Legal Question in Business Law in California

I have an LLC with partners (4 at 25% each) in California that we just started a month or two ago. But we are finding out that one of the partner is an employee of a company we were going to discuss business with and it will be an ethical issue/conflict of interest, and he is deciding to stay at his current employer and renounce his share in our LLC. Unfortunately we also had him as the registered agent, so I am guessing we will have to file an amendment and statement of information with the CA Secretary of State. And we also have a bank account and paypal account that we established, which I am guessing will need the approved amendment/statement of information. So the question is if we reduce his partnership percentage to 1% (and have him as a non-working partner) is there still a conflict of interest issue or ethical issue?


Asked on 7/15/23, 12:53 pm

2 Answers from Attorneys
Frank Natoli Natoli-Legal, LLC

You state that there is some ethical issue, but you don't state what that is, If I understand you correctly, you are saying that one of your members (partners) is an employee of a company the LLC will do business with. This on its own is no problem. For example, my law firm of which I am a partner is free to contract with my restaurant for say catering where I am also a partner.

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Frank

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Answered on 7/17/23, 6:46 am

I totally disagree with Frank that it is no problem. However it is not an insurmountable issue either. The key is disclosure and transparency. If his employer and the four of you all agree that your LLC can do business with his employer, with full disclosure of all relevant facts, THEN there is no problem. If, however, he decides to leave the LLC, yes, you will need to amend everything, and probably should get a release from him. As for 1%, the disclosure and consent requirement applies to any percentage.

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Answered on 7/18/23, 9:48 am


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