Legal Question in Business Law in California

Here is the situation,

A parent formed this LLC when we were minors. The GM is the parent who formed the LLC, he has 10%. There are four children in total also in the LLC as limited partners. each has 22.5%. Three of us want out of this, but the GM is not 'making it happen' so to speak. The GM continues to issue out K1's and simply says to file them with your taxes. The three of us that want out had no part in its actual creation and if we did we were -very- young at the time and could not possibly be held accountable or even knowledgeable of what we were doing. We are all over the age of 25 now and simply want out. We don't know what the articles of organization say. We are simply unwilling participants in this CA LLC now. Combined the three of us hold a 67.5% share of this LLC.

This LLC has been a nightmare for the three of us to deal with. We just want to hand any share or stake we have back to the GM who created this thing in the first place. We are uncertain as to what assets this LLC even has and have NO involvment other than being handed K1's just before the extended to October deadline to file our taxes year in and year out.

Is there a form we can file with -someone- to dissolve or surrender our position so that we can be done with this once and for all? We -really- want to avoid legal action but if there is no way to do 'self help' to get out and legal action is necessary, what are our rights to the remaining assets in the LLC? What if we believe the GM would move assets out of the LLC if legal action is done. The issues for wanted a simple 'hand it over' exit is we are tired of the control that this llc has given to the GM in our lives and we simply want it ended, we had no part in its making nor want any part of it unless we are pushed into legal action. Not sure if it matters but the LLC is a CA entity and the three of us that want out are all in different states.

Please help?


Asked on 8/14/09, 2:08 pm

3 Answers from Attorneys
Thomas W. Newton Tims & Newton

First, we need to be clear on what kind of entity is involved. When you say LLC, I presume you mean limited liability company. I mention this because you use the term "limited partners" as opposed to members - the term that refers to equity owners of a limited liability company. Working on the premise that we are talking about a limited liability company, the answer to your questions should be in the Operating Agreement. Arguably, as holders of over 2/3 of the outstanding membership interest, you should be able to simply vote to dissolve, unless the Operating Agreement establishes other requirements. You might want to take a look at California Corporations Code Sec 17350 - 17357 for the basic word on dissolution, as well as the Operating Agreement. If no operating agreement was ever prepared - quite possible since you were all minors and legally incapable of contracting - the provisions of the code should control.

I'd suggest you contact a California attorney who practices in this area and ask him or her to review the forming documents and advise on the most cost effective strategy.

Best of luck, and let me know if you have further questions.

Best,

Tom Newton

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Answered on 8/14/09, 2:41 pm
Nina Ortega

Under California Corporations Code section 17152(b) (which pertains to limited liability companies), any or all managers may be removed, with or without cause, by the vote of a majority in interest of the members at a meeting called expressly for that purpose.

You could send a written notice to ALL LLC members of the time and date of a telephonic meeting (provide a call-in number and code in the notice) to discuss removal of the current manager of the LLC and possible dissolution of the LLC. Be sure to mention in the notice what you plan to discuss at the meeting.

Hold the meeting, vote to remove the manager, vote in a replacement manager, then vote to dissolve (majority vote rules again unless an operating agreement calls for a higher percentage). If you vote to dissolve, then authorize the new manager to pay the debts of the LLC out of its assets and distribute whatever is left to the members and file forms LLC-3 and LLC-4/7 with the California Secretary of State to dissolve the LLC. The forms and instructions are online at the California Secretary of State's web page.

If you find that the LCC's debts exceed its liabilities, you might want to consult a bankruptcy attorney.

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Answered on 8/14/09, 3:15 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Ms. Ortega's advice is "right on;" I could not quibble with a word she's written. I might only add that the circumstances of the creation and operation of this LLC, with minors as a majority of the membership interests, is troublesome. I don't think I'd simply stick a pin in this balloon without first doing some poking around to figure out why it was created in the first place. Could be some family member was diddling the tax collector, or hiding assets, or doing some other unsavory thing. California's LLC law hasn't been on the books that long; when was it set up? Has it been running an active business, or managing assets acquired long ago? Is it a tax shelter? Are the folks that set it up around to answer questions? Are we talking $50K or $5 million is assets or income? What would be the tax consequences of terminating it? Are you better off just replacing current management and continuing the LLC?

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Answered on 8/15/09, 12:35 am


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