Legal Question in Business Law in New York

Re: Disengaging from an LLC

Your membership units cannot be taken away from you, based on the facts that you have presented. Your resignation deprives you of a voice in management.

You will pay income tax on your share of the profits, but the management may decline to distribute the cash.

Re: Disengaging from an LLC

I think the thing you may be concerned about is dillution -- the other members issuing new membership interests to themselves or a third-party and, therefore, reducing your position (and thus the price you can command for your holdings). Your operating agreement typically will cover how new investments are accomplished.

Assuming that there are reasonable protections in the operating agreement you should be able to do this (withdraw) rather easily. A complete review of the agreement, including any and all amendments to it, should be done ASAP to assist you in framing and executing an exit strategy to maximize your gains, minimize your taxes and maintain/salvage as much of the relationship between you and your (hopefully soon-to-be-ex) co-venturers as you care to. If you'd like more assistance please don't hesitate to get in touch.

Re: Disengaging from an LLC

Mr. Friedman is quite correct in his response, you need to review your operating agreements, which it sounds you have done, or begun to do. However, I doubt that your concern is that of being diluted by the other members. What you describe sounds like a typical right of first refusal provision, the terms of which you will need to comply if you want to sell your equity interests in the LLCs. The issue of resignation may be two separate issues, 1) resignation of any office or management position you hold with the LLCs, and 2) your status as a member of the LLC. These are separate matters. Without reviewing the agreements, it is not possible to say with certainty, but absent any provision that would require you to forfeit your equity interests in the LLCs upon your resignation from any office or management position you may hold with the LLCs, your equity ownership should not be impacted by your resignation from such office. You will remain a member of the LLCs as long as you own your equity interests in the LLCs, and your rights as a member should not be impacted by your resignation from any office you may hold with the LLCs. We would be glad to review your agreements, should you desire further consultation regarding this matter. Please do not hesitate to contact us at [email protected]. We would be pleased to assist you.

Re: Disengaging from an LLC

All other replies are accurate, and a reading of the Operating Agreement is required for a complete answer to your question. It appears that the Agreement may not have covered all possible reasons for terminating one's interest, such as the voluntary withdrawal you are proposing. It appears there is a procedure in effect (the right of first refusal) that should cover this situation. The main concern is that if the Agreement has no formula for evaluating an interest, your minority position will probably be subject to a discount to true value, usually by as much as one-third. I would be prepared for some tough negotiations. Also, I suggest that if a deal is made, a written agreement between all parties be made to cover things like indemnifications of LLC debts (particularly if you have issued any guarantees on behalf of the LLC), notification to creditors (even if there are no guarantees) and the like. I have several clients who have been in your position and are still haunted by creditors. This is a response to an Internet question and the reply is not intended to be legal advice or create an attorney-client relationship. Undisclosed facts may have produced a different response.