How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask William B. Esq. Your Own Question

William B. Esq.
William B. Esq., Attorney
Category: Legal
Satisfied Customers: 3260
Experience:  Civil litigation attorney for individuals and businesses.
71563194
Type Your Legal Question Here...
William B. Esq. is online now
A new question is answered every 9 seconds

Need and answer now please! In an operating agreement in

Resolved Question:

Need and answer now please!

In an operating agreement in an LLC, how would you write that any proposed sale or assignment of a membership interest of the company has to be approved by the majority membership, meaning a majority ownership membership? So, for example, if one person owns 51% of the LLC, you would need their approval, even if the other 3 members allow the sale/assignment?

I understand you have to put in a provision for a buy-out, if the member wants out, but that aside, how would I write the above?
Submitted: 1 year ago.
Category: Legal
Expert:  William B. Esq. replied 1 year ago.

William B. Esq. :

Dear Customer, thank you for choosing Just Answer. I would like to assist you with your legal question today.

Customer:

Great! Thanks!

William B. Esq. :

While I cannot draft your proposed provision, the language that you have used in your post today is clear and by using that as part of your operating agreement you can make the provision clear and concise. Making sale of shares contingent upon approval of a majority ownership interest as measured by shares is common, and you can refer to the buy-out provision in the event of a dispute.

William B. Esq. :

I recommend using "plain language" as the use of complex or "legalese" terms leads to confusion and the intent of the parties is lost. If you believe there may be some issue in the future, you can include a short "statement of intent" in the provision in which you give the intent of the clause, this statement will be used in interpreting the terms in the event of a dispute.

Customer:

Ok thank you. That is helpful.

Customer:

Basically, I'm trying to create an operating agreement for an LLC i'd like to create. Essentially, I want to maintain complete control of the LLC, while allowing my employees to have some interest in the company. The first issue I'm running into is that I want to be able to make sure they do not sell their membership interest. It seems like adding a provision we just discussed should do the trick?

Customer:

Also, I want their interest to be contingent upon their employment. Would it be legal if I added the following provision:

William B. Esq. :

That type of provision will limit their ability to sell their shares, you cannot completely prevent this or the ownership interest by the employees would be entirely without value,but yes, it would restrict their ability to sell, and it would give you control.

Customer:

FORFEITURE OF INTEREST. Notwithstanding anything herein to the contrary, if the member is also an employee of the Company, at any time prior to the end of the last day of the 60th calendar month following the effective date of their Employment Agreement, and the employment of any employee terminates for any reason other than as the result of death or permanent disability, then that percentage of the entire ownership interest owned or controlled by such person shall be forfeited (“Forfeited Interest”). Upon such termination, the applicable person shall forfeit the entire Forfeited Interest and with respect to such Forfeited Interest, withdraw from the Company, and the Company shall release, acquit and forever discharge such withdrawing party from and against any and all obligations to the Company in connection with the Forfeited Interest.

William B. Esq. :

I believe the clause would be enforceable, there is nothing against public policy with the terms, but you cannot tie the employee's compensation into the ownership structure with this type of restriction.

William B. Esq. :

If you want to structure this into a retirement format where you can defer employee's interest, you would need to speak with a retirement adviser as this is much more complex.

Customer:

I'm sorry I don't follow... what do you mean by not being able to tie the employee's compensation into the ownership structure?

Customer:

The idea is in case the LLC gets bought out by some big company, the employees will get something as they hold a membership interest...

William B. Esq. :

I understand that, but how do you plan on giving the employees their interest in the LLC (what do they do to earn it, or is it a gift?)

Customer:

I just imagined it was part of their employment agreement. The thought was every year they stay on, they get 1% of the membership interest up to 5 years, this is on top of what I would give them as a salary...

William B. Esq. :

That is part of their salary, you cannot have them forfeit their interest when they resign or leave the company. They are still stuck with the restrictions on sale, but you cannot pull their interest as that becomes their property.

Customer:

So once I give it to them, I can't take it away?

William B. Esq. :

Correct.

Customer:

I can write in the operating agreement that the majority ownership interest can force a forfeiture, though right?

Customer:

Or can I only force a withdrawal, which, to my understanding, I'll have to pay them for their interest...?

William B. Esq. :

No, you can write a clause where the majority has the right to buy out the minority members, but you would have to craft it so that the minority members get a fair market value for their shares.

