limited Liability Company (LLC) first set out on a business venture, they are likely all equally invested and committed to the project. However, if the company runs into issues or does not make a profit as quickly as both parties initially were hoping for, one or more members may lose interest in the project. Additionally, if the company reaches high levels of success in a short period of time, a member may claim that they gave more to the company at its earliest stages and thus, deserve a larger share of ownership.
If either of these situations occurs, the other members of the business may need to take action. If serious enough, members of a business can seek court intervention as LLCs are governed by state laws. However, below are four common ways that members of an LLC can deal with a problematic partner.
Ways to Deal with Problematic Partners
Informal Discussion
The first way to try and work out disagreements between members of an LLC is to talk to the disagreeing partners. Furthermore, if only one member is disagreeing, try having a group sit-down to show the singular disagreeing member why their way of thinking may not be in the best interest of the company. By taking this approach, the member may agree to change their view, resolve any misunderstandings pertaining to the topic, or if the conflict will be a long-term issue, the member may agree to sell their share of the company. Starting a conversation is the easiest and cheapest way to resolve issues that lead members of an LCC to disagree.
Review The Operating Agreement
The next step businesses should take if members of an LLC cannot agree is to review the company’s operating agreement. A good operating agreement clearly establishes what the business should do if two or more of the partners disagree. Additionally, an operating agreement should also state the general responsibilities each member of the LLC has regarding the business. Thus, if the disagreement stems from one party’s lacking effort, there is a clear understanding of how to get rid of this member.
Breaches of Fiduciary Duty
Another way to resolve LLC disagreements is to see if the partner’s actions break their fiduciary duty to the company. Members of an LLC owe each other a fiduciary duty. Furthermore, this duty requires that each of the partners put the needs of the LLC over their personal financial needs. Thus, if you believe that the disagreeing partner has broken their fiduciary duty, check the businesses operating agreement. This agreement will state what actions constitute a breach of fiduciary duty. If the issues that the partners disagree about concern one of the partners breaking their fiduciary duty, bring the dispute to the courts to see if the courts can expel the partner from the company.
Because you have to involve the courts in this issue, you must enlist experienced legal advice throughout this process.
Illegal Conduct
Finally, if the issue that the partners are disagreeing about stems from the conduct of another member, check to see if the conduct in question is illegal or has an effect on the business that would make it impractical for them to continue as a member of the company. One important thing to note is that if the partner has already agreed to transfer ownership or if it is illegal to continue business with the entity as a member, the entity can be expelled by the unanimous consent of the other members. If 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, the business can sue to have the member expelled.
Final Thoughts
If you are an LLC member that has partners disagreeing about the future of business, you must consult an attorney. This is true no matter if you are looking to expel a member or need to defend yourself from claims. Additionally, an attorney is not only vital but necessary if you decide to sue the disagreeing member of the LLC. This is also true if you look to seek court intervention to force the partner out.
Contact Our DC Law Office for More Information
Finally, for more on what to do when members of an LLC cannot agree, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding business law, check out our blog.