HELP!: Selling LLC company after four years

Discussion in 'Starting a Business' started by StirItUp, Jul 8, 2012.

  1. StirItUp

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    May 6, 2012
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    I was involved in a three-person partnership when we began a company back in 2008. We created an LLC and now we are in a position where another company wants to "buy us out" while keeping us on as salaried employees. My question is whether or not the following is allowed:

    1. Can our LLC be 'sold' to this company if all three members aren't in agreement?
    2. If all three decide that this is a good idea, does the company have to hire everyone, or can it hire just one of the three people and basically 'screw' over the rest of those involved with the original LLC?
    3. Does the company that is interested in adding us on as employees have to first buy out the LLC?

    Any advice in this area, including questions I may have overlooked, would be great. Thanks in advance!
  2. ArcSine

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    Jun 2, 2010
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    The first Question should be dealt with in your LLC's Operating Agreement.

    Most OAs have a section focused on issues such as partners buying out each other, partner withdrawals, sales of member shares to outsiders, valuations of the entity in such events, and so on. Any limitations, restrictions, options, and rights with respect to a sale such as you've described should be defined here.

    Ques 3 is probably also dealt with in the OA, albeit perhaps a bit less directly, and in multiple locations. For one, your OA may provide that if a partner / member goes to work in some competing endeavor (such as being hired by this other firm), some form of penalty kicks in. Elsewhere in the OA there may also be a different provision that if a partner ceases providing X hours of good-faith service to the LLC per (week, month, etc.) then some negative consequence to the duty-shirking partner is invoked.

    Beyond such noncompete provisions you might find in the OA, state law (in which your LLC is domiciled) probably mandates some level of fiduciary duty from each partner to each other partner, such that going to work in a competing activity breaches such duty.

    Wrt Ques 2, the decision on who to hire is a decision of the acquiring firm; it's a decision separate and apart from any agreement between the firm and the partners to acquire their equity shares (or the bulk of the LLC's assets). An agreement to sell one's equity to a buyout firm, and to enter into an employment arrangement with such firm, are two separate deals.

    A good idea would be to have your attorney (if not the one who drafted your OA, then one with expertise in LLC and corporate law matters) review your Operating Agreement in light of the proposed arrangement with the other firm, and advise accordingly. The very last thing you want is to structure what seems to be a lucrative deal, then discover sometime later that it violated some overlooked provision(s) in your OA, and a disgruntled former partner is staking a claim.

    Bottom line: Review your OA carefully, then flip open your Rolodex to your attorney's number. Best of success with the deal, StirItUp!
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