Eric Stratum and Terese Brown formed ESTB, L.L.C., a member-managed limited liability company created for the purpose of owning and leasing a residential apartment building. The term of the LLC was 25 years. Their operating agreement provided that each owned 50 percent of the LLC. Stratum contributed $120,000 cash as his contribution to the business. Brown contributed $10,000 cash at the time of the LLC's creation, with the expectation that she would contribute to the LLC with services to be performed in the future. The agreement, however, listed Brown's capital contribution as $10,000 and did not stipulate by how much it should be increased as Brown continued to manage the business. Although Brown was expected to be the primary manager of the business, nothing in the operating agreement gave more power to Brown or removed power from Stratum. For the first two years, Brown did most of the day-to-day management of the LLC. She and Stratum agreed on other actions, including replacing carpeting in apartments and re-roofing the building. After two years, Brown claimed she was entitled to a larger share of the LLC's profits. Is she?
Suppose that Stratum responded by appointing his son to manage the LLC along with Brown. May Brown object to Stratum's son managing the LLC?
Suppose the relationship between Stratum and Brown has so deteriorated that she withdraws from the LLC. She demands to receive the value of her interest in the LLC. The LLC has a current value of $500,000. How much must Brown receive? When?
Suppose after she leaves the LLC, Brown purchases a residential apartment building that competes against the LLC. May Stratum prevent Brown from competing with the LLC?
There are a lot of things individuals entering into partnerships should do and be aware of. First and foremost, each parties role and responsibilities should be clearly defined. There is also the matter of money and the stake each party has in the company.
Many business partners typically find themselves in similar situations when guidelines are not clearly defined. In terms of whether Terese Brown is entitled to more than ...