What proves ownership of an LLC if there is no operating agreement, no taxes, no by-laws?
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What proves ownership of an LLC if there is no operating agreement, no taxes, no by-laws?
I am part owner of an LLC. My partner and I never put together an operating agreement, and now he wants to marginalize me almost completely out of the company (from 50% to 10%). I’ve done all the work for the company, including being the only name on the Articles of Organization, the only name on the EIN and most correspondence. His name is with mine on the lease and bank account. Other than that he’s just put a few thousand dollars into the company. I’m not interested in working with him anymore. Can I unilaterally shut it down and keep the assets?
Asked on June 24, 2011 under Business Law, North Carolina
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 12 years ago | Contributor
You need to consult with an attorney, who can evaluate all the documentation and help you determine your rights and obligations.
Without an agreement, determining ownership is not necessarily easy. The first thing you would look to is the registration, when the LLC was formed and registered with the state; who does it indicate owns it on that paperwork? Presumptively, the person(s) named as owning it are the owners. It may be possible to overturn that presumption with other documentation (e.g. emails, correspondence, etc. discussing ownership) or other evidence (e.g. of investments, payments, etc.), but that would be an uphill fight.
In this case, if you are the only person on the paperwork creating the LLC, the presumption would be that you are the owner, not your partner. He'd be in the position of trying to show that he actually is an owner, notwithstanding the documentation.
Other issues, though, include matters such as the lease and the bank account. If he is a signatory to them, then he has rights (and obligations) in respect of them regardless of whether he is owner of the LLC. Furthermore, if he signed as an individual and you also signed as an individual (not clearly in your capacity as a managing member of the LLC), it may be that both own the bank account and its contents jointly as individuals, and you are both personally liable on the lease.
Given that there is property and a lease at stake, and the absence of an agreement muddies the waters, it is well worth it for you to bring all the documents to an attorney to review, who can help you figure out who owns what.
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