Legal Question in Business Law in California

Re: Spouses and LLCs

The answer to the first question is "no". The statement is not true.

The second question is vague, in that I would need to know what kind of "spouse contract" you are being asked to sign. But I suspect it is an acknowledgment or release of some sort, because since this is California, (and absent any other facts to the contrary), your spouse's interest in the LLC is community property.

Re: Spouses and LLCs

No. You have no say in running the company and no responsibility for its actions. But depending upon when you were married and when/how the LLC was formed, your spouse's shares may be community property. If so, any future divorce action between the two of you could be quite disruptive for the company.

The company understandably wants to avoid such problems, but the rights you are being asked to give up are valuable and may become much more valuable if the company does well. Think carefully before you sign anything, and have a consultation with an attorney if you can.

Re: Spouses and LLCs

The previous answers are correct. Maybe a couple of additional thoughts would clarify matters for you.

LLCs have two kinds of "interests" or "rights" in them. The first kind is management or membership related. People with these rights get some say, by vote or by day-to-day executive authority (per contract) to run the show. The other kind of interest is an economic interest or right, i.e. the right to share in profits or get a distribution if the LLC is liquidated.

Most often, but not always, these rights are combined at the outset, and each founder gets an equal share of both sets of rights. However, over time, the bundles of rights tend to get split up, due to deaths, divorces, buy-outs, and the like.

When this happens, the successors (heirs, etc.) necessarily succeed to the economic rights, but don't get the management rights unless and until they're voted in.

The spouse contract recognizes that you will have an economic interest in the LLC by virtue of community property being invested, but that you won't have management rights, for whatever reason -- and the boys have a legal right to set it up that way; they can freeze their spouses out of management, but not out of an economic interest concomitant with their community=property interest in the money invested.

That's my take on the thing you're being asked to sign -- without having read it. I suggest that YOU try to re-read it and undersand at least the general drift of it; if it doesn't pass the "smell test," hire a local business lawyer to advise you.