Question

John, Lesa, and Tabir form a limited liability company. John contributes 60 percent of the capital, and Lesa and Tabir each contribute 20 percent. Nothing is decided about how profits will be divided. John assumes that he will be entitled to 60 percent of the profits, in accordance with his contribution. Lesa and Tabir, however, assume that the profits will be divided equally. A dispute over the profits arises, and ultimately a court has to decide the issue. What law will the court apply? In most states, what will result? How could this dispute have been avoided in the first place? Discuss fully.

Answer 1

Answer:

Most states don't require limited liability companies (LLCs) to have operating agreements that regulate how profits will be distributed.

Since their LLC doesn't have an operating agreement, then the valid state law will rule how the profits will be divided. Generally speaking, but not always, state laws regarding LLCs divide profits equally among its members.

This could all have been avoided if the would have made an operating agreement before starting to work. Now probably the LLC will be dissolved.