Two (2) Tiered Buy-Out Scheme for "Proper" and "Wrongful" LLC Withdrawl

I recommend in the Pre-Organization Questionnaire Letter that clients consider a two (2) tiered buy-out scheme with one buy-out provision for situations where the LLC owner/member’s withdrawal from the LLC is “proper” per the terms of the LLC Operating Agreement and one for “wrongful” withdrawal.

The “wrongful” party is made liable to the LLC for damages as well as reduction and delay in payout of their LLC interest. This two-tiered buy-out is intended to have a chilling effect on LLC owner/members doing those things that have been designated up front as “wrongful” in the LLC Operating Agreement. The intent is to protect LLC owner/members’ expectations, give investments held by the LLC needed time to appreciate, and assist in a fight against creditors who stand in an LLC owner/member’s shoes and seek to attach LLC assets.

“Certain clients come to see a lawyer, confide their troubles to him, and then go home light-hearted, feeling that they have rid themselves of all their problems. They go to bed and fall fast asleep like innocent children, in the belief that the lawyer has assumed the professional duty to lie awake and worry on their account.” Piero Calamandrei, Eulogy of Judges, trans. Adams and Phillips (Princeton: Princeton University Press, 1946), p. 43.