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CardinalJay

LLC Voting

11 posts in this topic

In an LLC, can the majority proceed on a legitimate business issue by written consent (written consents are allowed according to operating agreement) and not inform the minority of the vote because their votes don't matter?  If so, is this also proper in a 2 manager LLC if one manager has tie breaker rights?  Basically, can the single manager draft a written consent and sign it because he has tie breaking authority?

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25 minutes ago, CardinalJay said:

If so, is this also proper in a 2 manager LLC if one manager has tie breaker rights? 

How can one manager have "tie breaker" rights if there are only two managers?  That makes no sense.

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I'm sorry but you are not explaining your situation very well.  However, I would say the tie breaking authority only apples if there is a tie.  If there is a tie the tie breaker would resove the issue one way or the other.  However, if there is a tie, there can't be majority and majority menbers or there wouldn't be a tie.

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I apologize for not explaining well.  I'll try again. 

 

Co-manager A owns 95%.  Co-Manager B owns 5%.  Operating Agreement states in the event the Co-Managers cannot decide an issue (tie vote) that the tie breaker is majority ownership.  So, Co-Manager A has been operating the business by signing Written Consents with her signature on it without informing Co-Manager B because based on the Operating Agreement Co-Manager A has the Tie Breaker vote because she owns the majority of the member interests.  All decisions were in the ordinary course of business but Co-Manager B was not notified generally of the decisions by Written Consent.  All written consents have Co-Manager A's signature on them as both a Co-Manager and a Member.

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In addition, the Operating Agreement states, "the Members may act by a written consent executed by the Members holding the percentage of Interests required for the action to be taken under this agreement."  In this instance, one member owns Supermajority so she has the "required percentage of interests" to take action.

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What it looks like to me is that that this is Manager A's business and she is running it how she sees fit, without your input, and there isn't anything you can do about it.

 

I'm guessing you are Manager B and had no clue about any of this when you went into business with Manager A.

 

What's happening now that is giving you concern?

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1 hour ago, CardinalJay said:

In an LLC, can the majority proceed on a legitimate business issue by written consent (written consents are allowed according to operating agreement) and not inform the minority of the vote because their votes don't matter?

 

Can it happen?  Sure.  Is it legal?  Depends on the terms of the LLC's operating agreement.

 

 

1 hour ago, CardinalJay said:

If so, is this also proper in a 2 manager LLC if one manager has tie breaker rights?

 

If there are two managers, there can never be a majority or minority.  There can only be unanimity or an even split.

 

 

1 hour ago, CardinalJay said:

can the single manager draft a written consent and sign it because he has tie breaking authority?

 

Depends on what the operating agreement says.

 

 

40 minutes ago, RetiredinVA said:

How can one manager have "tie breaker" rights if there are only two managers?  That makes no sense.

 

It makes sense, but it's a dumb way to set up an LLC.

 

 

39 minutes ago, CardinalJay said:

The tie breaker is a vote by the members.  One of the managers has a Supermajority interest as a member.

 

Now this doesn't make sense.

 

 

22 minutes ago, CardinalJay said:

Co-manager A owns 95%.  Co-Manager B owns 5%.  Operating Agreement states in the event the Co-Managers cannot decide an issue (tie vote) that the tie breaker is majority ownership.

 

Well...what that effectively means is that A calls all the shots, so setting it up with the illusion that B has any say in anything is silly.

 

You didn't say who you are in this scenario, but I suggest consulting with a local attorney for a review of the operating agreement and advice.

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17 minutes ago, adjusterjack said:

What it looks like to me is that that this is Manager A's business and she is running it how she sees fit, without your input, and there isn't anything you can do about it.

 

This is correct

 

17 minutes ago, adjusterjack said:

I'm guessing you are Manager B and had no clue about any of this when you went into business with Manager A.

 

What's happening now that is giving you concern?

 

I actually know Manager A.  Manager B has no major concerns other than possibly being on the hook for debt (but all payments are current) and maybe salary to Manager A ($120,000 per year but this is reasonable in the situation).  Although, Manager A is concerned about a potential fiduciary duty claim because she didn't notify Manager B even though Manager B's vote was of no consequence.  

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21 minutes ago, pg1067 said:

 

Can it happen?  Sure.  Is it legal?  Depends on the terms of the LLC's operating agreement.

 

 

 

If there are two managers, there can never be a majority or minority.  There can only be unanimity or an even split.

 

 

 

Depends on what the operating agreement says.

 

 

 

It makes sense, but it's a dumb way to set up an LLC.

 

 

 

Now this doesn't make sense.

 

 

 

Well...what that effectively means is that A calls all the shots, so setting it up with the illusion that B has any say in anything is silly.

 

You didn't say who you are in this scenario, but I suggest consulting with a local attorney for a review of the operating agreement and advice.

 

Thank you for your reply!

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2 hours ago, CardinalJay said:

  

Manager B has no major concerns other than possibly being on the hook for debt (but all payments are current)

 

LLCs are designed to protect the individual members against the debts of the LLC. If Manager B is not personally guaranteeing any debt then the chance that debt becomes an issue is slim.

 

2 hours ago, CardinalJay said:

maybe salary to Manager A ($120,000 per year but this is reasonable in the situation). 

 

Reasonable is in the eye of the beholder. It's reasonable if Manager A is generating enough profitability to cover her salary and any share of the profits that go to Manager B.

 

2 hours ago, CardinalJay said:

Manager A is concerned about a potential fiduciary duty claim because she didn't notify Manager B even though Manager B's vote was of no consequence.  

 

Then Manager A should discuss the business activities with Manager B. Nothing in the Articles prevents the two of them working together.

 

How did manager B get involved in all this and is Manager B deriving any income from the business or did Manager B just put up money and getting nothing in return?

 

In other words, what on earth is the purpose of this conversation? :unsure:

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