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Lawdoctor
Lawdoctor, Lawyer
Category: Legal
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Experience:  22+ years legal practice including corporate, business, criminal, entertainment and litigation
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My partner and I are purchasing an LLC. The Seller has agreed

Customer Question

My partner and I are purchasing an LLC. The Seller has agreed to take the down payment in two installments. My partner will be making the first installment and I will be making the second. My partner is also putting down her car as collateral. Originally when we discussed this matter we agreed 50/50 ownership. She is providing initial capital and collateral. She will also be assisting with some administrative tasks. I will be providing the second installment of our down payment and will be working full time for the business. Unfortunately we did not create an operating agreement before signing paperwork completing the sale. After signing the sale's agreement and days prior to signing the membership certificates, she presented me with an operating agreement detailing her majority ownership in the business. It goes as follow : 97% hers until my down payment installment is made, 55% hers until her car is released as collateral, 51% until I purchase a home as she is a homeowner and she has more assets than I.

Can she take away my some of my membership units even after we have signed membership certificates?
Submitted: 2 years ago.
Category: Legal
Expert:  Lawdoctor replied 2 years ago.


Thank you for allowing me to assist you with your question.



Your question is very important to me, but please remember that I can only respond to the information you provide and I do not know your entire situation. My response is limited to what you have written to me and the answer may change with additional facts.



Also, due to site reasons, there are times I am initially only able to see a portion of post, so I apologize in advance if it means that you have to duplicate information.



There may be future facts that are as yet undetermined in your matter, that can and must leave some areas of information provided by me broad in nature. However, don't hesitate to ask for clarification if needed! At times, there can also be a delay of an hour or more in between my answers because I may be helping other customers or taking a break. Now, let’s address your question!

 

It is unfortunate that you did not reduce your partnership to a written agreement before signing the agreement to purchase the LLC. It would seem from the information you have written that the two of you had an agreement to buy this LLC together and thus you may a have formed a partnership for the purpose of the purchase. Once the purchase was complete, then you would have been members of the LLC. I make this point to direct you to Oregon Statutes on partnership to assist you with your problem:

 

See:

 

Chapter 67 — Partnerships; Limited Liability Partnerships


" (7) “Partnership” means an association of two or more persons to carry on as co-owners a business for profit created under ORS 67.055, predecessor law, or comparable law of another jurisdiction. A partnership includes a limited liability partnership.

(8) “Partnership agreement” means the agreement, whether written, oral or implied, among the partners concerning the partnership, including amendments to the partnership agreement.

(9) “Partnership at will” means a partnership in which the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking.

(10) “Partnership interest” or “partner’s interest in the partnership” means all of a partner’s interests in the partnership, including the partner’s transferable interest and all management and other rights."

 

 

 

There is a presumption when there is no written partnership agreement that partners are equal in accordance to their participation. The problem is that you have both signed the purchase of the LLC and now your partner is making demands that you are not equal in the LLC. This is contrary to her duty as a partner:

 

67.140 Partner’s rights and duties. (1) Each partner is deemed to have an account that is:

(a) Credited with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, the partner contributes to the partnership and the partner’s share of the partnership profits; and

(b) Charged with an amount equal to the money plus the value of any other property, net of the amount of any liabilities, distributed by the partnership to the partner and the partner’s share of the partnership losses.

(2) Each partner is entitled to an equal share of the partnership profits and is chargeable with a share of the partnership losses in proportion to the partner’s share of the profits.

(3) A partnership shall reimburse a partner for payments made and indemnify a partner for liabilities incurred by the partner in the ordinary course of the business of the partnership or for the preservation of its business or property.

(4) A partnership shall reimburse a partner for an advance to the partnership beyond the amount of capital the partner agreed to contribute.

(5) A payment or advance made by a partner which gives rise to a partnership obligation under subsection (3) or (4) of this section constitutes a loan to the partnership that accrues interest from the date of the payment or advance.

(6) Except as otherwise provided in subsection (5) of this section, a partner shall not receive interest on the amount of capital contributed to the partnership.

(7) Each partner has equal rights in the management and conduct of the partnership business.

(8) A partner may use or possess partnership property only on behalf of the partnership.

(9) A partner is not entitled to remuneration for services performed for the partnership except for reasonable compensation for services rendered in winding up the business of the partnership.

(10) A person may become a partner only with the consent of all the partners.

(11) A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the consent of all the partners.

(12) A written partnership agreement may establish classes or groups of one or more partners having certain relative rights, powers and duties, including voting rights, and may provide for the future creation of additional classes or groups of one or more partners having certain relative rights, powers and duties, including voting rights. The rights, powers or duties of a class or group of partners may be senior to those of one or more existing classes or groups of partners.

(13) This section does not affect the obligations of a partnership to other persons under ORS 67.090. [1997 c.775 §17]

 

 

This new wrinkle places you both in a position that if you don't settle your differences quickly, you may be in default on the LLC purchase agreement and the Seller (the person you are purchasing the LLC from) could decide to sue you both, take back the LLC, etc.

