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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 35769
Experience:  Run my own successful business/contract law practice.
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I have a wife with a LLC that is going bad. The LLC has not

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I have a wife with a LLC that is going bad. The LLC has not been in place long so the capital contributions are minimal. Despite my continued insistence they never signed the Company Agreement which was originally produced from our site. One of the members was spending out of control and taking money from the business accounts at her leisure without any real voting or consent or sometimes even though the members agreed not to spend the money. The problem member sent an email stating that she is withdrawing and then sent a representative name with no contact information. She has been spreading all over the online community various rumors and in some cases outright lies resulting in several canceled orders. What can be done to remove the Member and protect the other members? Is there a way to save this company or does it just need to wind-up or terminate?
Submitted: 1 year ago via LawDepot.
Category: Business Law
Expert:  Dimitry K., Esq. replied 1 year ago.
Thank you for your question. Please permit me to assist you with your concerns.

I am genuinely sorry to hear that your wife is in this situation. What, if anything, was ever signed? Is there at least some measure of articles of operation in place? How many members are there, all together? What are the other members considerering in this situation? How much money is missing, or at least improperly utilized?
Customer: replied 1 year ago.

The certificate of formation is the only signed document. I would say that the only articles of operation would be the Company Agreement. It was not signed, however, it was uploaded to the company document cloud storage for use and review. There was one video meeting to discuss the changes and a revision was then sent out. There was a general understanding that these were agreed to.


 


There are three members. The other member wants the concerning member out; however, it can be done. A few thousand dollars the concerning member originally improperly utilized; then the other two members did a firesale of inventory to make up the difference to pay the for the order. The concerning member then took the additional money she felt was hers from what she had put in. They have frozen account and moved the balance of money where she does not have access to it.

Expert:  Dimitry K., Esq. replied 1 year ago.
Thank you for your question. Please permit me to assist you with your concerns.

So was anything, at any time, recorded with the state? The articles of formation, were they filed?
Customer: replied 1 year ago.

Yes, the articles of formation were filed with the Secretary of State. Texas they refer to it as the Certificate of Formation. That is the only document outside of the Tax ID information.

Expert:  Dimitry K., Esq. replied 1 year ago.

Scott,

That helps a lot, thank you for your clarification. I ask only to find out if the entity is legal since that would make all of the shareholders fiduciaries of the company and therefore bound by their duty of loyalty and their legal obligations to properly protect the interests of the company and other shareholders. That, essentially, translates into the fact that other shareholders can file against this person for funds that she misused (as it would be a breach of fiduciary duty), but also personally sue on behalf of the company for loss of reputation, business defamation, and other losses. It would help tremendously if all of the parties can band together and sue as one, but really your wife, being one of the shareholders, can pursue all of these options on her own if she wishes to do so. The courts would have to be utilized in removing her from the company since no procedure exists, but Texas corporate law will be used by default if any process is not directly defined in company records and documents.

Good luck.

Customer: replied 1 year ago.

Thank you, XXXXX XXXXX Agreement provides the basis of which we thought we should move forward even though it was not signed. Your response actually validates the discussions I have been having with them specifically the fiduciary and defamation. We have drafted up a Notice of Withdrawal based on a breach of fiduciary duty, however, they have yet to send it to her.

Expert:  Dimitry K., Esq. replied 1 year ago.

Thank you for your follow-up, Scott. You are most welcome.

The fact that it was not signed does weaken your claim--typically parties are bound only if they have formally agreed to terms. A company agreement that is not signed is merely a draft which would mean that state law would govern rather than language in the agreement. It would be wise to send her the notice and threaten a potential criminal action for embezzlement (which may be a reasonable action on your part) if you can show she used monies without any legitimate purpose or advance permission, AND without any benefit to the company.

Good luck.

Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 35769
Experience: Run my own successful business/contract law practice.
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