A common question for many of our clients, or potential clients, is “How do I remove someone from my company?” Such a common question doesn’t necessarily have an easy answer, which bothers them. There are two possible scenarios – a company that has governing documents detailing how the removal will be conducted and a company that does not have these governing documents (or whose governing documents do not have the appropriate mechanisms for removal).
With appropriate governing documents
If the company has an operating agreement for an LLC, company regulations, or other governing documents, there may be mechanisms to remove owners there. If this is the case, then the mechanisms only need to be followed for removal. Usually, a vote will be required, and a fair market value will have to be paid to the owner. Payment terms may be included in the governing documents, or they may need to be decided by the company and the individual leaving.
Without the appropriate governing documents
However, many companies do not have an operating agreement or bylaws, or those documents, but they do not have owner removal mechanisms. Unfortunately, many companies only have articles of incorporation or LLC regulatory materials and have never drafted bylaws or an operating agreement. Therefore, the default rules will simply be state laws. Instead of waiting for a dispute to arise between members, shareholders, directors, or officials, companies need to anticipate speech and planning by including these provisions in bylaws or operating agreement ahead of time.
The governing documents outline the rights and responsibilities of each employer and document the agreement in a written contract. Since these are legally enforceable contracts, they have since made an attorney draft of governing documents that best meet your needs.
I have seen many situations where a company fires an employee, but the former employee is still a shareholder, director, and / or responsible. Or, the company may try to remove someone’s stock ownership, but that person is still a director or liable. These situations can be challenging and result in unforeseen circumstances due to poorly written formal documentation. Often times, laws may have mechanisms in place for these situations, but governing documents, if any, may not. Or, the founding documents can be contradictory.
However, there are ways to avoid these types of situations if you act early before any conflict, but what happens if the disagreement does indeed arise? If this happens, a lawsuit may be necessary to remove the person. Or, if you remove the person, the company may search for a lawsuit to remove them inappropriately. You don’t want any of these scenarios.
Lawsuits will be very expensive; Therefore, it is best to prepare business documents correctly in advance. You might spend more money up front at first, but in the long run, you’ll save yourself a lot of money and headaches. If you do not have the correct documents, it is best to make an appointment with a Small Business Act 4 before a dispute arises, or if you anticipate a dispute, settle and review the documents immediately.
We have had a unique opportunity to examine a wide range of businesses across many industries. Almost all failed or failed companies “create it while moving forward.” They don’t have a business plan, they’ve never had a business plan, and they simply flocked to market space that seemed favorable at the time.
Law 4 Small Business can help you avoid these situations by reviewing all of your documents, amending existing documents, or even preparing new ones, but if you find yourself in a situation where you are actually trying to remove a business partner and your ruling documents just don’t amount to snuff, Be sure to contact us to discuss how to proceed immediately.