Legal Question in Business Law in California

Partnership Buy-Sell or Dissolution?

I am a 50% partner in an LLC. I want out of the partnership. My partner will

continue on using the business name. We have no assets, no equity, no

debts, etc. I am currently winding up the '05 taxes.

I've been told that I need a Buy-Sell Agreement by one law site and a

Dissolution by another. Each of these forms can be purchased online and I

don't feel that I need an attorney to handle this as our company is not a large

business (zero employees) or profitable. I would just like to get my name

cleared of the partner's and/or the company's as soon as possible.

What form do I need and where is the best place to obtain it? I've also been

told that nothing needs to be filed with the State of California. Does it just

need to be notarized? Also, my partner is not living in California at this time.

How do I proceed with getting his signature on it? Will it have to be notarized

here (in CA) when I sign and there (in Wis) when he signs?

Asked on 2/01/06, 3:04 pm

2 Answers from Attorneys

Christopher M. Brainard, Esq. C. M. Brainard & Associates - (310) 266-4115

Re: Partnership Buy-Sell or Dissolution?

I understand your preference to do things ine expensively and to not use an attorney. The reality of the situation is that either of these forms might be part of a correct solution, but neiter will be enough. You will need an attorney if you expect to have this done correctly and with any kind of finality.

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Answered on 2/01/06, 4:11 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Partnership Buy-Sell or Dissolution?

First, an LLC isn't a partnership for legal purposes in California. It's a different sort of animal, and the means by which an LLC is dissolved, or its membership changed, or its business wound down, is very different from a general partnership, and the personal liability aspects are also quite different.

Note that for Federal tax purposes, LLCs are often treated the same as partnerships -- and the fact that you're filing partnership tax returns may be confusing.

I assume, then, that the business is indeed an LLC and that it was formed under California law. If formed in Wisconsin or anywhere else, I cannot advise you and the following information should be disregarded.

1. An LLC is officially recognized when it files a Form LLC-1 "Articles of Organization" with the Secretary of State and the filing is accepted. The LLC-1 specifies the LLC's name, its agent for service of process, and whether it is managed by one manager, more than one manager, or all its members. You should verify that there is an LLC-1 on file, and what it says.

2. Changing the information on an LLC-1, once it is filed, is done by filing a Form LLC-2, "certificate of Amendment."

3. In addition to the Articles of Organization, every LLC must have an "Operating Agreement," which is the LLC equivalent, more or less, of a corporation's bylaws. See Corporations Code sections 17001(ab), 17005 and 17059. The Operating Agreement defines the relationships between the members (owners), sets forth how the LLC is to be managed, etc.

4. You need to look at the LLC-1 to determine whether your withdrawal will require filing an LLC-2 or not. If your withdrawal doesn't render anything on the LLC-1 incorrect, I see no need to file an LLC-2. Otherwise, the LLC must file an LLC-2 to amend the original LLC-1. By the way, you should determine whether any prior LLC-2s have been filed!

5. See Corporations Code section 17252 re the withdrawal of a member from an LLC. An LLC member can withdraw at any time by giving written notice to the other members. You will see that the right to withdraw may be subject to a claim for damages IF such withdrawal breaches the operating agreement. Nevertheless, you can still withdraw.

If you have further question, or if this is not a properly-formed LLC, please contact me.

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Answered on 2/01/06, 4:59 pm

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