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Richard
Richard, Attorney
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An LLC, funded at $1,000,000 initially by 15 shareholders funding

Resolved Question:

An LLC, funded at $1,000,000 initially by 15 shareholders funding unequal amounts of shares needs a cash infusion. Some have chosen not to participate in a capital call nor be a cosigner on a standard bank loan. How is this handled in relation to valuation of individual assets in the LLC? Which is the better way to fund the needed cash infusion?
Submitted: 2 years ago.
Category: Legal
Expert:  Richard replied 2 years ago.

Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good evening. Does the Operating Agreement of the LLC address the issue of additional cash needed by the LLC?

Customer: replied 2 years ago.
It does not address the issue of unequal participation and how this affects the the percentage of ownership based on original investment.There must be legal precedent for this situation somewhere. This is what I am asking you to find.
Customer: replied 2 years ago.
You did not give me an answer based on legal precedent. Operating agreement does not address inequalities in subsequent contributions via capital call or cosigning a loan.
Expert:  Richard replied 2 years ago.

There is....I was answering your question while you replied....in the Limited Liability Company Act. If the Operating Agreement is silent, and the members cannot agree upon how any additional funding will affect ownership, then the allocation of profits and losses will be based on the capital accounts of the members, including these additional contributions, and cash distributions will be distributed pursuant to those capital accounts. See Sections 25.15.200 and 25.15.205 of the Act. Typically, however, if the foregoing is not enough of a carrot for the contributing members and the Operating Agreement is silent, the members willing to put up money will mandate an amendment to the Operating Agreement to be signed by all members before putting any money up so that the contributing members get what they demand before they put the money up. This would usually result in these members getting a preferential yield and/or preferential distribution and/or a change on ownership interests.



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Richard, Attorney
Category: Legal
Satisfied Customers: 46141
Experience: Attorney with 29 years of experience.
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