Customer:

That makes sense... instead of giving them their share up front, can I say that after they have worked for 60 months, they will get 5% of the LLC?

William B. Esq. :

Yes. No problem.

Customer:

But that has to be in the employment agreement, the operating agreement would say nothing about that, correct?

William B. Esq. :

Yes, but there is no problem with it being in the operating agreement (it is just duplicative).

Customer:

So the forfeiture of interest clause I wrote above wouldn't work, because I can't force them to forfeit their interest once I've given it to them?

Customer:

So is there any way to structure an agreement with my employees that gives them 1% interest in the LLC, but I can take it back (without paying just compensation) if they leave before 5 years?

Customer:

hello?

Customer:

I don't see an answer. I'm sorry my cpu's been running slow, I'll try to log out and log back in...

Customer:

Hello?

William B. Esq., Attorney
Category: Legal
Satisfied Customers: 3260
Experience: Civil litigation attorney for individuals and businesses.
William B. Esq. and 8 other Legal Specialists are ready to help you
Expert:  William B. Esq. replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Expert:  William B. Esq. replied 1 year ago.
Dear Customer,

It appears that we were cutoff. I would recommend that you repost this specific question to our employment law experts as most financial transfers from an employer to an employee are considered compensation for work being performed and are governed by the respective state and federal labor codes (you cannot take back earnings from an employee).

But you can structure a vesting period so that your employee must work a certain number of months before their interest is vested.
William B. Esq., Attorney
Category: Legal
Satisfied Customers: 3260
Experience: Civil litigation attorney for individuals and businesses.
William B. Esq. and 8 other Legal Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
< Last | Next >
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
  • My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer. Eric Redwood City, CA
  • I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight. Michael Wichita, KS
  • PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent. Three H. Houston, TX
  • Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!! Elaine Atlanta, GA
  • It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem. Tony Apopka, FL
  • Not only did he answer my Michigan divorce question but was also able to help me out with it, too. I have since won my legal case on this matter and thank you so much for it. Lee Michigan
 
 
 

Meet The Experts:

 
 
 
  • Tina

    Lawyer

    Satisfied Customers:

    8436
    JD, BBA Over 25 years legal and business experience.
< Last | Next >
  • http://ww2.justanswer.com/uploads/MU/multistatelaw/2011-11-27_173951_Tinaglamourshotworkglow102011.64x64.jpg Tina's Avatar

    Tina

    Lawyer

    Satisfied Customers:

    8436
    JD, BBA Over 25 years legal and business experience.
  • http://ww2.justanswer.com/uploads/RA/ratioscripta/2012-6-13_2955_foto3.64x64.jpg Ely's Avatar

    Ely

    Counselor at Law

    Satisfied Customers:

    19941
    Private practice with focus on family, criminal, PI, consumer protection, and business consultation.
  • http://ww2.justanswer.com/uploads/FL/FLAandNYLawyer/2012-1-27_14349_3Fotolia25855429M.64x64.jpg FiveStarLaw's Avatar

    FiveStarLaw

    Attorney

    Satisfied Customers:

    8189
    25 years of experience helping people like you.
  • http://ww2.justanswer.com/uploads/jespoag/2008-12-17_222355_jessepic.jpg JPEsq's Avatar

    JPEsq

    Attorney

    Satisfied Customers:

    2132
    Experience as general attorney, in house counsel, SSDI, Family Law attorney, and law professor
  • http://ww2.justanswer.com/uploads/gsenmartin/2008-04-22_214950_me1.jpg Guillermo J. Senmartin, Esq.'s Avatar

    Guillermo J. Senmartin, Esq.

    Attorney

    Satisfied Customers:

    110
    7+ years of experience handling various legal matters.
  • http://ww2.justanswer.com/uploads/PA/PaulmoJD/2013-10-10_195858_JAImage.64x64.jpg Law Educator, Esq.'s Avatar

    Law Educator, Esq.

    Attorney

    Satisfied Customers:

    31621
    JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
  • http://ww2.justanswer.com/uploads/dkaplun/2009-05-17_173121_headshot_1_2.jpg Dimitry K., Esq.'s Avatar

    Dimitry K., Esq.

    Attorney

    Satisfied Customers:

    15975
    Multiple jurisdictions, specialize in business/contract disputes, estate creation and administration.