A common scenario I see: Two or more friends have a grand business idea and file their Articles of Organization for their LLC. They start taking clients and all goes well... for awhile. They start making money and are excited for growth. Then the honeymoon phase is over. The business partners realize one of their comrades is not putting in as much effort but still reaping all the benefits. Or one partner has 'creative differences' with the other partners and the partners are deadlocked in how to grow the company. Conflict ensues and they start to fight over who gets what or how things get done. Ouch.
So what happens? Or could this have been avoided? Great questions. It is best practice to create a 'membership agreement' between LLC partners. Without the Membership Agreement, the Illinois Limited Liability Act will govern the rules. For example, if a member wants to leave the LLC, the LLC Act will dictate the terms. If, however, the members want to have different terms, they can put it in the Membership Agreement. For example, under the newer LLC Act, that became effective on July 1, 2017, the LLC no longer is required to be buy out a member who wants to leave the LLC. However, the LLC members can write up their own terms in their Membership Agreement such as requiring an LLC to purchase a member's interest or other terms that ...
Problems of Not Having an LLC Contract aka 'Membership Agreement'
So what happens? Or could this have been avoided? Great questions. It is best practice to create a 'membership agreement' between LLC partners. Without the Membership Agreement, the Illinois Limited Liability Act will govern the rules. For example, if a member wants to leave the LLC, the LLC Act will dictate the terms. If, however, the members want to have different terms, they can put it in the Membership Agreement. For example, under the newer LLC Act, that became effective on July 1, 2017, the LLC no longer is required to be buy out a member who wants to leave the LLC. However, the LLC members can write up their own terms in their Membership Agreement such as requiring an LLC to purchase a member's interest or other terms that ...