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LLC business is not making money and two partners want to invest

personal monies to turn things...
LLC business is not making money and two partners want to invest personal monies to turn things around. If one partner doesnt put up money what happens to % of ownership?
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Answered in 6 minutes by:
7/2/2012
Richard
Richard, Attorney
Category: Business Law
Satisfied Customers: 56,022
Experience: 32 years of experience practicing law and a businessman.
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Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good afternoon. It depends upon the existing operating agreement. If the existing operating agreement is silent regarding additional amounts needed, then before one party puts in any additional money, the owners need to agree on whether these funds will be treated as capital contributions or loans. If capital contributions, whether the ownership will change and/or the new contributions will be given any preference regarding priority of distributions. If loans, what rate of interest will they bear. If the parties cannot agree, then the one wanting to salvage things should force a dissolution to get the other non-paying party out of the LLC.



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Thanks for allowing me
to be of service to you. Please be aware that the information provided here is
not legal advice. Rather it is simply general information. All states have intricacies in their laws
and any information given is simply information only and specifically is not
intended to be, nor does it constitute, legal advice. This communication does
not establish an attorney-client relationship with you. I hope this answer has
been helpful to you.



Richard
Richard, Attorney
Category: Business Law
Satisfied Customers: 56,022
Experience: 32 years of experience practicing law and a businessman.
Verified
Richard and 87 other Business Law Specialists are ready to help you
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Customer reply replied 5 years ago
the monies go to Capital, each person has monies invested so no one wants to push another out of the LLC but at some point something must change. No operating agreement in place. Wondering what can happen if one party never puts up any money to keep it afloat.

If there is no operating agreement, the ownership interests under the Limited Liability Company Act are based upon capital account balances so that the ownership percentages change automatically as capital is contributed. But, before one party continues to take all the risk, the parties should come to a definitive agreement going forward.



I hope this has given
you information that has been helpful to you. If the information seems more
general than specific, please be aware that we are only allowed to provide
information and not specific advice.
If you have a follow-up
question, please remember that there might be a delay between your follow up
questions and my answers because I may be helping others or taking a break
.



If you do have any additional questions about
my answer please click the "Continue
Conversation Link"
so I can provide you with a fully
satisfactory answer.
Please
be aware that any rating of 1 or 2 is reflected as a negative rating and I receive
no credit for my answers
.





Thanks for allowing me
to be of service to you. Please be aware that the information provided here is
not legal advice. Rather it is simply general information. All states have intricacies in their laws
and any information given is simply information only and specifically is not
intended to be, nor does it constitute, legal advice. This communication does
not establish an attorney-client relationship with you. I hope this answer has
been helpful to you.





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Customer reply replied 5 years ago

thanks,


 

Customer reply replied 5 years ago
thanks for the info. so far, I have a follow up quesion, On july 2ed you told me " If the parties cannot agree, then the one wanting to salvage things should force a dissolution to get the other non-paying party out of the LLC." I think this is where it may be going. I am the one not wanting to invest any more money and they want to borrow more money to buy time. I dont agree with this plan and would love to get out but noone will buy me out on a business that is losing money or take over my part of loan at bank. What can I do to protect myself or whats the best course of action

Does the LLC have any value now if you were to liquidate all the assets and pay off all the LLC liabilities?

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Customer reply replied 5 years ago

If all is sold (land and building) it may be able to pay off loan. The other owners are willing to put up the money needed to keep the business open but want me to borrow it from them (my share)(make a loan to me) . I do not like this option or their business plan going forward.

If you are not personally liable for the debt, and would get nothing from the dissolution, as long as the other party is willing to put up the additional money, then if it were me, I'd let them in hopes they can turn things around. The limited liability of the LLC would protect me from any personal liability. But, I would not agree to any personal liability by way of a loan...they can either put all the money up or buy your interest or dissolve the LLC, but they cannot force you to sign any loan or unilaterally cause you to be personally liable for anything they fund.

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Customer reply replied 5 years ago
We are each personal liable for our percentage of the original loan. ( I,m 10%) Over 8 years in business I have $70,000 invested. I do receive good write offs at tax time each year.

If you are worried about the loan liability, you would want to force the liquidation and dissolution of the LLC to pay off the loan. Otherwise, you are probably well served to continue to get the write offs, but refuse to sign anything creating any further personal liability. If they want to salvage things, it needs to be their risk. Otherwise, file a suit to dissolve and liquidate.

Richard
Richard, Attorney
Category: Business Law
Satisfied Customers: 56,022
Experience: 32 years of experience practicing law and a businessman.
Verified
Richard and 87 other Business Law Specialists are ready to help you
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Richard
Richard
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