The Impact of Having a Business Partner Leave a Disc Jockey LLC - Case Study Example

The Impact of Having a Business Partner Leave a Disc Jockey LLC Table of Contents I. Introduction ………………………………………………………………. 3 II. Advantages and Disadvantages of a Business Partner Leaving a Disc Jockey LLC Company ……………………….……………………. 4 a. Minimum Number of Members Required in Forming the LLC and the Need to Amend the Articles of Organization ……………………………………... 4 b. The Day-to-Day Operations of the Business …………….. 6 c. Existing Capital Funds ………………………………………. 8 d. Marital Issues …………………………………………………. 9 III. Discussion ………………………………………………………………… 9 IV. Conclusion ………………………………………………………………… 10 Table I – Summary of LLC’s Advantages & Disadvantages …………………. 12 References ……………………………………………………………………… 13 - 14 Introduction A Disc Jockey LLC is a company that provides the public with D.J. services aside from the necessary lighting and sound equipments and other basic party supplies that are usually needed in special occasions like holiday parties, trade shows, dinner dances, retirement dinners, employee recognition dinners, weddings, birthdays, and other special occasions. (Ambassador Entertainment, 2008) Business partnership is a legal contract that binds two or more individuals based on the money or service each partner has contributed to the business as a form of capital investment. (Tayeb, 2001) In general, a corporation exists as a separate entity from its owners in such as way that the company itself is capable of suing, be sued by other company or individuals, aside from owning or selling properties. Since the study will consider the case of a limited liability company (LLC), it means that the business owners will never become personally responsible for any amount of debts that will incur under the name of the company. (Weinstein, 2005; Jensen, 2001) In the process of discussing the impact of having a business partner leave a Disc Jockey LLC, the advantages and disadvantages of making the withdrawal of an unwanted business partner from a Disc Jockey LLC will be thoroughly discussed. Considering that the unwanted business partner is a wife of the business owner, significant impact towards the business activities in relation to the minimum number of members required in forming the LLC, the need to amend the submitted Articles of Organization with the Secretary of State, the day-to-day operations of the business, and its existing capital funds. Advantages and Disadvantages of a Business Partner Leaving a Disc Jockey LLC Company Minimum Number of Members Required in Forming the LLC and the Need to Amend the Articles of Organization There will be not much problem when it comes to maintaining the minimum number of members required in forming the LLC in case the Disc Jockey LLC is composed of more than two members. Assuming that an unwanted business partner decided to leave the company, there will still be at least two remaining members required in forming the LLC. In general, forming an LLC requires only two members. (Poznak Law Firm Ltd., 2008) However, since the name of the unwanted business partner has been included in the ‘Articles of Organization’ which was eventually filed with the Secretary of State, there is a need for the existing LLC owners to report the decision of the unwanted business partner leaving the business and immediately file the necessary amendments by filing the Articles of Amendment (LLC-5.25) which will require a processing or filing fee of US$150.00 (Illinois Limited Liability Company Act, 2008) in order to avoid future problems with the legal business documents. In general, the Articles of Amendment enables the applicant to have the option of amending the official Articles of Organization by admitting a new member / manager, withdrawal of a member / manager, change office address, registered agent, date of dissolution, and/or the name of the Limited Liability Company. (Illinois Limited Liability Company Act, 2008) A serious problem is expected to arise in case the unwanted business partner and the business owner are the only two people that formed the LLC. In this case, the business owner will have to find another qualified partner to replace the position of his wife. One of the disadvantages of finding another potential business partner is related to the fact that it will take a longer process before the potential business partner and business owner would come into an agreement since both will have to discuss not only about the required capital investment but also his/her possible contribution in the day-to-day operations of the Disc Jockey LLC aside from the withdrawal of the unwanted business partner and the transferability of the membership interests. In worst case scenario, it is also possible for the business owner to have a difficulty searching for a qualified business partner. (Bascom, Richards, & Storm, 2005) Given that LLC members are protected from having a personal liability in case the Disc Jockey LLC incurs debts, it is much easier on the part of the business owner to invite more people to join the business organization. (Caroll & Biehl, 2008) Considering that there is no limit as to the number of members an LLC can have, the business owner could encourage more qualified individuals to become a member of the Disc Jockey LLC in order to increase its existing operational funds which can be used for further business expansion. (Stegman, 2008) Depending on the qualifications of a new member, the business owner and its member(s) could decide who among the new members can be invited in actively joining the business’ day-to-day operations since a member can either be known as passive or active. The Day-to-Day Operations of the Business Similar to a combination of a partnership and a corporation, a company that is registered as LLC can be legally managed by a manager, its member(s), by a board, or a combination of a manager, member(s) and a board of directors. (Kurant & Yeh, 2008) In general, the manager(s) of the company is highly dependent on the preference of the majority of its members which can be conducted through a managerial election on behalf of the Disc Jockey LLC. (Caroll & Biehl, 2008) Among the possible reasons why business owners would want a business partner to withdraw from the business as a