If I’m a 33% owner of an LLC that is looking to become an S-corp of which I will not be a part, do I have any legal rights to a payout?

Before we filed our official paperwork to state the ownership chan2 (we brought on another owner), it was decided by the two members (collectively 67%) that I was no longer welcome in the business. Normally I would think a buyout of my portion would occur, but instead they want to dissolve the business and move all existing clients to another business in which I am no longer included. The payouts have not occurred and currently all we have is debt to distribute and the clients I have worked to gain will move to the new company once the existing one is dissolved.

Asked on November 3, 2014 under Business Law, Colorado

Answers:

Anne Brady / Law Office of Anne Brady

Answered 6 years ago | Contributor

When an LLC "becomes" an S-corp, it really only changes its tax filing status, from filing as a partnership to filing as an S-Corp.  The LLC is not dissolved in the process.  It is possible to dissolve an LLC.  If that is indeed happening, and you have an operating agreement or articles of organization stating that you own 33%, if the other two want you out, they should pay you for your third based on the value of the company.  If, however, the company has only debts and no assets, you are out of luck, and probably should be happy to be rid of your 1/3 share of the debts.


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