QUESTION

I invested cash into a llc. I never received stock. The company sold. Am I entitled to anything?

Asked on Oct 06th, 2013 on Business Law - Florida
More details to this question:
I invested money into a llc to help get it started. I never received stock. Before i receive equity i was told to leave. They kept the money and ended up selling company a couple years later for a massive dollar amount. I never got my original money back at any time. Am i entitled to any of the proceeds from the sale even though i held no equity in company?
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1 ANSWER

Well, the short answer is that a company can’t just take your money and run… that’s not how it works.  Generally, you can find answers to LLC questions by turning first to the LLC’s operating agreement.  With that, there should be provisions on the membership (how and when a member may be added or how and when a member may withdraw?)  There should be records of contribution and the ownerships interests of each member.  Finally, you’re likely to find a provision that would prohibit the LLC from taking someone’s equity (especially without paying them for it).  On that side, it sounds like there are some issues with regard to the whether or not your investment was intended to give you any equity in the firm.  If it was not, then your investment would be a loan and you would be a creditor.  In either situation, it sounds like you are owed money.  Assuming that the sale of the business resulted in a profit, if it turns out your investment was for equity, then, yes, you should be owed for your portion of ownership.  If there was no profit, then there’s nothing to distribute to you.  Now, if your investment was actually intended to be a loan of some sort, then you would argue that you are a creditor that is due the money.  Then, you would be paid as part of the winding down.  Again, assuming there’s enough money to pay all of the debts, you would be owed as a creditor.  Please understand that this is general information regarding the facts you’ve given.  There are a number of variables that can affect your rights.  I would highly advise seeking the counsel of a business litigation attorney to discuss the details.
Answered on Oct 07th, 2013 at 1:11 PM

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