Re: Quirky valuation question

From: Roman Fichman E.
Sent on: Monday, March 18, 2013 10:48 AM
Andrew,

You did not mention if the LLC membership interest bestowed on the "co-founder" had any restrictions on it or whether the operating agreement gives the other members the right to "kick out" (i.e. purchase a member's interest without that member's acquiescence).

If neither of the above exists, then the issue is NOT valuation, rather that there is a 33% LLC member who is MIA and the company can't really do much about it, short of settling with the person (which would not necessarily correspond to any reasonable valuation) or try and dissolve the company.

As a general rule, an LLC member / shareholder of a company cannot simply be kicked out, regardless whether the person is pulling its weight. Many people confuse having equity in a company vs. working for the company. Having equity does not mean that one is obligated to work for the company. That's why in addition to being a member/shareholder every working equity holder should also have an employment agreement which typically contains a right to buy back the equity if the person stops working.

Roman R. Fichman, Esq.
www.TheLegalist.com  │ @TheLegalist
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"From Start-Up to Exit"

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Disclaimer: This post has been written for educational purposes only and was not meant to be legal advice and should not be construed as legal advice or be relied upon. No intention exists to create an attorney-client relationship or any other special relationship or privilege through this post. The post may contain errors, inaccuracies and/or omissions. You should always consult an attorney admitted to practice in your jurisdiction for specific advice. This post may be deemed as Attorney Advertising.



ref:The story: My brother (David) and I (Andrew) started building a mobile app in 2010. In 2011 we added a third programmer, a friend of a friend of David's, named Tim. Tim was assigned to work on a specific piece of our product, which now we have no plans to use. However, in 2012 we made him a 33% "equity" owner in the company. In late 2012, we kicked him out for being entirely unresponsive and unproductive.

The problem: Our pro bono lawyer (Jack) is advising us to find a valuation for the project / LLC (if relevant) so we can effectively buy out Tim's "missing hole" shares before we launch our beta. I am not sure what type of valuation is even needed here, if at all, or where I might find someone to do this work if this is the right direction for me to move. How much do you suppose it should cost me for this "quick" assessment? addressed herein.

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