Legal Question in Business Law in California

Then you need to close or split up the business and have a clear written agreement as to the rights of each partner, BEFORE you take any action that would get you sued. If serious about hiring counsel to help in this, and if this is in SoCal, feel free to contact me.

Well, you could end up owing him (and his lawyer) a bunch of money in the wake of his lawsuit for breach of fiduciary duty. People who are in business together owe a legally-enforceable set of duties to each other and to the company. See, for example, Corporations Code section 17704.09(b)(3): "A member's duty of loyalty to a limited liability company and the other members is .... (3) to refrain from competing with a limited liability company in the conduct or winding up of the activities of the limited liability company."

An LLC can be dissolved by a court when the owners are deadlocked, as appears to be the case here, where you have two equal owners who cannot agree on how the LLC is to be managed and run. See Corporations Code section 17707.03(b)(4) allowing judicial dissolution when the LLC management is deadlocked or subject to internal dissention.

Another route that might be looked at is whether the LLC's organizational documents provide any ideas; e.g., perhaps the non-contributing member is in violation of his duties under a management agreement, or perhaps his ownership interest could be diluted below 50% by a capital call that he wouldn't respond to, or something else of this sort.

Finally, if the guy just isn't very interested in the company, you could offer him a buy-out or something of that sort -- it wouldn't have to be all cash up-front -- or see if he would be amenable to bringing in a third member (one that you could work with). There are a lot of possibilities that are better than going into competition, Making a final decision which way to go would require knowledge of the guy's personality, the depth of everybody's pockets, the size and prospects for the business, and other factors that can't be lifted from an on-line question. Please feel free to contact me for a free consultation, if you wish.