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Does a 51% owner/partner in an LLC always trump the 49% owner/partner?
Anonymous3 views3 answers
The 49% partner runs the company and is paid a salary that is agreed in an operating agreement. The 51% partner may want to fire his partner beacuse he does not think sales have increased as much as they should have although the acceptable growth rate of the company is not defined in the agreement or in any subsequent agreements. The working partner has an employment agreement that can only be termintated for cause which is specifically defined. The 51% owner may contend that the lack of growth represents "cause". Can the 51% owner fire the other owner?
It depends on the Operating Agreement for the LLC. Some things require a majority vote. Some may require a supermajority vote.
In any event, if you fire them you are looking at a lawsuit and they still own 49% of the company.
Better to buy them out or be bought out.
The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The response does not form an attorney-client relationship, nor is it intended to be anything other than the educated opinion of the author. It should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question. To the extent additional or different facts exist, the response might possibly change. Attorney is licensed to practice law only in the State of California. Responses are based solely on California law unless stated otherwise.
I think contending that lack of growth or slow growth constitutes "cause" for termination is a stretch. Your LLC Operating Agreement sounds unusually detailed, so you should have it reviewed by a lawyer. Assuming the partners dispute the firing of the junior partner (and by the way, even if the 51% partner can fire the 49% partner, that doesn't mean that the 49% partner doesn't still own 49% of the LLC, it just terminates their management salary and duties), this could end up in litigation. Check the dispute resolution provision of the Agreement, and consider arbitration or mediation.
Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.
No attorney can answer your question properly without examining both the operating agreement and the employment agreement.
Keep in mind that the employment relationship and the LLC membership are two different things. Even if the employment relationship can be terminated, that does not mean that the 49% owner's membership interest also is terminated (absent an operating agreement provision to that effect).
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.
