We are often asked by business owners if their business partner can “lock them out” of the business, which usually means restricting their access to the businesses bank accounts. Under these circumstances, the injured owner who has been frozen out of the business has certain options that he can follow.
First, take a careful look at the governing documents of the LLC or corporation, that is, the operating agreement or bylaws respectively. If the governing documents state any conditions that allow for member dissociation or withdrawal, then examine those closely to determine if those conditions have been met. If the governing documents allow for the expulsion of a member or director from the company for certain condition, then you may have a basis for terminating your business partner. This may trigger the provisions of a buy-sell agreement.
Second, gather whatever evidence you have to justify your case that you were wrongfully frozen out of the business under the governing documents. Be careful, because a wrong decision could backfire.
Third, when a partner is removed from the business, his equity in the business has to be purchased. Even if the other partner is a minority owner, his equity still has to be purchased, that is, his original investment, plus any capital interest in the company.
Fourth, if you have to reclaim your rights to access the business, then you may have to file a derivative lawsuit. Note that derivative lawsuits under Virginia law have a very specific procedure that must be followed before anyone can initiate a lawsuit.
Your Virginia Business Lawyers at Fox and Moghul stand ready to assist you. Please call us to schedule a consult if you find yourself in a situation where your business partner has locked you out of the business.