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LLC Question 137

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Question: I am a 50% member in a Tennessee LLC. My partner has notified me of intent to leave in one year. I would prefer that she left immediately rather than take the year to set up a competitive business which she has declared intentions to do. Can I initiate an immediate removal of this partner if she refuses to consent? If she does withdraw her membership immediately, can I continue the LLC as it has been operating? If she refuses to withdraw, can I dissolve the LLC and still continue the business under its same name?

Response: You need an attorney to sit down with your operating agreement, articles of organization and review all the facts to get a reasoned opinion on the above questions. Further complicating things is the fact that Tennessee has recently made extensive amendment to its LLC laws both in 1999 and 2006. When your LLC was formed or last had its articles amended effects which law applies. Here is an overview of the 2006 changes.

The main issue raised by your questions is whether or not the other member owes you a fiduciary duty of loyalty while still a member of the LLC and, if so, whether that duty has been violated by her intention to start a competing business. I can't answer that for you. If the other member also participates in the management of the LLC, I think it likely that a duty of loyalty is present regardless of what version of the Tennessee LLC law applies to your organization. Competing with the LLC would violated the duty of loyalty but does the mere intention of (or preparation for) competing in the future violate the duty of loyalty? Don't know the answer to that one.

Submitted: 10/01/2007; Becky, Tennessee
Response: 10/01/2007; JJR

User Comments

From: Becky
State:Tennessee
Posted: 10/01/2007
Subject: LLC member withdrawal issues
Comment: We incorporated in 1998

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