Re: Leaving a Corporation

You are not a corporation. You are limited liability company. You should not sign anything unless you get paid. However, you are not in control if you are a one third partner. Your agreements must be reviewed before action can be taken to enforce any paymet to you. I suggest you consult with legal counsel. If I can be of any assistence please call me. Gerald Hershenson 215-579-9390

Re: Leaving a Corporation PART I

PART I OF II

Dear Desperate:

The short answer to your questions is:

1. Your LLC is not dissolved for failure to hold annual meetings and issue shares;

2. You have control over your membership interest but probably cannot sell that interest; and,

3. Your partners cannot take your interest without providing you compensation – whether or not the LLC dissolves.

The detailed explanation is:

You first need to review your Certificate of Organization and Operating Agreement. The Certificate of Organization (Cert. of Org.) is the document used to form the LLC. It must contain the name of the LLC, the registered office and the name of the organizer.

Additionally, it must set forth the following options:

(1) whether the interest of a member is to be evidenced by the issuance of certificates of membership. (Essentially the same thing as a stock certificate in a corporation);

(2) whether management of the LLC is vested in a manager(s). If the Cert. of Org. does not state the LLC is to be managed by manager(s) then it is member managed. The distinction applies to who has the authority to bind the LLC. If the Cert. of Org. designates management by manager(s) then only the manager(s) have the authority to bind the LLC. If management is by members, then all members are presumed to have the authority to bind the LLC;

(3) Effective date of the LLC;

(4) is this LLC a restricted professional company;

(5) incorporation of other partnership law (see, manager v. member managed); and,

(6) any restriction on type of business for the LLC.

The Operating Agreement will contain all of the information as to the affairs of the company and conduct of business. For a Pa. LLC, this is the equivalent to a corporation’s bylaws. The provisions of the Op. Agr. cannot override a required provision of the Cert. of Org. Pursuant to 15 Pa. C.S. §8901, et seq., certain provisions must be in writing.

Some of those requirements for a writing are:

(1) any agreement that less then unanimous consent is needed to permit transfer of a membership interest (§8924);

(2) a promise of a member to make a contribution to the LLC (§8931(b)); and,

(3) any agreement that less then unanimous consent is needed to amended the Cert. of Org. (§8924).

David L. Bargeron

Re: Leaving a Corporation PART II

PART II OF II

Your company’s failure to hold meetings and issue shares should not automatically dissolve the LLC unless otherwise specified in your Op. Agr. There is no statutory requirement that an LLC hold meetings or issue shares. However, if the LLC does not adhere to any formalities it might then offer very little liability protection. Essentially, failure to run the company as a separate entity results in the distinct possibility that the company will be considered a “shell” thus leaving the members open to personal liability.

You probably cannot sell your interest in the LLC. Unless your LLC is required to issue shares, your interest in the company is your personal estate and not a security interest. You can transfer your interest in the LLC but, unless otherwise provided in the Op. Agr., the transferee’s rights are limited to receiving distributions and return of capital to the same extent that you are. The Transferee does not become a member and cannot take part in the business and affairs of the company. Further, if you voluntarily disassociate from the LLC your action might cause the company to dissolve. If the company does not dissolve, your state and federal tax status may change from that of a partnership to a corporation. This also applies if your partners (other members) force you out.

You have certain rights upon disassociation. You are entitled to receive the “fair value” of your membership interest and any distributions due. The “fair value” of your membership differs from the fair market value. Fair value does not include any discount for lack of marketability of the minority interest.

Finally, why have you not received any distribution of income. You are entitled to your share of the profits as well as a return on your capital. You indicate that you have been providing 90% of the labor – you should have an idea of the company’s financial status. Any member who receives income for the LLC holds that income as a trustee and must provide an accounting for the other members. Where is the money going?