AboutA. Hall, Minnesota Attorney Expertise As a licensed Minnesota attorney, I can answer questions involving Minnesota law in the following areas: business ownership issues, forming a business, contracts, employment, securities, copyrights, trademarks, patents, licensing, trade secrets, unfair trade practices, shareholder disputes, tax law, M&A, corporate law, general business law, and resolving disputes through negotiation, arbitration, or litigation. I can provide general information for these topics in geographic locations outside Minnesota.
Experience Aaron Hall is a licensed attorney, admitted to practice law in Minnesota state courts and the U.S. Federal District Court in Minnesota.
Aaron Hall's experience includes service at the law firms of Fredrikson & Byron, Morrison Fenske & Sund, Foley & Mansfield, and Henningson & Snoxell. Aaron Hall also served as a judicial extern under the Honorable Paul A. Magnuson, United States District Court Judge, and as an adjunct professor at Concordia University teaching Introduction to Business Law, Business Law for Marketing Professionals, and Internet Law for Marketing Professionals courses.
Aaron served in a variety of appointed positions for city, county, and state government entities, including the Burnsville City Board of Appeals, the 35W Solutions Alliance, the Minnesota Department of Revenue Property Tax Assessment and Classification Reform Study Group, and the Heart of the City Steering Committee. In 2007, the Minnesota Justice Foundation recognized Aaron for providing over 200 hours of pro bono legal services during the year.
Organizations American Bar Association
Minnesota Bar Association
Hennepin County Bar Association
Minnesota Small Business
Publications Associated Press, Star Tribune, Pioneer Press, Duluth News Tribune, William Mitchell Law Review
Education/Credentials Aaron was awarded his Juris Doctor degree cum laude from William Mitchell College of Law, where he served on the William Mitchell Law Review. He was recognized on the Deans List for outstanding academics and received the CALI Awards of Excellence in Corporations and Alternative Dispute Resolutions courses. Aaron served as President of the Business Law Society and coordinated the establishment of the Corporate Appellate Law Moot Court. He was awarded his Bachelor of Arts degree in Marketing Management and Innovation summa cum laude from Concordia University in St. Paul, Minnesota.
Awards and Honors Ten Outstanding Minnesotans, Minnesota Jaycees
Question Hi, how should an LLC owner fix a mistake he made in organizing his LLC?
Here is his situation: The owner holds 45% interest in his company. He
needed money quickly and convinced several of his friends to donate cash in
exchange for "points" in the company. He did not provide any details in the
operating agreement how profits would be allocated or whether partners
would be required to make forced capital contributions. Now, the company is
at a work standstill and will fail if more money isn't put in. All of the
shareholders are refusing to contribute more and they don't want to give up
their points to bring in new investors. When the owner originally received
their investment and allotted their shares, he didn't manage their
expectations and sold them on weak promises that the company was
probably going to be bought out soon. This did not happen and now the
company needs operating capital for at least another 6 months to a year. My
question: What can he put into an operating agreement that allows new
funding and re-allocation of shares, and forces capital contribution of the
members? Is it possible to dilute a member's ownership interest if they're not
doing anything and not donating new capital? The principal owner's friends
did not donate a significant amount of money, but they also didn't expect to
have to fund operations for more than 3-6 months. The company will be
forced to fold if employees quit, but the investors are turning a blind eye to
the situation and expecting that the employees will "work for free" until the
company is sold. The investors just don't want to put more money in but they
don't want to concern themselves on how to keep the business operating. I
would appreciate your thoughts on this situation and how you would handle
it. Preferably some resolution ideas for an operating agreement. I think it's
possible that if the investors are shown a reasonable solution, they might
approve. Thank you!
Answer First, you should contact a business attorney in your area. The attorney should review your LLC's formation documents and then will be able to offer you options.
In general, business decisions of this type (capital contributions, major business changes, etc.) are made in a meeting of the LLC members (owners) just like a shareholder meeting for a corporation. Whether a majority of votes, majority of ownership interests, or another percentage is required will depend on the LLC's formation documents or, if that is not decided in the formation documents, by the default provisions in state statute. Also, in a closely held company (like your LLC), the owners have fiduciary duties to each other, which means they must be loyal to each other, disclose material information to each other, etc.
Again, a business attorney can help you avoid legal pitfalls as the company makes business decisions about additional capital investments. Since your state law governs most aspects of this process, do not rely on my general information---please get a business attorney to help you. The business attorney can be retained by the business and help the officers of the business (who are often also the owners) follow the proper procedures in bringing a decision regarding additional capital investments to a vote.
