What do you do when you are a minority or 50% owner and the other owner(s) are not treating you fairly? Maybe the other owner is taking an unfair salary, employing family members, or otherwise manipulating the system to take economic advantage of the situation. Maybe the other owner is taking cash and not reporting it. What do you do? What if you have taken cash too?
Maybe the other owner is buying all the supplies from his other business or just shifting business from your company to his other company. Maybe the other owner is taking supplies or equipment for his other business. Maybe the other owner didn’t contribute his fair share to begin with. What do you do? What if things are not well-documented and your business partner is a master manipulator or con artist?
Maybe the other owner is hiding the financial records of the company. You don’t know if there is a profit or how much. You don’t know how much money is coming in, let alone where it is going. What do you do? You usually have certain rights to financial records. https://awhitneylaw.com/blog/a-minority-owners-right-to-inspect-llc-records-or-corporate-books-and-records
What do you do if the majority terminated your employment? Does it matter if the other owner is the Manager of the LLC? Does it matter if you have no employment contract? Does it matter if they have something on you? No one is perfect, of course, and it’s inevitable that they will have something to complain about. But does that give them the right to fire you from your own company? Maybe, but maybe not. Owners often have a reasonable expectation of employment and cannot be fired so easily.
Should you dissolve the LLC? Put it in receivership? Maybe you are not getting along with the other owners. They are abusive. They are not treating you fairly. They are trying to drive you out. What do you do? Maybe you can take one of these extreme remedies, but is it a good idea? This is a complicated question and you need guidance from someone who has done it.
Can you sell your LLC Membership interest? Does it matter if it’s a Massachusetts Limited Liability Company? A Limited Liability Company formed in Delaware or some other state and operated in Massachusetts? Can you force the LLC to buy your share? Maybe, but it depends in part on if there is an Operating Agreement and what it says. It depends on which state’s law controls. You also need to follow the right procedures, which can be spelled out in an Operating Agreement. You also must know how to value your share.
Can you simply resign your interest? The answer is the same, but the potential liabilities increase, so you have to proceed strategically and with caution. Just giving up your interest may seem simple and without consequences, but that is not necessarily true. At least do it the right way and get a full release and know the tax consequences.
Unfortunately, there are no easy answers to any of these questions. There are no “LLC Police” to report your business partners to. It’s unlikely that any government agency will be of much assistance. The government doesn’t want to get involved in private business disputes unless there is a public interest, illegal activity or tax evasion. Even then, a bad situation could become worse. I have seen all the above situations and more. Some business partners lie, cheat and steal. Some are sneaky. Some are tyrants. Some are substance abusers. Some are sexual harassers. Some are poor business people. And some just have different priorities and visions for the business.
There is help. A lawyer who is experienced in these matters can come up with a plan and help you to decide what to do. Sometimes there are certain strategies and tactics that can provide your business partners with the motivation to do right by you. Don’t you deserve that? You invested blood, sweat, tears, and dollars into the business. Are you willing to give up what you deserve, or do you want to fight for it?
If you are having problems with your business partners and you cannot work it out personally, contact me so that I can help you come up with the best solution that works for you.
Adam P. Whitney
Fine print: the above is not legal advice, but general information. I cannot provide legal advice without a written fee agreement and a full review of your legal matter.