Welcome to another week’s Play from my Small Business Legal Playbook. I hope the tips are helpful to you and your business, as these Plays are specially designed to give you a little insight on the legal side of running a small business. Today’s Play, “It’s Time to Break Up, LLC Edition” involves something most of my clients never expected to do: end a business relationship with their business partner.
So, what are the strategies I can recommend? First, talk things out with your business partner. As crazy as it might sound, business break-ups are often more emotional and destructive than divorces, because you may not be able to split children and assets exactly down the middle, but you can with a business, even if it’s to disastrous effect.
So, with that in mind, try and keep it from getting personal. As in my previous Plays, I try to separate the Play into Offensive and Defensive strategies, with Offensive strategies being proactive, and Defensive strategies being reactive. This week’s Play is concentrating on the Offensive Strategy.
Offensive Strategy: If there isn’t a problem yet, you can make sure that a problem with your business partner doesn’t sink the business by making sure the terms of your Operating Agreement are in line with the RULLCA, the California Revised Uniform Limited Liability Company Act. Prior to the adoption of the RULLCA in 2014, its predecessor the Beverly-Killea Limited Liability Company Act, California did not have a provision explaining how a member could be disassociated from the company, or expelled. The RULLCA not only expressly explains if a disassociation may happen, but explains what the grounds for a disassociation/expulsion are. If you want the RULLCA to apply, you might want to consider leaving your pre-existing Operating Agreement alone. That way, you and your business partners will know exactly where each of you stand, and the RULLCA will govern the fall-out.
Hope you enjoyed this week’s Play, and stay tuned for next week’s play from the Small Business Legal Playbook! Remember to subscribe and get each play sent to you directly! Until then, may your businesses continue to thrive and your football teams be victorious. Keep playing to win!