Question, I’m a partner in an LLC in NYC. 3 of the partners have been able to get about $100K in business credit, which we will use to get into a commercial deal. Now there is some infighting that only the partners who were the guarantors on those lines of credit would be the only ones that can participate in a deal and get an equity and cash flow share.
My argument is that although those 3 partners were the ones who got the credit, technically that credit was extended to the LLC, not the individuals, so everyone that’s a partner in the LLC is entitled to their proportionate share of whatever investments the LLC funds are used for.
I’m pretty sure I’m correct on this. I’d appreciate any thoughts, feedback.
Thanks. The operating agreement states that the 5 partners each share a 20% interest in the assets and debts.
When we started the LLC, it was a minimal contribution. We came in with $150 each, just to handle administrative expenses.
I’m under the impression that although one or two, or three partner may have been able to obtain credit, if those funds are used in an investment, each partner has a 1/5th interest as per the operating agreement. Similarly if one was to default on a loan each partner would be 1/5th liable for repaying that loan, no?
That part I understand, my question is more if business credit is extended to an LLC, even though one partner may have been the one that actually applied for it and was the guarantor, doesn’t that credit belong to the LLC as a collective unit and not that one partner?
The LLC is a little over 3 years old. Also, to be clearer, I’m referring specifically to business credit cards for which one partner in the LLC applied for. That partner is claiming that credit belongs to him, I’m arguing that credit belongs to the LLC, and each partner is entitled to their proportionate share, as outlined in our Operating Agreement.
So 3 of the 5 partners are personally guaranteeing the credit lines, and 2 of you are risking absolutely nothing, and yet you want equal share of the profits? The question was asked before, what exactly are you bringing to the table other than $150?
To answer the question, no, the credit does not belong to the LLC, the credit belongs to the member of the LLC who is personally guaranteeing it. 1 phone call to the credit card company will verify this. If the LLC defaults on said credit, then that person will have to repay it. Are you going to help repay the credit if things go bad?
Why were they able to get such great credit lines yet you weren’t?
This is why I will never go into partnerships unless everything is completely and totally spelled out ahead of time. Spelled out as in what precisely will happen if things go perfect or if things don’t go perfect. Basic business planning. It avoids situations like these where 1 person in the partnership is expecting something that the others do not.
HERE IS THE FACTS ABOUT A LLC MEMBERSHIP MADE UP OF PARTNERS. THE RESPONSIBILITY LIES IN THE % OF MEMBERSHIP CERTIFICATES THAT ARE ISSUED TO EACH PARTNER WHICH DETERMINES THE PERCENTAGE OF OWNERSHIP IN THE LLC. AND PROFIT AND LOSS ARE DIRECTLY RELATED TO THIS AS WELL. ALSO TAXES. YOU CANNOT BUILD CREDIT TO AN LLC WITHOUT SOMEONE TO GUARANTEE THE CREDIT. NO MATTER THE AGE OF THE CORP OR THE SCORES. BECAUSE A BANK WILL NOT EXTEND CREDIT TO THE LLC. BECAUSE IT IS NOT A STABLE CORPORATION FOR THE REASON OF MULTIPLE " OWNERS", NOT OFFICERS, LIKE IN A “C” CORPORATION WHERE THE STOCK IS NOT ISSUED TO OFFICERS, BUT CONTROLLED BY A BOARD OF OFFICERS. AND STOCK IS DEFFERED. SO WHEN THE OTHER OFFICERS GET APPROVED FOR CREDIT IN THE LLC THE CREDIT IS THE RESPONSIBILTY OF THE OFFICER NOT THE CORPORATION. AND THAT OFFICER IS THE GUARANTOR UNTIL THE CREDIT LINE IS CLOSED.
I think if you looked at the cc paperwork you would find that it is not business credit it is actually personal credit. Your orginazation is a red flag to lenders. I will presume that your LLC is not a business but is just a group of people wanting to invest in real estate.
Ask to see the credit card papers or like already mentioned above call the credit card co. If there say they can not talk about other people’s accounts just ask if the above situation sounds plausible.