partner is due to the differences when it comes to managing the business. Basically, conflict in handling the business could result to a lot of uncompromised decision-makings which could negatively affect the overall business performance of the company. (McNary, 2003) For example: Male leaders tend to use the transactional leadership strategy since men are more inclined to think rationally as compared to women. (Eagly & Johnson, 1990) On the other hand, female leaders adopt more of the transactional leadership qualities since they are more charismatic and have the ability to communicate well by nature as compared to men. (Bass, Avolio, & Atwater, 1996; Davidson & Ferrario, 1992) Considering the a Disc Jockey LLC requires an immediate decision-making on the part of the business owners when it comes to accepting clients’ reservation, it is very crucial on the part of the management to follow a system to avoid accepting a business transaction wherein the company could no longer render its services due to a tight schedule. Aside from management conflict which could arise from differences in preferred management style, the business nature of a Disc Jockey LLC could trigger marital conflicts between the business owner and the unwanted business partner. In line with this matter, the study that was conducted by Carroll, Badger, & Yang (2006) reveal that the nature of the business is one of the biggest factor that could trigger marital conflicts and arguments between the business owner and the business partner who happens to be the wife of the business owner. Because of the socially and culturally accepted mentality that men are more dominant than women, married couples often ends up in personal and business relationship misunderstanding. (Hamilton, 2006) One of the advantages of having an unwanted business partner decided to leave the Disc Jockey LLC is that it enables the business owners and its other member(s) to enjoy the benefit of having the right to manage the business’ day-to-day operations. By fixing the necessary legal documents that officially remove the unwanted business partner from the Disc Jockey LLC, business owner and its member(s) could manage the business without having to worry about the unwanted business partner. As a result, it will be so much easier on the part of the business owner to manage the business without the need to worry about his marital affairs with his business partner. By removing the biggest obstacle that could hinder the profitability and organizational growth of the Disc Jockey LLC, the business owner could freely develop several strategic ways that could contribute to the operational efficiencies of the company. However, there will always be a temporary drawback with regards to the sudden decision of removing a business partner in exchange with another member. (Bascom, Richards, & Storm, 2005) Existing Capital Funds When a business partner decided to leave or withdraw from the Disc Jockey LLC, there is a need for the business owner to settle down the business partner’s share in the company. In line with the official allocation of profits or business shares, one of the best strategies in allocating the business shares of the withdrawing business partner is to consider the value of money she has invested in the company during the time she has decided to join Disc Jockey LLC. (Caroll & Biehl, 2008) By doing so, the business owner and other member(s) will be ensured of a fair allocation of company shares considering the fact that the withdrawing business partner is also a marital partner of the business owner. As an end result of having the need to withdraw a large sum of money from the business organization’s equity, it is possible that the future cash flow of the business will be negatively affected during the months wherein the demand for a disc jockey service is low. For this reason, it is very much advisable on the part of the business owner and remaining member(s) to come into an agreement to buying back the shares of the withdrawing business partner to avoid pulling out a large sum of money out of the company. (Bascom, Richards, & Storm, 2005) Another way of maintaining the company’s existing equity is to invite a new member who is willing to purchase the business shares of the withdrawing business partner. By doing so, not much changes will reflect on the company’s annual financial statement. Marital Issues Given the fact that the withdrawing business partner is married to the business owner, the business is still legally considered as a conjugal property; unless there is a clear legal statement or a premarital agreement between the two parties prior to when the marriage was conducted. (Zeldin, 2008) Basically, a prenuptial agreement legally segregates the businessman’s business in case the marriage ends up in future divorce. In case the business was established after the marriage, a prenuptial agreement will not protect the man from the possibility that the wife is entitled half of the business’ value even though the business owner insist to grant the business partner her withdrawal from the business. In case the company is a non-LLC, the wife will have to legally shoulder a share of the company’s debt or the business loss in case the business eventually incurred debt. (Zeldin & MacAdams, 2008) Discussion When analyzing the given case scenario, it is necessary to consider the work performance of the withdrawing business partner in case there are the LLC has a lot of members aside from the business owner. If this is the case, the business owner should consider the rights of the members to vote on whether or not to grant the request of the business partner to leave the company. In case the business partner who is withdrawing from Disc Jockey LLC contributes a lot in the daily operations of the business, it is possible for the business owner and its member(s) to prolong the withdrawal of the business partner by not officially signing and/or filing the Articles of Amendment (LLC-5.25) which will require the signature of the business owner prior to the official filing of the form. (Illinois Limited Liability Company Act, 2008) Even though the business owner signs the Articles of Amendment, the members of the company may end up making a serious issue since their official right as a