LLC Ownership Without a Written Agreement

**answers123** · 03-03-2012, 10:35 PM

My question involves business law in the state of: llc agreements I currently started a business with my name solely on the llc agreement we were in the process of taking on a partner who was putting up working capital all our agreements were oral so far as the operating agreement has not been done yet we recently found out the partner althought he put in 20000 has now stolen my idea and is in business for himself and still demanding his percentage of my business without him being written into an operating agreement or the llc can i just cut him loose without him being owed anything or does he have the right to come after me for his percentage of the company?

**Bubba Jimmy** · 03-04-2012, 11:33 AM

You mean this person just handed you $20,000 with nothing in writing? Okay, what ownership did you verbally agree to? What state are you in? Do you believe you can just keep his $20,000 and not fulfill what you agreed to? Without any written agreement, he stole nothing from you. You didn't bind him to confidentiality or noncompetition it seems.

It sounds to me like you are the only one not wanting to live up to what was agreed. Who is supposed to be the thief here?

**llcagreement** · 04-25-2012, 10:37 AM

an llc without an operating agreement, any attorney will tell you that you are on thin ice

**Conrad Hunter** · 04-27-2012, 09:23 PM

On thin ice is an understatement. However there are also some good things about the lack of an agreement at this point.

An LLC must have an operating agreement with more than one partner. Otherwise it is a partnership and all partners own equal shares. I could also pierce the liability veil of an LLC without an operating agreement in a heartbeat and take everything you have.

Currently I have an appeal that is likely to strip liability protection from LLC's using fictitious names that are not registered as the law requires with the Florida Secretary of State. I have oral arguments May 4th in fact. Not going to explain the law argument, you can wait for the published opinion.

Your best bet is to figure what the investment is worth in relation to the value of the company as a whole, and what sort of a return it should get. Have an attorney advise you and write up an operating agreement. Try to get him to sign it. If no, probably go to court and ask the court to decide who gets what.

But then why should you work for the LLC to benefit him when he is not doing the same thing. No court is going to force you into an inequitable situation.

Or, risky plan if he has lots more money. Set up a proper LLC or better yet a Corporation (I hate LLCs) without him. Notify your customers you've changed the name of your business and do busness as the new company, with new employer number, new bank accounts, etc. doing to him basicly what he did to you.

You need the advice of a business attorney before doing anything. I am not your attorney.

Basicly though, without an operating agreement, you owe NO DUTY to the LLC. You created the business and obtained the customers, he didn't. You have no duty to work for the LLC. You have no duty to earn money for the LLC. You owe no duty as there is no agreement creating one. It is obvious by what he did that he doesn't think he owes the LLC or you any duty. If it went to court there is no way he can claim you owe the LLC any duty when he does not. Considering he is competing against you, he obviously is demonstrating he has no duty to the LLC and it would be impossible in every legal sense for him to enforce any duty against you.

Corporate law is well established. LLC law is not. Look at it this way. The LLC is a partnership with third party liability protection. A partnership would need a partnership agreement which is basicly the same thing as a LLC operating agreement.

Without it, there is no proof as to who owns what or who gets what if the LLC is dissolved. It can be argued the LLC is invalid without an operating agreement. I would not work for it a minute longer than I had to.

**Bubba Jimmy** · 04-28-2012, 10:07 AM

So you think tje PP can just take this guy's $20,000 and give him nothing whatsoever of value in return? I'd love to see you defend that one in a courtroom.

**Conrad Hunter** · 04-28-2012, 06:13 PM

I am not saying that exactly. My first suggestion is that they work out an operating agreement that is equitable.

If that didn't happen, something would have to be worked out with the $20,000.

Why anyone would invest 20k in an LLC without an operating agreement or a loan agreement is beyond me.

Then why said person would go and compete and basicly sabotage his own investment is another head scratcher.

Of course we are only getting one side.

An LLC is not a corporation. It cannot sell stock. The 20k is more a loan than an investment if the investor is not a partner or member legally in the LLC. An LLC can have members that are not managing members. In this case both parties are idiots.

I was presenting some options, but of course do not know the entire story. We don't know what the investor got, if anything. Maybe he got access to all the info on how the business works, customers and other trade secrets that allowed him to go independent and compete. One could argue then that he got what it was he really wanted out of the LLC.

This is all spectulation without having much more information. That is what I am doing, thinking outloud. I am not the guy's attorney but I could make a good argument that would seriously diminish that 20k.

**Bubba Jimmy** · 04-28-2012, 06:30 PM

Well, I'll just say this. If I put $20,000 into a venture foolishly without an agreement and then discovered that the other principle did not even put my name on the articles of organization as a member of the LLC, I'd try to squeeze anything of value I legally could out of the situation, particularly if he indicated he had no interest in giving me my money back as the OP did in this case. With no anticompete/confidentiality agreement that wouldn't be hard to do.