LLC, 3 members, 1 wants out


2

I am a member of an LLC along with two others. We each own 33% of the company and have invested very little.

One of the three members has expressed interest in cashing out, severing all ties to the company, and signing over their 33.3% share.

When this takes place, I am wondering if this member can sign their share over to ONE of the remaining two members exclusively (making it a 66/33 split), or must their share be folded evenly back into the company (making it 50/50 between the remaining two)? What sort of rights does this person have when deciding what to do with their 33%?

LLC Legal

asked Jan 11 '12 at 17:16
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Rachel557
11 points

3 Answers


4

No one can answer your Q (from the legal perspective) because you have not provided sufficient information. The two critical questions are:

  1. What does the Operating Agreement say about transfer of members' ownership interests?
  2. If the OA does not address this issue, or if there is no OA, then what does applicable state law say about this issue?

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

answered Jan 12 '12 at 06:42
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Dana Shultz
6,015 points

1

They have all the right. They OWN their share. They can sell it to a third party. Unless you have contracts in place for this situation, in which case you should know.

So, normally, they would sell the shares to other people.

answered Jan 11 '12 at 20:49
Blank
Net Tecture
11 points

1

The basic process here is that you have to reach a fair/agreed upon valuation of the company.

For round-number purposes, let's say the company is valued at $99,000.

Each person therefore owns a stock allocation that has a value of $33,000. Like almost any other asset, the owner of those shares can sell them to anybody in whatever manner they like. The could even sell them for $20,000, or $50,000, provided they had someone willing (or only able to) give them those values for their shares. They could sell some shares to one person, and another set of shares to another person, in equal or non-equal proportions.

Most company partnerships in this regard will have put bylaws into place that discuss what can or cannot be done with stock in a situation like this. You generally can't TOTALLY control what can be done, but you can usually have a "right of first refusal" in place, where the other existing stock holders have first preference to buy the shares, should an existing shareholder opt to sell their shares.

answered Jan 12 '12 at 05:58
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Brian Karas
3,407 points

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