 

If you did not have a attorney to assist you in this matter, I strongly encourage you to find a local attorney who handles business matters to help untangle this before you end up in two or more lawsuits. The attorney is probably most valuable to you at this point as a skilled negotiator with your partner and the Seller of the LLC.

 

Best of Luck and Happy New Year.

 

 

Thank you again for trusting us with your problem. Good luck and Godspeed.

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Please remember that we have not created an attorney-client relationship, and that my post is not intended to be specific legal advice. The answers given are limited to the information you have provided in your post. For specific legal advice, please consult with an attorney licensed in your state.

DISCLAIMER: Please understand that the complexities of most legal problems cannot be adequately addressed in this setting, and that I am only licensed to practice law in the states of Florida and Mississippi. Accordingly, you acknowledge (1) that we have not formed an attorney-client relationship, and (2) that my post is general information only and not specific legal advice.




Customer: replied 2 years ago.
But, since we have signed a sales agreement with specific dates of payment don't I legally have the right to fulfill the sales agreement or does she have the right to change the agreement without my consent? We have both signed the agreement with John Doe A will pay x amount by Jan 1st and John Doe B will pay x amount by March 1st. She is threatening to buy me out on the assumption I will default on payment due March 1st....over a month away.

Because we have purchased the LLC already without an operating agreement is it true at this point she needs to wait until I default on the agreement before attempting to buy me out? And if I don't default she has to convince me to give her more than 50%? Too many question? :)
Expert:  Lawdoctor replied 2 years ago.
Good morning.

You have a set payment schedule with set obligations which she is claiming that you are not going to meet. It sounds like she is stating that you intend to default and thus she is trying to use anticipatory breach to say that she has a right to act and protect herself.

Whether she has the right to change the sales agreement is something that has to be addressed by the terms of the agreement. Look for paragraphs in the agreement that discuss or titled: Default, Modification, and Buyer's Obligations. If anywhere in the contract it says that the Buyers agree that it only takes one of you to change the agreement with the seller, then she has you. If it does not, then the agreement cannot be changed without your agreement.

Do not let her bully you. However, I must say, in my experience, if a partner is already trying to , excuse my language, 'screw' you now, it will not get any better once you are up and running the business. If there is a way to buy her out or get out, it is an option you may want to consider. Her actions now show her true intent and how she will treat you and the company in the future.

She cannot force you to pay early or sign an operating agreement that you don't want to sign. I would strongly encourage you to find an attorney who has experience in mergers and acquisitions to protect you. You don't have to have the attorney involved completely right now, but it would be good to have him or her on board and ready if it goes south quickly and you need immediate help.

I am sorry the excitement you had in starting this new venture has turned into such a stressful situation, but if you stand strong and protect yourself you can weather this and come out the winner. She is the one creating the problems, not you.

I wish you the best.





Please remember that we have not created an attorney-client relationship, and that my post is not intended to be specific legal advice. The answers given are limited to the information you have provided in your post. For specific legal advice, please consult with an attorney licensed in your state.

DISCLAIMER: Please understand that the complexities of most legal problems cannot be adequately addressed in this setting, and that I am only licensed to practice law in the states of Florida and Mississippi. Accordingly, you acknowledge (1) that we have not formed an attorney-client relationship, and (2) that my post is general information only and not specific legal advice.



Customer: replied 2 years ago.
Ok, thank you for your advice! Just one more question regarding this matter. She volunteered to put down her car as collateral. From a legal stand point would it entitle her to 51% percent of the company even though no prior agreement was made to give her majority ownership based on her collateral? My goal is to be fair but I want to make sure I'm working in the right direction. She seems to feel because of her collateral there has been unequal contributions.

Also, I don't know if it's relevant but she has no experience running a business such as the one we have decided to purchase. She expressly communicated she has no intention of running the store and expects another person...namely me to manage the store's daily functions. I have worked the store for over 3 years and have managed it for one year prior to the purchase. Where does this put me in the grand scheme of things?

I appreciate so much your assistance. Your answers have certainly helped in directing my questions to my lawyer...where each minute can be costly :)
Expert:  Lawdoctor replied 2 years ago.
Good evening!

It would be my opinion that her car is no better collateral than your knowledge and experience. Her offer to use it does not give her any automatic rights to a greater share of the membership. You are both bringing things to the table and it would be best if you could start off as equals. She needs to remember that you are going to be putting up money as well as your knowledge, experience and sweat-equity. It will take more than money and her car as collateral for this venture to work. It will take just that WORK.... no matter how much money you throw at a business, someone still has to work.

I wish you the very best and please do not let her intimidate and bully you!



Please remember that we have not created an attorney-client relationship, and that my post is not intended to be specific legal advice. The answers given are limited to the information you have provided in your post. For specific legal advice, please consult with an attorney licensed in your state.

DISCLAIMER: Please understand that the complexities of most legal problems cannot be adequately addressed in this setting, and that I am only licensed to practice law in the states of Florida and Mississippi. Accordingly, you acknowledge (1) that we have not formed an attorney-client relationship, and (2) that my post is general information only and not specific legal advice.



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