Legal Question in Business Law in California

Re: Getting out of an LLC

You need to file to have the LLC dissolved with the secretary of state. You should retain legal counsel to effectively handle this with or for you asap.

Re: Getting out of an LLC

Before you engage counsel, take a look at this link and review it carefully.

http://www.ss.ca.gov/business/llc/forms/llc-3_4-7_4-8.pdf

It sounds like you may be eligible to file the short firm (LLC-4/8) to dissolve the LLC. I would do everything you can to ensure the taxes are paid, and then if necessary, you can pursue reimbursement from your partner.

If you still would like to discuss your situation, feel free to contact me via phone or email.

Yours truly,

Bryan Becker, Esq.

877*201*8728

[email protected]

Member, National Association of Consumer Advocates

www.naca.net

Re: Getting out of an LLC

It isn't necessarily as simple as you filing a piece of paper. You may not have the power to do the filing singlehandedly.

The law governing LLCs is found in the Corporations Code. The dissolution provisions begin at section 17350, which lists three ways to trigger a dissolution; of those, 17350(b) may be the most relevant here, and it requires a majority vote. Since each member of an informally structured two-person LLC is likely to have a 50% interest, there is no majority and neither member acting alone can dissolve the LLC. In other words, an LLC isn't dissolved by filing a form. Filing the form is only a means to report a dissolution when one has occurred.

The starting point here is to read the Articles of Organization and the Operating Agreement, which in some cases can vary the application of the statutes to the LLC's management and affairs. For example, the Operating Agreement can modify the right of a member to withdraw, or his obligations to the LLC upon a withdrawal. Hopefully your LLC has a written Operating Agreement (section 17001(ab) and 17059). See also section 17005.

Unless the Operating Agreement provides otherwise, the right of a member to withdraw from an LLC is spelled out in and governed by Corporations Code section 17252. In general, when you withdraw as a member you aren't entitled to return of your invested capital, but you do continue to hold an economic interest in the LLC even if, after withdrawal, you no longer participate in its affairs and no longer vote.

I would say that dissolving the LLC might be your better bet if you can do it, but if you lack the power to force its dissolution, at least exercise your right to withdraw. Despite the limitation on liability given LLC members, the IRS can and does penalize individuals within corporations and LLCs who violate the withholding laws, making them personally liable for 100% of any withholding taxes due and unpaid. Withdrawal as a member gives you much better insulation from the remaining member's wrongdoing.

As I say, you should start by reading your LLC's Operating Agreement and at least the above-cited sections of the Corporations Code.