Exit Clauses in Business Partnership Agreements - Part I

[@brendenrobertson]

Would love some analysis on this scenario: If 5 partners have 2 entities, an operating entity and another that holds the real estate for their operating business, can 1 partner propose a "Russian roulette" case where the shares in real estate entity are equal to the shares in the operating entity? The 5 partners are very close to equal in both entities.

[@rushanicw]

Thank you for this

[@BrettCenkus]

You're welcome!

[@alfonsonovoa799]

In the state of Kentucky I am a 33 1/3 silent partnership of one LLC, two of them want to agree to give one %100 total control of everything, what is the downfall too the silent partner

[@BrettCenkus]

Alfonso, you are describing a situation where you will essentially be a non-voting member in a small (closely-held is the right phrase, i don't know how small it will be based on revenue, employees, etc.) LLC and one of the other members will have all the authority. Typically, this would be structured with voting and non-voting membership interests. The risk to you as a silent partner is that you will have zero say over anything. The controlling member may tell you they care about what you think, although they don't care enough to give you an actual say in what happens. I'd be concerned to the point where, personally, I would be very hesitant to participate and invest in that business unless I knew the controlling member so well that I trusted him/her implicitly. Absent a super high degree of trust, I would be cautious because they're setting up a situation where the controlling member can't be questioned. Why is that necessary? This is different than being a minority investor in Facebook, for example. Mark Zuckerberg has a Board of Directors and activist shareholders and aggressive members of the media to contend with, i.e., he has oversight. That is a good thing, not just for you but for the controlling member ultimately. Feedback and validation and correction and pushback and even saying "no" -- those are good things. We all benefit from engaged partners willing to state their opinions. At its core, that's what makes a partnership special -- multiple voices. I'd be curious why the other 1/3 partner who will not be the controlling partner wants to give the controlling partner all that authority. Also, FYI, what I don't know about Kentucky law you could just about squeeze into the IC 1101, although I don't see how that matters at all for this question unless there are non-waivable terms of the KY LLC Act that would give you and the other non-controlling member a say on important decisions.

[@liftlabperformance]

I have a partnership with a friend and it isnt working out. We have an operating agreement which outlines several details about an exit. It isnt working. I own 30% of the company. I want out. How can I get my money back without a legal blowup? I need the money to go out on my own and I will need this money as seed money.

[@BrettCenkus]

I don't have a magic elixir for you. The first option is the existing contract. If that's out, the second is an amicable amendment/supplement to it -- come up with something else that works for both of you (e.g., a unique buy-sell process, agreeing to jointly sell the business, etc.). This option can be as creative as you want. If the company has the money you invested on hand, maybe your partner would agree to let you take it in return for giving him 10% of your new venture, for example. Just about anything is possible, so do not stay in any sort of preset box. I'd advise you to sit down without lawyers if things aren't super poisonous right now and brainstorm possibilities. Start this process by identifying what you each want out of the "divorce." You want some money and don't care about equity in the business you're leaving (presumably). What's important to him (another way to think about that is why isn't the current approach working)? Stay relational as long as you can. If you're friends, there is value to preserving that relationship and, hopefully, you are both willing to compromise a little more than you might otherwise to find a solution and keep the relationship somewhat intact. The third option is likely something much less amicable, probably the blowup you're trying to avoid -- litigation if there is any basis for it or petitioning a court to dissolve the entity due to a stalemate (the rules/process around that are particular to the state of domicile (where the entity was formed).

[@oveek931]

That's a bit complex