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What to do if you are frozen out of an LLC by another shareholder

On Behalf of | May 12, 2023 | Business Law |

Limited liability company structures give you the benefits of a partnership and sole proprietorship, such as pass-through taxes and no board requirements, but protect your personal assets similar to a corporation. They are easy and inexpensive to create as well.

Because LLCs do not have traditional shareholders but members, the owners tend to have easy communication and disagreements can advance quickly. This is what you should do if other members freeze you out of your LLC.

Identify the type of freeze out

The other members of your organization have several freeze-out options. First, they can change the locks and keep you out of the building. They can also eliminate or manipulate your voting rights, making them useless. They could also set up a new LLC or merge their existing LLC assets into a new company and eliminate your equity position.

Review your operating agreement

When you started your LLC, you should have written a detailed operating agreement. This agreement discusses the rights and responsibilities of every member of the company. It should also discuss your equity positions and how voting works within your organization. Therefore, your next step should include reviewing your operating agreement.

Evaluate your goals and desires

Next, you should review your goals and consider whether you want to continue with the company. If your shareholders or members have turned on you, you may just want them to buy you out. You may also want to keep the company or start something new. This is a personal decision and will determine whether you pursue a lawsuit or negotiate your exit.

For the best results, you need to understand your position and what you want. This information will guide you on the type of help you need and the strategy you should follow to achieve your desired goal.