Legal Question in Business Law in California

Re: LLC Buyout

Properly document the change of status with a detailed written agreement between the parties, in accordance with the company bylaws and notice requirements to the state. Feel free to contact me for the legal help you need doing so. The goal is to make sure there are no openings for later dispute about what was agreed to.

Re: LLC Buyout

Check the Operating Agreement of the LLC to see what (if anything) it says about transfers of membership interests. (Most LLC Operating Agreements, including the boiler-plate forms, have such a provision.) If there is an agreement as to price and terms, it is a simple matter of documenting the transfer consistent with the Operating Agreement and filing some forms with the California Secretary of State. We can assist you with all of that.

Re: LLC Buyout

Check the Operating Agreement of the LLC to see what (if anything) it says about transfers of membership interests. (Most LLC Operating Agreements, including the boiler-plate forms, have such a provision.) If there is an agreement as to price and terms, it is a simple matter of documenting the transfer consistent with the Operating Agreement and filing some forms with the California Secretary of State. We can assist you with all of that.

Re: LLC Buyout

Check the Operating Agreement of the LLC to see what (if anything) it says about transfers of membership interests. (Most LLC Operating Agreements, including the boiler-plate forms, have such a provision.) If there is an agreement as to price and terms, it is a simple matter of documenting the transfer consistent with the Operating Agreement and filing some forms with the California Secretary of State. We can assist you with all of that.

Re: LLC Buyout

Well, you don't need a beforehand buy-out agreement to negotiate and carry out an "afterhand" buyout.

Just figure out how much you're willing and able to pay, and then sit down with the co-owner and negotiate the terms, including timing. I would recommend using a lawyer to document all aspects of the agreement and make sure the post-transaction amendments to the LLC's papers in Sacramento get filed, but if the total dollar value of the business is low, maybe you can do the documents yourselves.

If you don't plan to take on a replacement member, so that the LLC will become a single-member entity, it must be taxed as a pass-through entity for federal income tax purposes. Most likely it is already, but you should discuss the changes with your accountant or tax preparer.

If your operating agreement was written with language that assumes it will have two or more members, the agreement might need to be amended to reflect that it is now a single-member LLC; this is not a high priority, but you might be stuck with some awkward provisions that assume there are two of you when there is now only one.

There will probably have to be some accounting adjustments in the capital section of the balance sheet to reflect closing out the departing member's capital account.

Finally, think about whether the other owner is on any personal guarantees. In fairness to him or her you should try to get those guarantees terminated.