you and your long time friend have produced a neat business idea, received financing, hired employees, and are planning to open the doors to your business in two weeks. The business is configured as an llc using a software program that you purchased at an office supply store. The program is user common and friendly and prompts you to enter the names and addresses of the owners and a beautifully polished llc operating agreement is produced.
you buy the building in which the business is housed using your credit and provide $50,000 of operating capital to the business. You and you friend agree that he will be the full-time manager of the business in lieu of providing capital to the business. Your friend convinces you to place his name on the deed to the building stating that it will be more comfortable for the business to obtain financing with both of you on the deed.
your business opens and you and your friend miraculously manage to turn a profit within a small amount of months. You’re very pleased with the business operations and are excessively affected emotionally when it comes to the future hopes and chances of the business. Your friend mentions to you that he would like to obtain a line of credit for the purpose and purpose of purchasing new instrumentation, hiring an additional assistant, and sales trips. The one caveat is that your credit will be employed to obtain the credit line. You obtain a $100,000 line of credit and you concede your friend to have admission to the line of credit.
after a year or so, your friend is mesmerized in taking galore business trips to promote the business and convinces you to help with managing the store. As you have never genuinely been a “numbers” individual, your friend does all of the accounting and merely provides you a check at the end of every month representing your percentage of the business profits.
while your friend is on the business trips, you start out to notice that there are very few bills that arrive at the business. You think this is strange and contact your friend who says that he has traditionalistic a post office box to prevent identity theft. As that seems to be a lawful and logical explanation, you forget when it comes to the bills and continue with running with the business.
during the third year of the business, you accept a summons to make a showing in court when it comes to the business credit line. The bank in which you hold the credit line claims that you have breached the terms of the credit line agreement. You call your friend and he tells you that he does recognise what took place because the business’s bills are always paid on time. You call the bank and request all of the statements from the past two years. The statements show that the bills have never been paid and that your friend has employed the credit line to fund impertinent and personal trips to europe and south america.
the bank is competent to pierce the “corporate veil” and sue you personally because your friend commingled business and impertinent and personal funds, failed to adequately capitalize the business, and personally signed assorted agreements. The bank does not bother suing your friend because he has no sum totals and obtains a impertinent and personal adroitness and judgment versus you for $120,000 plus attorney fees.
although you have taken a huge financial hit, you’re competent to keep the business afloat and embark on removing your friend from the business. You dust off the llc agreement and discover that the basic agreement has no provisions that presence and address remotion for bad acts, no provisions to buy out a fellow member, and no provisions that presence and address the manner in which the accounting of the business had better be handled. Your former friend is a joint proprietor of the property that the business is housed and you doesn’t have a cheap path to remove him from the business.
to prevent such an occurrence, it’s of the utmost importance to have an attorney draft a customized llc operating agreement to defend your intentness and interest whether or not things go south amongst the llc members. This comparatively inexpensive directive may prevent the hypothetical legal problem referenced above.
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