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Ask a Lawyer -- LLCs
LLC Question 56
Question: I formed an LLC with two other individuals, all with equal shares, but absolutely no operating agreement, One of the members, after repeated warnings by myself and the other member is not doing their job. The other member and myself would like to continue the business, how do we remove this other worthless sponge from the LLC.
Response: To put it in legal terms, I think you're screwed. Big mistake not having a written operating agreement. Here is a link to my previous response to a similar question under California law. Basically, there is no provision in the Maryland LLC Act allowing for the forcible removal of a member. Your next option is to dissolve the LLC and reform it later absent the sponge member. However, under Maryland law, all member must agree in order to do an administrative dissolution. Maryland Section 4A-902. Causes of dissolution. That leaves you with the option of judicial dissolution under Section 4A-903. In judicial dissolution, you must hire a lawyer and file a lawsuit seeking to have the LLC dissolved (i.e., an expensive and drawn-out process).
One final thought. You say that your LLC has no operating agreement; however, the LLC members clearly must have some sort of oral agreement as to the division of profits and losses. If so, that is an operating agreement and it appears to me that Maryland allows for oral operating agreements. Further, I suspect the member of your LLC had an oral agreement as to what work each member was to perform for the LLC. If so, that might also be construed as an element or your oral LLC operating agreement. Thus, the grounds for judicial dissolution of the LLC are that one member is not complying with the oral LLC operating agreement by failing to perform services as called for in the agreement.
Submitted: 4-18-2006; Steve, MD
Response: 4-18-2006; JJR
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