Legal Question in Business Law in California

Going only on the facts given, I'd think a judge would probably decide that the "unwritten association" between the stepfather and the LLC amounted to a partnership between the stepfather and the LLC. Partnerships can be created by oral agreements or by mutual understandings that don't even amount to an oral agreement. The parties' conduct here amounts to a partnership between the two. Laws applying to the dissociation of a partner (and dissolution of partnerships, since his withdrawal would cause the partnership to have fewer than two partners and hence cease to exist) would then be applied to the subsequent split-up between the stepfather and your LLC. It is fairly clear that your stepfather didn't become a member of your LLC; that would have required an express agreement.

Laws pertaining to dissociation of partners and dissolution of partnerships can be found in the Corporations Code at sections 16601-16807. The partnership law as a whole starts at Corps. Code 16601. The earlier sections deal with formation of partnerships, partnership property, rights, duties and obligations of partners, etc. which are also important here.

I doubt that your stepfather is entitled to the business license or the business name, but he may be entitled to some compensation to reflect his financial interest in the dissolved partnership. This will depend upon what the books and records reveal about contributions to the capital, and to profits earned, etc., while the partnership was in effect.

Well, I am not as certain as my colleague regards to how the CA court would come out on the question but his analysis may certainly be the likely outcome. This is largely a very fact intensive question. It also sounds as if you intended that he be a part of the ongoing business (the LLC) and if he was holding himself out as a member of this company, administering its contracts and operations and you both were representing to the public as partners (members) in this business, I think this would change the analysis.

If you are very concerned, all you can do at this point is to consult a business lawyer in private and have him or her conduct a proper matter analysis considering any and all factors to arrive at a best course of action. If you would like to discuss further over a free phone consult, feel free to contact me anytime that is convenient.

Kind regards,

Frank

www.LanternLegal.com

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DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.

I agree with my colleagues. By not properly documenting your business relationship in the form of a proper LLC operating agreement specifying the rights of all parties, you are now left with trying to prove the terms of the now failed "deal". You need to consult with capable counsel to assist in tryinfg to unravel the facts in an effective manner to determine how to unwind the deal. Hopefullly you will not need to resort to litigation to resolve the disputes.

If the license and insurance are in the name of the LLC, and your stepfather is not a member of the LLC, he could not do business in the LLC's name. If he were to hold himself out as the owner of an LLC in which he is not legally a partner, that could be considered fraud. The fact that he paid the license fee has nothing to do with anything, legally. Third parties often pay license fees for business owners; that does not, in itself, convey any rights. Likewise for the insurance. The business is the insured, not your stepfather. If you are parting ways and haven't already paid him back the money he advanced, you probably should do that--if the intent of giving him 50% of the profits was to repay the loan, then it's done. If you don't want to continue in the business yourself, you could transfer ownership of the LLC to him (he should pay you and there is paperwork you need to do if you choose this).