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Ask a Lawyer -- LLCs
LLC Question 143
Question:
If an Alabama LLC is insolvent and the managing member (me) calls upon all members for a cash infusion, either loan or capital contribution, to "right the ship" and the other two members refuse, what are the options available for the managing member? There is no provision in the Operating Agreement for a capital call. However it does not seem equitable the managing member, because he has the financial resources to meet the company's needs, must do so yet the non contributing members retain their percent of membership. I am the managing member so what can I do to force the other members to give up their membership to me because they refuse to pony up the cash? Why should I put up my cash to possibly turn the company around and the other members will benefit from my cash infusion? Just letting the company die is not an option because there are assets in the form of claims that have a lot of value. The problem is it takes money to prosecute the claims and I am the only one contributing? By the way I own 50% and the other two members own 25% each.
Response: If there is not a provision in the LLC operating agreement regarding forced member capital contributions, I am not aware of a mechanism to do so. On another point, dissolving the LLC does not mean the claims go away. The LLC can be dissolved but continue to prosecute pending lawsuits. See § Section 10-12-40 of the Alabama LLC Act. Potentially you could purchase the LLC's claims out of a judicial dissolution; however, that would be an expensive and lengthy process (hire an attorney and file suit seeking a court ordered dissolution). My take is that you are in a game of chicken with the other LLC members. Are the other members really willing to let the LLC die? Perhaps you see these LLC's claims as having a higher value than the other members. In that case, it might make sense for you to make a relatively low offer to buy out the other members. If they are willing to let the LLC expire rather than contribute additional sums, how much can they really value their LLC interests to be worth?
Submitted: 11/07/2007; robert, alabama
Response: 11/08/2007; JJR
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