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Law Pro
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Category: Business Law
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Experience:  20 years experience in business law - sole proprietor, partnership, and corporations
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I am in a partnership (LLC in VA) that was initially setup

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I am in a partnership (LLC in VA) that was initially setup as a single member LLC (me). My partner was never added to the paperwork, however, we have filed K-1s each year demonstrating 50% ownership by each. I recently told him I wanted to split the partnership. Since we never signed a partnership agreement, we had to come to terms. He offered to buy me out, however the amount offered was too low and the terms unfavorable. I countered, he decided he would rather close the company and go our separate ways. The core function of the business has been selling products on Amazon.com. We utilize Fulfillment by Amazon and have considerable assets located there. We also have some liabilities, including an amount approx 75% of the revenue expected from Amazon sales is owed from a loan that automatically debits from our Amazon account before the money is dispersed. I was good selling him the company for a fair price, he was not ok with the reverse. The Amazon account was mine prior to the formation of the LLC or our partnership. I am willing to take on the debt, pay him 1/2 of remaining Asset value after we divide some physical assets (that division has already been agreed too). The question is: Is there anyway to force his hand to at least have me keep the Amazon account that is established since he is willing to walk away, so long as the end result is an even split of assets and money?
Submitted: 10 months ago.
Category: Business Law
Expert:  Law Pro replied 10 months ago.
Welcome to JustAnswer! My goal is to do my very best to understand your situation and to provide a full and complete excellent answer for you.

My name is XXXXX XXXXX X'm going to assist you with your question.

Please bear with me if you believe my answer isn’t coming fast enough because I’m also working with other customers too. I apologize for any seemingly late response.


Thank you for asking for me.

In who's name is XXXXX XXXXX account now - yours or the LLC's?
Customer: replied 10 months ago.

It is under the LLC

Expert:  Law Pro replied 10 months ago.
Is he having a tough time with monies - not much available cash or cash strapped?
Customer: replied 10 months ago.

Neither of us is particularly well off, however his ace in the hole is a motorhome that the LLC owns. His wife borrowed money though a line of credit to finance that purchase. That unit is up for sale and we have had offers, should sell in the next week or 2. Since his wife has the lien, he will not be force to pay off the loan, however, the majority of the sale price will transfer to him (his wife) to satisfy the lien. He then has that cash available, assuming he utilizes the cash and continues making payments vs paying it off. He has disclosed this to me.

Expert:  Law Pro replied 10 months ago.
But he/they will have to pay off line of credit - she does have the loan in her name.


OK, since you don't have an operating agreement or even a partnership agreement as to winding up the affairs and dissolving the LLC - then the VA statutes apply.

Virginia’s LLC Act allows for an alternative method to voluntarily dissolve an LLC: unanimous written consent of the LLC members.

Virginia’s LLC Act provides minimal information about tasks included in winding up, and focuses mainly on two matters:
  • paying and discharging, or making reasonably adequate provision to pay and discharge, all of the LLC’s debts, liabilities, and obligations; and
  • distributing all remaining LLC property and assets to LLC members.

You are required to distribute LLC assets in a particular order. You first must pay creditors, including LLC members who are creditors, to the extent permitted by law. Note that it is particularly important that you pay all outstanding taxes. Then, unless your formational documents provide otherwise, you must make any required “interim” distributions to current and former LLC members. (For example, a distribution might be due to a member because he or she previously withdrew from the LLC). Finally, if any assets remain, and unless your operating agreement provides otherwise, you should (a) return to members any contributions they made to the LLC; and then (b) make distributions to members in the proportions in which they share in distributions.

 

One other key task is giving notice to creditors and other claimants of your LLC's dissolution. Giving notice is optional. However, doing so will help limit your liability and also allow you to more safely make final distributions to members.

Under Virginia law, one way to give notice is by sending a written document directly to known claimants after the effective date of dissolution. Proper written notice must:

  • provide a reasonable description of the claim that the claimant may be entitled to assert
  • state whether the claim is admitted, or not admitted, and if admitted (a) the amount that is admitted, which may be as of a given date, and (b) any interest obligation if fixed by an instrument of indebtedness
  • provide a mailing address where a claim may be sent
  • state a deadline, which may not be fewer than 120 days from the effective date of the written notice, by which confirmation of the claim shall be delivered to the dissolved limited liability company; and
  • state that, except to the extent that any claim is admitted, the claim will be barred if written confirmation of the claim is not delivered by the deadline.

You also may give notice to other (unknown) claimants by publishing in a newspaper. As with sending direct notice to individual claimants, there are specific rules for giving notice through publication. Generally speaking, claimants have three years after the date of newspaper publication to bring a claim.


As stated above, "any assets should be returned to members who made the contribution". Therefore you get the Amazon account because it was yours before the formation of the LLC.


If he doesn't agree to such inform him that - that is what a court would order under the circumstances. That it would be a needless waste of time, monies and effort to litigate something which the court would clearly end up ordering resultantly.


That is your leverage - the VA LLC Act.



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Customer: replied 10 months ago.

Thanks for the great news. That is 90% of it, but the question remains regarding the inventory. That is the bulk of assets owned by the company. I can easily divide the sales of that inventory from anything acquired afterwards so that distribution is fair (of course liabilities paid first). There has been dispute over how to value the inventory, however, if we can just wait until it sells, there is little room to argue. The loan bears my signature alone.

Expert:  Law Pro replied 10 months ago.
What is his proposal as to how to divide the inventory?

Presumptively, the inventory should be based in what it cost to purchase UNLESS there is another reasonable basis upon which to value it (ie. antiques would be something that would be disputable).
Customer: replied 10 months ago.

The basis was the "Net" proceeds from the sales. That would be the estimated retail sales price - Amazon fees, other costs = Net (with no regard to cost). Cost value of inventory in stock is approx. $54,000, Net proceeds were estimated at $86,400, however, when he was on the buying side he wanted to take $20k off the cost side before valuing it because he considered that "dead inventory", inventory with a small probability to sell in the next 180 days. My estimation is that a true number is XXXXX $10k cost that is dead. Again, if we had to value it now, at cost, approx $54k is a number I would not argue too much about.

Customer: replied 10 months ago.

Also, all the merchandise is new retail goods, no antiques or hard to value items.

Expert:  Law Pro replied 10 months ago.
Well I don't know what is "fair" and "reasonable". If you two can't come to agreement on the value of the inventory - then you two would be subject to going through court supervised dissolution and they would order that the proceeds be distributed as per the member's ownership interest when sold. That would add extreme additional costs to the dissolution of the LLC to go through the court and have them review everything.

So if you two can't come to agreement - then that is your only alternative.
Law Pro, Attorney
Category: Business Law
Satisfied Customers: 23587
Experience: 20 years experience in business law - sole proprietor, partnership, and corporations
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