How to remove a partner from a LLC

Legal Solution

The response provided below is specific to Business law attorneys in the jurisdiction of San Diego. If the response is inadequate, please submit a detailed inquiry.

Dissolution of an LLC Partnership in San Diego

When two partners initiate a business as an LLC, they agree upon specific terms of operation, often codified in an Operating Agreement. The departure of one partner, especially when not amicably resolved, can lead to complex legal scenarios involving the divvying up of assets, responsibilities, and debts. The situation becomes even more challenging when one partner is reluctant to sign over their shares or to address pending financial obligations.

Relevant San Diego Business Law Provisions:

• California Corporations Code § 17701.10: Pertains to the formation, operation, and dissolution of an LLC.
• California Corporations Code § 17704.01: Discusses Operating Agreements and their relevance in the functioning of an LLC.
• California Corporations Code § 17705.02: Elucidates the dissolution process of an LLC when partners wish to part ways.

For detailed information, you can refer to the California Legislative Information website.

Potential Solutions:

1. Review the Operating Agreement: Your first step should be to thoroughly examine the Operating Agreement. If the agreement provides specific guidelines about a partner's exit, those need to be followed.

2. Arbitration: Since your Operating Agreement contains an arbitration clause, you might need to pursue this avenue to resolve disputes. An arbitration and mediation attorney can guide you through the process.

3. Buyout Agreement: If your partner is unwilling to sign over his shares, you can offer a buyout based on the fair market value of his 49% stake.

4. Division of Debts: It is advisable to come to an agreement on splitting the debts incurred during the partnership. If the partner refuses, legal remedies can be explored, especially if there's documented proof of agreed upon financial responsibilities.

5. Dissolution and Restarting: In extreme cases, you might consider dissolving the existing LLC and starting a new one. This would require addressing all debts and obligations of the current LLC first.

San Diego Business Law Attorneys Fee Structure:

Note: These are average costs and may vary depending on the complexity of the case and the reputation of the attorney. Some attorneys in San Diego might also offer services based on a contingency fee, especially in cases involving financial disputes.

Need Further Details?

While the provided information gives a preliminary overview, individual cases can have unique facets that require personalized attention. To delve deeper into the specifics of your case, it might be beneficial to find the right lawyer who can provide in-depth counsel.

Relevant Questions for Your Situation:

• Have there been any verbal or written commitments regarding the distribution of debts outside the Operating Agreement?
• Is there any valuation of the company done recently which can be used for buyout calculations?
• Are there other stakeholders involved in the LLC apart from you and your partner?

Frequently Asked Questions:

How can I ensure that my partner pays his share of the business debt?

If there's a written agreement on the distribution of debts and liabilities, it becomes legally binding. If your partner refuses to adhere, you can pursue legal remedies.

Can I continue operating the business without dissolving the LLC?

Yes, you can continue if you buy out your partner's shares or if you both reach an agreement that allows you to operate the business solo. However, you'll need to make sure all legal requirements, such as informing relevant authorities and amending official records, are met.

What happens if my partner and I cannot agree on a buyout amount?

In such scenarios, third-party mediation or arbitration, especially if stipulated in the Operating Agreement, can be sought. If no resolution is achieved, you might need to approach the court.

How long does the arbitration process typically take?

The duration varies depending on the complexity of the issues at hand. However, in most cases, arbitration can be quicker than traditional court litigation.

Is it mandatory to follow the arbitration clause in our Operating Agreement?

Yes, if the Operating Agreement has an arbitration clause, it's typically binding. However, certain exceptions might allow you to bypass it, depending on the specific terms and conditions mentioned.