I am considering forming an LLC with 3 other people. There is a situation that I would like to understand to determine if I am protected under normal LLC laws.
Say there are 3 other people, X, Y, Z that form the LLC with me. The LLC finances a construction project for 800k, with person X being the only person providing a personal guarantee on the loan. Technically, I should not have any personal liability on the loan, correct?
What happens if the project goes awry, and the LLC is left with say 100k of debt when all is complete, and the person X declares bankruptcy? How are myself, and persons Y and Z affected? Are we completely protected from any personal liability? Or is this considered negligence? How do I know if I am protected if this were to happen, despite not giving a personal guarantee on the loan?
second - if you pg a loan - you’re personally responsible for the repayment of the debt - period - no bankruptcy will help you get out of it - whatever you own, the bank will take. as for your partners - no one will go into it with you unless they’re pretty much assured 100% liability protection.
third - in order to acquire a loan like that - or any business/real estate loan - without a pg - your business must be established, have solid financials and good credit standing. without these - you won’t find a lender to give a new company any money, unless you’re well known businessman who has personal relationships with bankers/investors.
i considered the whole pg thing and decided it was against my best interests - i’m on the two year plan to build my businesses. i’ve also got some money along with some partners, but none of us want to, nor would we ever consider any business transaction that would call for our personal assets to be in jeopardy, no matter how “sweet” a deal is.
Just so we are clear on the original post, there are four members of the LLC with one of the members giving a personal guarantee? In my non-legal opinion the lender can only go after the LLC assets and the personal gaurantee of member X. If you are not member X then you only have your investment in the LLC at risk.
I understand that any personal guarantees on the loan leave that person completely liable for any debts the LLC may incur. So technically the person who provides the guarantee could potentially have huge debt to pay back, and need to claim bankruptcy.
So my question is, for any reason or circumstance can the corporate shield of an LLC be broken in the case of one of its members claiming personal bankruptcy, which would result in a creditor going after other members of the LLC, despite them not providing a personal guarantee on a loan?
Also,
one of my business partners is a lender and has working relationships with banking institutions.
In my opinion if you operate the LLC properly and do not comingle personal and LLC activities then you should be fine. Just because one partner gives a personal guarantee and then might file for bankruptcy protection should the lender pursue that guarantee does not create personal liability on the part of the other partners. Consult your attorney to ensure your LLC is properly established.