Legal Question in Business Law in Colorado

LLC co -owner wants out

If a member of an LLC (three members) wants to leave what is he entitled to? He is arguing that he should get (1/3)of money the business spent on marketing, vehicles etc.--from the past three years he was a member! The two remaining members believe he is entitled to 1/3 of our bank account and assests MAXIMUM. He states that he wants return on his investments, when really it was the LLC that invested with our earnings on things like maketing, tansportation etc. He's asking for more the company is worth if we just shut it down and went our three ways. How does this work? My gut feeling is that he is not entitled to anything we don't have now.

Asked on 1/09/07, 12:13 pm

2 Answers from Attorneys

V. Iyer Iyer Law Office, L.L.C.

Re: LLC co -owner wants out

This matter is, generally, governed by either mutual agreement or by the terms of the Operating Agreement.

In the absence of agreement or operating agreement the opting member is entitled to only his net capital interest in the LLC valued at fair market value. Net Capital Interest is the FMV of all assets of the LLC minus the liabilities to third parties. He gets his 1/3 share of such result.

He cannot get 1/3 of operating expenses unless such expenses were incurred ultra vires the LLC or under certain limited circumstances.

I do handle such matters. If you are interested in seeking legal counsel, please contact me at

Venkatesh Iyer

The Iyer Law Office, LLC

10170 E. Mississippi Ave

The AllCare Building

Denver, CO 80247

[email protected]

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Answered on 1/10/07, 11:23 am

Re: LLC co -owner wants out

First of all, do you have an operating agreement? If so, and assuming it was signed by everyone, the LLC Operating Agreement should tell you what the formula is for valuing the membership interest of the departing member.

If you don't have an operating agreement, then the Colorado default rules kick in. Under those rules, the withdrawing partner is not entitled to force the LLC to buy back his interest. He is entitled to receive his interest in the distributions of the LLC, but is not entitled to vote. And, he can still sell his LLC interest, although that's a hard thing to do.

Feel free to give me a call if you need any legal services in this regard.

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Answered on 1/09/07, 1:29 pm

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