Q. Can a 1/3rd owner of an LLC be forced to reduce his amount of equity in the company?
Last year two partners and I formed an LLC that was equally divided by 1/3rd, however recently I became quite ill and it will be difficult for me to continue as the company's COO on a full-time basis. My partners asked that I reduce my equity to 1/6th of the company so they can seek and eventually retain a COO with some equity until we raise the capital necessary to launch our product. Neither of the two other partners plan on reducing their equity. I hope to regain my health in the future but the equity they want me to give up will not be returned. Can they force me to give up that much equity or any for that matter? I realize it may be necessary to do so, but if I return I don't know how I can be compensated for what they want me to give up.
Area of Expertise: Law and Legal
3 answers | Asked on 06/30/10 by:
Glenn Kravitz
Opa Locka, FL, United States
Answers
Michael Shevelev
Florham Park, NJ, United States
Glenn,
You best should seek legal help in this matter. Do you have "bylaws" for your company? Have your partners offered to buy you out? It is unfortunate that you became ill. However, your partners probably feel that it is unfair for you to retain 1/3 ownership since you no longer can contribute what you have originally comitted to. They have a valid point.
Posted on 07/11/10
Jim Bishop
Dublin, OH, United States
Glenn,
You need to talk to an attorney. Its not "bylaws" but your partnership agreement that spells this out and since you asked this question, I take there isnt one. Fair does not matter, the two partners together are the majority and can force you out. I suggest (with an attorney) putting the terms of your reduction into a partnership agreement spelling out your compensation (for the sale of your shares) to be paid from future earnings.
Posted on 07/20/10
Pauline Soeffing
Buffalo, NY, United States
I agree with Jim.
I always advise all of my clients that are either in a partnership of thinking of entering a partnership to have an agreement that addresses what happens if one of the partners should die, become disabled, get divorces, or become disillusioned and wish to leave. It should also address how the business will be valued.
Posted on 07/24/10
