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A member of an LLC that had its newest member working through

a vesting period en route...
A member of an LLC that had its newest member working through a vesting period en route to become full partner has seen a new set of priorities in his personal life take him away from his responsibilities that were required by the founding members.
Assuming the newest member will accept the fact his opportunity to be an equal partner has now gone, how can the remaining founding members restructure the ownership to include the newest member in a new reduced role. The equity earned through the first few years of vesting cannot simply be negated. The founding members want to offer a way for the newest member to stay part of the business, just earn less salary and less equity.
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8/20/2013
Dimitry K., Esq.
Category: Business Law
Satisfied Customers: 41,221
Experience: Run my own successful business/contract law practice.
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Thank you for your question. Please permit me to assist you with your concerns.

That is a good question. Is the newest member willing to take on a reduced role? Is there a condition for this in the company's articles of operation?
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Customer reply replied 4 years ago

No condition in the company's articles of operation. It is a family business where the newest member has a new family of his own that require more of his attention that perhaps he even anticipated. He acknowledges his new set of priorities have cost the other members personal sacrifice as they "stepped up" to cover his absence. He is willing to accept a reduced role. The operation is 2 fathers and 2 sons. The two fathers founded the business with one of the sons. Seven years in the other son wanted into ownership. It is that youngest son that has the new set of priorities that are making him change his priorities to the business. The other members want him to stay on, as his skill set is valuable. But, the first son, founding member, wants to now have the exclusive option to buy out his own father, while the youngest member only gets the option to buy out is own. The result will be the one son that owns 2/3 of the business, to 1/3 for the other.

Thank you for your follow-up, Phil.

All the partners need to do is to reduce the conditions to writing, sign, date, and notarize the conditions. If the parties are all in favor of this imbalance and the reduced role, then such an agreement can be placed into the company records and it becomes binding. This is ultimately a purely 'in-house' decision and one that does not in any way violate the bylaws. Parties can legally modify each other's position and ownership stake. That is not difficult if the parties are all in agreement, it simply becomes potentially ugly and difficult if the parties disagree. Otherwise a written and notarized agreement denoting the change is sufficient, followed with a filing to the state where this company is incorporated with 'articles of amendment' showing the new ownership split of the shareholders.

Hope that helps.

Dimitry K., Esq.
Category: Business Law
Satisfied Customers: 41,221
Experience: Run my own successful business/contract law practice.
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