Removal from an LLC

[smglass]

What is the name of your state (only U.S. law)? PA

Here's the deal, I formed an LLC in 2007 with an associate. Ultimately he became dead weight and wasn't working out, so I offered him a buyout. He didn't take. I gave him some time to try again and, well, he still wasn't working out. So, I took the agreement I offered him and reversed the names, removing myself from the company. I had this signed and notarized by the director of our county Business and Industry organization. I explained it and gave it to the fellow member of the company. He said he would review it and send a signed copy back notarized.

That was in June of 08. I recently found out that he is still using my name with the company and that I am still on the docket as a member of the LLC. In PA you cannot be an LLC unless you have two members. If he would have removed me it would have become an s-corp.

What should I do now that I found I am still 50% owner of this company in the eyes of the state?

I know two of my options are as follows:
1. spend the $70.00 and file the paperwork to dissolve the company
2. request the books of the company since June and request HALF of the profits gained by the company

Any suggestions PLEASE??? This may ultimately effect my taxes, credit and business accumen in the state of PA.

 

[JoshDom1898]

"In PA you cannot be an LLC unless you have two members. If he would have removed me it would have become an s-corp."

Please quote me the PA statute which says this...I really doubt you'll find it since I didn't and I called the PA Secretary of State and they confirm you can have a sole member LLC (every state can).


"So, I took the agreement I offered him and reversed the names, removing myself from the company. I had this signed and notarized by the director of our county Business and Industry organization."

You should not have done this. You need to check your Operating Agreement to see how you can remove yourself from the LLC. Unless he agrees to it, generally, you can't remove yourself as a member of an LLC.

"2. request the books of the company since June and request HALF of the profits gained by the company"

You can request the books of the company, however, you cannot FORCE the Company to make a distribution to you as distributions to members are generally in the Company's discretion. You are still entitled to them though. Aren't you employed by the Company as a w-2? How did you work for the company? 1099? You may be entitled to lost wages...but I assume you probably voluntarily quit as an "employee" which does not affect your ownership of the company.

 

[smglass]

"""In PA you cannot be an LLC unless you have two members. If he would have removed me it would have become an s-corp."

Please quote me the PA statute which says this...I really doubt you'll find it since I didn't and I called the PA Secretary of State and they confirm you can have a sole member LLC (every state can).""

I stand corrected on this. I don't remember why it happened, but when I initially registered the company as an individual forming an LLC I did receive notice that I needed a secondary member. This is why I brought the other fellow into the fold. Yet I can't find the specific statute that says this and of course googling the info just says an LLC can be solo.

"""So, I took the agreement I offered him and reversed the names, removing myself from the company. I had this signed and notarized by the director of our county Business and Industry organization."

You should not have done this. You need to check your Operating Agreement to see how you can remove yourself from the LLC. Unless he agrees to it, generally, you can't remove yourself as a member of an LLC."""

Why should I have NOT done this? As for the OLA, when I drafted one for the company I couldn't get him to agree to signing it as the companies manner in which to work. So, when I redrafted the business plan, I included the OLA in several sub articles, unfortunately this is unsigned as well, BUT the company did use these methodologies for the duration of my time there. The exit strategy included the unconditional resale of the owners assets in the company to the other owner for financial release of debts and/or financial gain based on profitable assets. He was supposed to file a form 8205 (statement of withdrawl) and copy information out to me. According to the state, this has not happend, nor has the 8906 form (change of registered office) been filed since he relocated the business into his home (non-commercial zoning area) and left our original building.

"""2. request the books of the company since June and request HALF of the profits gained by the company"

You can request the books of the company, however, you cannot FORCE the Company to make a distribution to you as distributions to members are generally in the Company's discretion. You are still entitled to them though. Aren't you employed by the Company as a w-2? How did you work for the company? 1099? You may be entitled to lost wages...but I assume you probably voluntarily quit as an "employee" which does not affect your ownership of the company."""

We had formed w-2 status in the beginning of tax year 2008 making us both employee's. And yes, I did technically quit as an employee.

So if this means I am still an owner, what is the proper direction legally to remove my ownership and gain lost wages?

Thanks for any and all of the input.

 

[JoshDom1898]

If there's no signed Operating Agreement for the Company, then it never existed. You have to defer to PA LLC law to determine your rights of removal. Unfortuantly, I can't seem to access that law online, maybe you can call or go down to an office and get a copy of PA's statutes.

You can write a demand letter for your lost wages, if that fails to get you to recoup what you lost, hire an attorney and sue him.

 

[smglass]

Been busy with other business ventures, but needed to get this one done and out of my hair. This is where I am at:

Contacted Harrisburg, PA "Commonwealth of Pennsylvania Department of State Corporation Bureau" and pled my issues. They informed me that the paper I forwarded to the other partner in the LLC, if not signed and witnessed, doesn't exist. If it was/did it would still have to be accompanied by the correct form with both enrolling signatures. If it is not possible to have the other person sign the form, then it must go to court to have a ruling that the form be signed by both parties.

Essentially, the only thing that I have done (as JoshDom1898 had stated) is quit the "job". I did that based on company hardships and the fact that the other half of the company was a total slacker who wasn't pulling his weight within the company.

I have recently found out that the company has not furthered any of its jobs and is only feeding off of the contracts that I had established before I left (which just confirms my above statement of "total slacker").

Now I am trying to make a functional determination and/or letter that advises reimbursement of wages from the time I quit the company. This will ultimately become a fully legal situation in a court, but I figure it best to give benefit of the doubt and keep it out of court as a sign of good faith.

Any suggestions on wording for this letter? I don't know if I can say, "lost wages" because I have self employed myself with an S-corp and I am making much better money than I was with my previous company (because I don't have to pay dead weight with my hard earned dollar). But the money that the previous company is earning is based on my efforts and the automations that I established.

I am having a financial issue meeting the needs of the State on a personal level of Child Support payments (a direct result of the previous company) and that may lead to a court appearance for me. This is, in part, the reason why I left the previous company. The direct negligence on the partners side, made cause for me to work three times harder in order to pay ME, State Support and Him all as Dependents.

Also, the company had established that pay rate would be equal between the partners and company. This means a split three ways, Me, Him, and Company respectively. This was done so that the company would incur the debts brought in, and not the two members of the business. Should I seek equal compensation during my time away? I am sure that once I left the incoming monetary amounts began a split more along the lines of 50/50 if not 75/25 with the company receiving the smaller amount. So, do I seek equal pay the amount he was receiving or do I just seek 1/3 of the gross the company received during my away time?

Thanks for any feedback.