member of the company has been violated at the time when the business owner did not confide them with the issue. This is primarily because the limited partners within an LLC has the right to decide whether or not to approve the withdrawal of a business partner within the Disc Jockey LLC so long as the majority of the limited partners within a corporation votes to retain the business partner within the organization. (Bascom, Richards, & Storm, 2005: p. 2) The only problem associated with retaining a business partner from withdrawing from the organization is associated with the fact that the person may not perform well compared with her past performance. With regards to the marital issues, married couple such as in the case of the business owner and the withdrawing business partner will have to shoulder the business profit, loss and/or debt. Since the Disc Jockey Company is registered as LLC, the business partner is very much protected from the business loss in case the business experience negative profit or has incurred debt out of bank loans. Conclusion There are quite a lot of advantages and disadvantages associated with the case wherein a business partner has decided to withdraw from a Disc Jockey LLC. The fact that the withdrawing business partner of the company is the legal wife of the business owner makes the situation all the more complicated. Given that the business is registered as LLC, the business owner is more advantageous in terms of being able to easily convince new business partners to join the company. For this reason, Disc Jockey LLC could easily expand its daily operations by hiring more people and acquiring more musical equipments as necessary. Since the business partner is planning to leave the business, business owners and its member(s) should officially file the Articles of Amendments as soon as possible in order to avoid future problems with regards to the business documents. Business owner should not take into consideration only his personal judgment on making the unwanted business partner out of the circle since each of the LLC members has the right to vote on whether or not grant the business partner’s request to leave the company. Given that majority of the members would agree that there is a need to remove the unwanted business partner from the group, the long-term effect on the company’s business operations will be better in the long-run unless the unwanted business partner who happens to be the legal wife of the business owner decided to file a divorce against her husband. In case there is no prenuptial agreement to protect the businessman from losing his business or in case the business was established by the married couple after marriage, the wife will still receive half the value of the company. *** End *** Table I – Summary of LLC’s Advantages & Disadvantages Description Advantages Disadvantages Minimum Number of Members Required in Forming the LLC 1. No limit on the number of LLC members. (Stegman, 2008) 2. Option to invite more individuals to become either passive or active members to enable the company to generate more funds which can be used in expanding the operations of the Disc Jockey LLC. 3. LLC members are protected from personal liability in case the company becomes heavily in debt. (Caroll & Biehl, 2008) 1. Amend the existing Articles of Organization by reporting to the Secretary of State the withdrawal of a business partner. 2. Require extra time, effort, and US$150.00 as filing fee of the new Articles of Amendment. 3. Business owner needs to find another qualified member in case LLC is composed of only 2 member right from the start. 4. Possibility that the business owner would fail to find a qualified business partner. (Bascom, Richards, & Storms, 2005) The Day-to-Day Operations of the Business Negative Work Performance 1. Business owners and other members could enjoy the benefit of not having the unwanted business partner taking over the day-to-day business operation. 2. Business owner will not worry about possible emotional burden associated with marital and professional conflicts. 3. Business owner and member(s) could freely develop strategies that will improve its operational efficiencies. 1. Temporary drawbacks which may arise from the sudden removal of a business partner. (Bascom, Richards, & Storm, 2005) Positive Work Performance 1. LLC business owners and member(s) have the right to prolong the withdrawal of a business partner by not signing the Articles of Amendment. 1. Business partner may chose not to deliver the best work performance. Existing Capital Funds 1. Allocation of business shares should be based on the value of money the withdrawing partner has invested on the company. (Caroll & Biehl, 2008) 1. Settle down the shares of the unwanted business partner: a. Withdraw large sum of money from the business equity. b. Buy-back the unwanted business partner’s shares. c. Invite more members to join the business. Marital Issues 1. Even if the business partner (wife) has been granted to leave the company, she will still have a share in the business as the legal wife of the business owner; (1) unless the business was established prior to marriage; and (2) there is a prenuptial agreement between the two prior to marriage. 1. In case the business was established after marriage, the wife is still entitled half the value of the business even if there is a prenuptial agreement between the spouses. References: Ambassador Entertainment. (2008). Retrieved August 10, 2008, from About Us: http://www.ambassdj.com/home.html Bascom, K. K., Richards, R., & Storm, A. B. (2005). Defining Issues: When Should General Partners Consolidate Lmited Partnership. No. 05-3. KPMG;s Departnment of Professional Practice - Audit and Risk Advisory. Bass, B., Avolio, B., & Atwater, L. (1996). Transformational and Transactional Leadership of Men and Women. Applied Psychology: An International Review , 45(1):5 - 34. Caroll, D. D., & Biehl, A. J. 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Retrieved August 10, 2008, from Marriage Plans Affect Business: http://downloads.ohiobar.org/pub/LegalBasics/LegalBasics_ch01.pdf Zeldin, L. S., & MacAdams, P. J. (2008). Retrieved August 10, 2008, from Divorce Affects Business: http://downloads.ohiobar.org/pub/LegalBasics/LegalBasics_ch01.pdf Read More