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Zachary
Zachary, Attorney
Category: Business Law
Satisfied Customers: 3814
Experience:  Internationational Commercial Attorney
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My wife is a chef an has a small percentage, 2%, on a catering

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My wife is a chef an has a small percentage, 2%, on a catering business LLC. in NYC.
Because we moved to Michigan from NYC. Mayority partner wants to buy her out.
Wife doesn't want to sell. The 2% gives her 5,000/year earnings. for the last 10 years.
Mayority partner wants to give here 20K.
What could go wrong if she doesn't want to sell?
Mayority partner told her that they are intending to "partner" with another company and neglect the partnership in which my wife is part off.
Should she negotiate or should she fight?
Submitted: 8 months ago.
Category: Business Law
Expert:  Zachary replied 8 months ago.
Hi,

My name is XXXXX XXXXX X will be assisting you with your legal question.

There may be delays between our messages to each other as we talk, as I am an attorney in a law office and have clients that come in. So, thank you for your patience in advance, and I will make sure that we answer your questions.

In this case, as a member of an LLC, you have a right to remain in the LLC unless there is some sort of forced buy out provision in the LLC's operating agreement. Thus, we need a copy of that agreement to provide you with the best answer.

I will say that if you are getting $5k per year from the business, then a buy out at $20K is not a bad offer (4 times profit). However, asking for up to 7 times profit for a buy out is not unheard of. Whether she is in a place to negotiate, again, depends on the operating agreement itself. Do you have access to that agreement?
Customer: replied 8 months ago.

Hello Zachary.


Here is the "operating agreement"


Attachment: 2013-10-18_173413_operating-agreement-of-acquolina-llc.pdf


 


Is there a way to prevent the "mayority partner" to form another "LLC partnership" and neglect current LLC.

Expert:  Zachary replied 8 months ago.
Thank you for forwarding the operating agreement.

The only restrictions on forming another business is that the members/partners are not permitted to form any business which competes with the business of the Company.

Otherwise, the question becomes who is the "Managing Partner". The Managing Member has the responsibility to run the business, and if they are not running the business, then they are violating the agreement.

So, is the Majority interest holder intending on running a competing business?

Who is the Managing Member?
Customer: replied 8 months ago.

What are the consequences of violating an agreement?

Is there a way for them to say "This is not a competing business" is a "supplemental" or some other wording, then, they are not in violation.

The managing partner is the Husband of the majority interest holder. Actually both, husband and wife, manage the business.

Basically, my wife help them open an grow the business. Then she moved out but didn't sell.
Now they are trying to create a new partnership with a "restaurant owner" to handle the catering on behalf of the restaurant name.
According to them, the "new partner" doesn't want "non-working partners"

If my wife doesn't sell.
Is it possible to "merge into the new partnership" with a diluted partnership?
How this works?


BotXXXXX XXXXXne. I think they want to buy her out because they are expecting bigger profits/year and don't want to share profits any longer.

Expert:  Zachary replied 8 months ago.
The agreement is written very broadly to include any business competing "directly or indirectly."

Whether the Majority Member's prospective business is actually competing is a question of fact which would be answered by a jury. If, for example, the member invests in another restaurant which is in the same area of town, or the exact same kind of cuisine in the same city, then there would be a strong argument that this is a competing business.

The consequence of a breach of the agreement would be that you could seek damages. Damages can come in the form of an actual loss in revenue caused by the breach, loss of future profits, loss of the value of the business, or loss of the investment made to get into the business.

If your wife does not sell, it is definitely possible that a merger could occur which would dilute your wife's interests. A merger, or grant of new memberships, reduces everyone's share proportionately. It can be approved by the Majority shareholder alone. So he can force it on your wife.

The thought that they want all the profits to themselves is probably true. However, its reasonable for them to want to buy her out if she is not going to be a working partner.

So, in reality, you are looking at being forced into the merger, with a reduction of your share of the profits corresponding to that, OR can agree with a buy out and try to negotiate a higher purchase price.

The other reality is that the Majority member can simply shut the business down.

However, the majority member cannot open a competing business, so the merger is more likely to occur than the majority member breaching. If the majority member breaches, you can sue him.

Customer: replied 8 months ago.

If merger...
A)Does my wife has to go to NYC to sign new papers?
B) if diluted at 1% but double sales, she will be in the same position, isn't it?

If Majority member shuts down....
A) Is there a period of time in which he can't open any related business. how long is this period?
B) Could they open using other names, children or create another type of "association" to avoid the breach?
C) There should be a liquidation process isn't it? or everything is discounted at cents/dollar?

If Majority member breaches...
A) What is the cost of suing (rough numbers, how it works?)
B) How long the process maybe?

Expert:  Zachary replied 8 months ago.
A)Does my wife has to go to NYC to sign new papers?

- No

B) if diluted at 1% but double sales, she will be in the same position, isn't it?

- Essentially except for voting strength.

A) Is there a period of time in which he can't open any related business. how long is this period?

-No

B) Could they open using other names, children or create another type of "association" to avoid the breach?

- Not really. The contract says that no member may "engage" in any business which competes "directly or indirectly"

C) There should be a liquidation process isn't it? or everything is discounted at cents/dollar?

- There would be a liquidation process and a distribution of the proceeds, or there would be a settlement of "we don't want to sell the equipment, so we have valued it at x amount and will pay out proceeds based on a cash disbursement". You can fight the violation if you believe it is too low.

If Majority member breaches...
A) What is the cost of suing (rough numbers, how it works?)

- Litigation is expensive. In this situation, you are looking at minimum $25,000 in legal expenses, and potentially up to higher than that. You might be able to negotiate a flat fee with a lawyer to handle the case.

B) How long the process maybe?

It depends on which court it is filed in. Most cases nowadays can take up to at least a year to get to trial.
Customer: replied 8 months ago.

Thank you very much Zachary!


If you don't mind, could I have any type of contact information from you.


my cell phone is(NNN) NNN-NNNN/p>

Expert:  Zachary replied 8 months ago.
Unfortunately, we are not able to give out our personal contact information or otherwise communicate with you other than through the website. This is a limitation the website places on us.

I apologize for the inconvenience.

Please let me know if you have any further questions. Please also kindly consider rating my answer positively so that I am credited by the website for my work on your question. Rating positively does not cause an additional charge and does not prevent us from further discussing your questions.

Kind regards,
Zachary
Zachary, Attorney
Category: Business Law
Satisfied Customers: 3814
Experience: Internationational Commercial Attorney
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