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dkennedy, Attorney
Category: Business Law
Satisfied Customers: 6009
Experience:  JD degree, business owner
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I have an LLC. One of the partners abandoned their interest

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I have an LLC. One of the partners abandoned their interest 10 years ago. Then he went out and started a new company doing the same thing. He made written defamatory statments about the partnership and competed with us. He also made claims in writing about his interest but never pursued them. There was a never a partnership Agreement. 10 years later he is asking for a third of the partnership. Is he entitled to it? Is there a statute of limitations that applies here?
Submitted: 8 years ago.
Category: Business Law
Expert:  dkennedy replied 8 years ago.



We need to get down to basics here. An LLC is a Limited Liability Company. It is NOT a partnership. There should be an operating agreement as to how to disperse funds. The operating agreement also should tell exactly what to do if one of the members want to pull out. They may or may not get their investment back. Once this type of company is set up and registered with the State of California, there are rules and regulations that must be followed. I would assume that your LLC is set up "perpetually" which means forever. I don't know how you pay out profits or anything like that, but perhaps the other members should figure out what your operating agreement says in a case like this (hopefully you have developed an operating agreement). He is not entitled to just get a check for a chunk of money.

Customer: replied 8 years ago.
Thanks. There is no operating Agreement. Just someone who is there at the begining made a lot of promises and never delivered.
Expert:  dkennedy replied 8 years ago.

Hello again,


Yes, I have had several clients who have experienced the same thing. It sounds like a good deal at first, but they put nothing into the business, or worse yet, take from the business.


FYI--It is not too late to compose an operating agreement. It does not have to be registered or filed with the State. You just need to check with the Sec. of State's website (Cal.) and see if the laws require you to keep a copy at the principal place of business, or some other rules. Other than that, the cooperating members can formulate the Operating Agreement and that is what the business will have to go by. Good luck.

Customer: replied 8 years ago.
Is there a statute of limitations that bars recovery after an ownership intrest is abandodned. This person will never sign it.
Expert:  dkennedy replied 8 years ago.

Hello again,


You are using the term "ownership interest", but I don't know that it applies to an LLC. If you set up the LLC with such stipulations, then possibly it does. But, think of the LLC as similar to a corporation. If you buy a thousand shares in a new corporation and decide you don't want to own the shares any longer, the corporation is not obligated to pay you a portion of what the corporation is worth. You have to go by the rules and try to sell your shares. Who "owns" IBM, Microsoft, or GMAC? No one in particular. If they had to pay a chunk of money from the company everytime someone felt like asking for it, the companies would go under and a corporation, or even an LLC would be worthless.


In an LLC, if you want out, you have to go by the rules. No one is necessarily obligated to pay you a portion of the company's value.


Again, I want to emphasize--this is not a partnership where everyone is an individual owner. You may set up the LLC like that, but it would be foolish to do so. The company would be unstable. Example: What if I wanted to start an LLC as some sort of a Legal Business. Myself and 2 other people put in $50,000 each and registered with the state and all. I buy furniture, rent a building, put advertising out there, hire help, etc. Then, a few weeks later, the other 2 want me to pay them back their money because they changed their mind. The business would be "out of business". That is one of the advantages of these types of business organizations. They can go on even if one of the members does not. He took the chance. I'm not saying he doesn't have something coming, but he needs to go through whatever channels your LLC requires and get paid whatever the members (through the Operating Agreement) decide he has coming.


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