What if one member of an LLC does not want to sell?

QUESTION: I received a call from a prospective seller who is a member of an LLC. The LLC owns several properties, and there are three members in the LLC. The prospect who called me, along with one of the other members of the LLC, wants to sell one property in order to invest in another property. However, the third member does not like this plan. Can I take this listing? If so, who should sign?

ANSWER: While it may be possible to take this listing, it is likely not advisable unless you can get all members of the LLC to sign off on it.

Generally speaking, an LLC can be bound by any one member who has authority to sign, and not all members will need to sign in order for the LLC to be obligated. The authority of a particular member to sign may come from an operating agreement, or it may come from North Carolina law. With any LLC seller-prospect, be sure to first ask if there is an operating agreement, because that document will control.

If there is no operating agreement, and selling real estate is in the ordinary course of the LLC’s business, then the signature of any one member will likely suffice. N.C.G.S. § 57D-3-20. There is one important exception to this rule, however, and that exception applies when the LLC will be selling substantially all its assets prior to dissolution. N.C.G.S. § 57D-3-03(3). If the exception applies, then all members must sign for the transaction(s) to be binding.

In this case, it sounds like real estate transactions are in the ordinary course of business for this LLC. It also sounds like this LLC will not be liquidating substantially all its assets. If there were no red flags, then the signature of one member of the LLC would likely be sufficient to bind the LLC to a listing agreement, sales contract, and other documents in the transaction.

However, the red flag you raise is an important one. If you take this listing as it is, the disagreeing member may bring a lawsuit. If that lawsuit were successful, it may well block any transaction from taking place. This would put you in a position where you have invested significant time, energy, and expense only to be told by a court that the sale cannot be completed. For this reason, even though it may not technically be necessary, it would be advisable to only take this listing if all members of the LLC agree and sign.

Release Date: 2/8/2024

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Filed Under: Contract Law,