Legal Question in Real Estate Law in California

Re: Llc

First, let me start out by pointing out that California law recognizes three categories of what you call "partners" in an LLC. (They aren't really "partners," because only a partnership can have partners in the true sense).

The three categories are (1) manager members; (2) members who aren't members; and (3) persons who hold economic interests in the LLC's profits but haven't become members.

These categories are defined in Corporations Code section 17001(w), 17001(x), and 17001(n), respectively, and other sections of the LLC law spell out very different rights and duties for each category.

So, one approach might be to start by finding out if the lender would be satisfied just to have the two objectionable persons step out of managing member status and agree to be only non-managing members. This would probably be the least disruptive and expensive for the LLC. Another option would be to have these two withdraw as members so that they no longer have any voting, etc. powers, and let them keep their economic interest. They would be "neutralized" as having any control over the LLC, but would continue to share in its profits, much like a corporate shareholder who has given someone an irrevocable proxy to vote his shares.

These steps should be less expensive than buying out the members, but ultimatley it depends upon their willingness to be "bought down" in status.

Ultimately, whether the three members who would remain can buy down or kick out the two objectionable members will depend upon at least three things: (1) What the formation documents say, e.g. the LLC-1 and subsequent documents filed with the Secretary of State; (2) probably more importantly, what the Operating Agreement and any other private contracts between the members say about such matters; and (3) whether the two objctionable members have done anything where the law would give you some assistance in getting them out, such as commit a felony, breach of fiduciary duty, or file bankruptcy.

There is no way to give you fully dispositive advice without a careful interview and reading all the LLC's formation and control documents, but this may point you in a useful direction. It is not easy to kick members out of an LLC without their consent - it's a business, not a social club.