QUESTION
2 partners are in an LLC. The business is possibly facing having to close it''s doors. Do the partners stop paying themselves in order to payoff debt?
Asked on Sep 19th, 2011 on Business Law - New Jersey
More details to this question:
We have a small business (an LLC) in which there are 2 partners. The business is struggling and may be faced with closing it''s doors in a year or 2...
There is about $100,000 in debt which the partners have signed for personally... There was no partnership agreement (unfortunately)...
Partner A feels that both partners should cut their income by 75% and pay down debt so that they are not strapped personally with these debts with no business income to offset them if the business should close. Partner A feels that the needs of the business should supersede the personal needs of each partner individually.
Partner B is not in a position to take a cut in pay due to personal living expenses therefore, upon closing the business BOTH partners will be strapped with higher amounts of debt from the closed business...
they question is, legally who is in the right?
1 ANSWER
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Unfortunately, neither member of the LLC is "right." In the absence of an agreement as to how the company will be controller, each equal member in a two-member LLC has equal rights to determine how the company will be operated. No legal principle dictates that the demands of either member should be followed. The conventional solution, of course, is to follow "A's" solution -- reduce expenses until the debt is paid. But "A" has no way of forcing that on "B."
It will be worth your while to consult with an attorney who practices in this area. If you are "A," perhaps your attorney can persuade "B" that "A" is the right solution.
Answered on Sep 19th, 2011 at 2:36 PM