Legal Question in Business Law in Maryland

Re: company ownership 50/50 between 2 partners

1. Disolve the Maryland LLC, by filing Articles of Dissolution.

2. Instead create a Delaware LLC.

3. You need a well written operating agreement. Most good LLC operating agreements between 2 or more people are about 40 to 70 pages long. Anything less than that is probably missing critical pieces such as tax matters, additional capital contributions, maintanence of capital accounts, deadlock, what to do in the event of death or disability of one of the members, etc. If you do not have a critical provision, there is an 80% likelihood that it will cost you about $250,000 in lawyer's fees in litigation.

4. Other agreements depending on the nature of your business.

5. Qualification to do business as a foreign LLC in Maryland.

Please read the following as to why:

First, I do not recommend that you establish the business in Maryland. Why? Any member of a Maryland LLC can petition the court at any time to dissolve the business on the grounds that its is in operating in accordance with its Articles of Organization or its Operating Agreement. This is called "business break up litigation". Business break up litigation costs $250,000 per person. 80% of all co-owner businesses break up. It takes a year to get a judgement in a Maryland court on these matters.

Instead the LLC should be established in Delaware! Delaware only allows a dissenting member to request dissolution if the LLC is not following its Operating Agreement. Therefore, there are fewer reasons to request dissolution. Also Delaware allows the members of an LLC to provide for an alternative to business break up litigation, so long as it is fair to all members. This could save you $240,000 in lawyers fees in the event of any dispute. Also if you do go to court in Delaware, the court of chancery decides most disputes in less than 8 weeks. Remember you have an 80% likelihood of getting into a dispute.

Also any member of a Maryland LLC can withdraw at any time, unless the Operating Agreement prevents it. In contrast Delaware says no withdrawal unless the operating agreement permits it. Section 708 of the Internal Revenue Code says that an LLC is terminated if 50% or more of its members withdraw, thereby triggering capital gains tax.

I wish you the best of luck.

Re: company ownership 50/50 between 2 partners

An LLC does not have shares. Your lawyer (don't set up a business without one) will prepare an Operating Agreement establishing the ownership of the company and other terms for its operation.