Nowadays, doing business is easier than ever because of limited liability companies (LLC). While there are many advantages to this type of business organization, the success of your venture may depend on the other members of the LLC.
If someone tries to freeze you out of the LLC, you may need to act quickly to protect your business and legal interests. Simply put, a freeze out occurs when an LLC member tries to limit the income you derive from the company or the control you have over it. Freeze outs are common after business or personal disagreements between members.
The LLC operating agreement
When you formed an LLC, you likely drafted an operating agreement. If you have not reviewed this agreement in some time, you should do so immediately. After all, the LLC’s operating agreement likely describes your rights and responsibilities. If a member is trying to curtail your influence, you should check to see if he or she has the operational authority to do so.
Tenets of business law
If your LLC’s operational agreement protects your ownership interest, other members may try to change the agreement. Still, the agreement should provide a framework for making modifications. If other members do not follow these protocols, you may have a valid legal claim. Basic tenets of business law may provide additional protections to you.
Members of LLCs often owe a fiduciary duty to the LLC and to other members. This means the LLC members may have to be loyal to the organization. That is, they should place the good of the organization above their personal interests. They may also have to exercise reasonable care when dealing with LLC matters. While LLC fiduciary duties are often waivable, a breach of fiduciary duty may give you grounds to contest a freeze out.
As a member of an LLC, you want the business venture to succeed. If your freeze out violates the operating agreement, fiduciary responsibilities or fundamental tenets of law, you may be able to stop the freeze out before it causes you long-term harm.