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Richard
Richard, Attorney
Category: Business Law
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Experience:  32 years of experience practicing law and a businessman.
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What are the dangers or hurdles of dissolving an LLC under

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What are the dangers or hurdles of dissolving an LLC under the following scenario?:

Three founders/members with equal ownership interests formed an LLC in 2006. Now one member is failing to live up to his end of the bargain (essentially, he has just sort of "checked out" and won't agree to anything that moves the business forward). The remaining members would like to dissolve the LLC and then probably form a Corporation without the "checked out" member. The assets of the company amount to some pretty valuable intellectual property and some existing contracts. There are several loans and other debts, but nothing huge. The continuing members are willing to assume all debts and obligations. What are the concerns here? Thanks.

Good afternoon. I can understand your frustration, but I recommend you resolve whatever the issues are with this non-performing member now. I presume your Operating Agreement is silent on your right to purchase this person's interest or force him out due to a default. Here's the problem with dissolving....when you dissolve this entity, each member is going to have a right to that member's share of the assets. If the main assets are intellectual property, the two of you are not going to simply take 100% of these assets. As a result, now is the time to resolve this...if there are debts, then your willingness to pay these debts might give you some leverage. But, if you do nothing but dissolve and try to take these assets without the 3rd member's agreement, you are just asking for trouble down the road.

 

 

I hope this has given you the guidance you were seeking. I wish you the best of luck!

 

 

 

The information given here is not legal advice. As all states have different intricacies in their laws, the information given is general only. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

Customer: replied 7 years ago.

I understand what you are saying about resolving the issue. We are still trying everything we can in that respect. However, should we fail, how are IP assets distributed in this situation? This is an oversimplification, but could each member recieved a copy of ALL of the IP (software, customer list, etc.) and go on their way? In this case, it is unlikely that the lone member would chose to pursue the opportunity and even were they to do so, the other members and the remaining employees would be the onese the customers would be inclined to work with (since most of them aren't even aware of the existence of the 3rd member)?

 

I guess the botXXXXX XXXXXne of what I'm asking is how is the IP distributed in these situations? What is the best possible scenario for the remaining members? What is the worst?

That is what you would hope to do....distribute this property with everyone having ownership rights. What you would worry about would be that this other member would take the position that you really own this property in undivided interests and that it takes all of you to do anything with it. Your case would be strong, but you would hate to work to make this new company really successful and then have this guy in a position of being able to extort something from you or claim that you took a corporate opportunity for yourselves. If you cannot get an agreement, I would at least put him in a position where you distribute the assets with correspondence in writing that they are being distributed with everyone having a right to use them going forward....then you are on record as to your understanding. If he sits on his thumbs and does nothing, you will be in a better position later that he had no knowledge or idea what was happening.

 

 

I hope this has given you the guidance you were seeking. I wish you the best of luck!

 

 

 

The information given here is not legal advice. As all states have different intricacies in their laws, the information given is general only. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

Richard and other Business Law Specialists are ready to help you
Customer: replied 7 years ago.
I don't have another question. I just wanted to say thanks!

My pleasure. I wish you the best of luck. Going forward make sure your documents provide specifically for an ability to force out an owner such as this one! :)

 

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