Legal Question in Business Law in Maryland

Out of Control Partner

I am a 50% owner of a LLC in Maryland. My partner is an alcoholic. He got out of rehab in May 2006. By July he is drinking again and I can prove that he is doing cocaine. When he first got out of rehab we agreed that he would get a monthly salary for working full-time. He has never worked full time and has continued to pay his bills with company money for the last 7 months. He takes money out of the ATM at will to pay for his liquor. And normally doesn't stop until the bank account is dry. I just found out that even when we are out of money he is now cashing post-dated checks with the local bar owner. I have talked, threatened, begged him to stop but since I am only 50% owner I am not sure what I can do legally. This is my first business venture (his third) and now I am finding out that he ruined his other companies and partners for doing the same thing. I could really use some legal advice since I believe legal action is the only way to save this company.

Asked on 2/12/07, 11:13 am

3 Answers from Attorneys

G. Joseph Holthaus III Law Offices of G. Joseph Holthaus

Re: Out of Control Partner

You should protect your interests. Your partner needs to address his addiction. You cannot force your partner to improve.

This being said, there are several alternatives such as having the partner voluntarily agree to certain matters, adopting appropriate restrictions with the entity's articles, seeking judicial remedy, or dissolving the entity. There may be limitations which preclude certain options and other options may apply.

You should speak with an attorney.

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Answered on 2/12/07, 6:21 pm
Steven Rinaldi Steven D. Rinaldi, P.C.

Re: Out of Control Partner

Your partner is taking money from the business and it is causing the business to be unable to pay its creditors in a timely manner. The Company could file litigation against your partner requiring him to return the contributions. Mayland law, and all other state LLC laws prohibit any distribution to any member of an LLC that would render the company insolvent. The problem here is practical. Your partner may not be able to return the distributions, because he has spent the money on alcohol and cocaine, and has no money to return.

You could petition the court to disolve the LLC claiming it is no longer functioning due to the acts of your partner. This option can be very expensive, if your partner contests. As a practical matter, he may not be able to contest, because he has already spent the money on alcohol and cocaine.

Another option is to buy him out, if your operating agreement permits. Each of you appoints a valuation expert, and the valuation experts come to an agreement on the value of the business. You pay your partner 50% of the value for his membership units. Because the business is insolvent, you may be able to buy him out very cheaply.

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Answered on 2/13/07, 11:59 am
Jay Holland Joseph, Greenwald & Laake, P.A.

Re: Out of Control Partner

Of course you are in a difficult situation, and likely makes continuance of this business entity impossible. There are legal ways under Maryland law to dissolve the LLC or even limit your partner's participation. If he is not willing to do this voluntarily, you can have a court order this. Hopefully, you will be able to pick up the pieces of the LLC and continue without him. Please let me know if you need further assistance.

DISCLAIMER: The response to this inquiry does not constitute legal advice, or the establishment of an attorney-client relationship.

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Answered on 2/12/07, 11:24 am

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