Author Topic: Question about llcs, unequal investment  (Read 439 times)

partgypsy

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Question about llcs, unequal investment
« on: August 04, 2019, 08:14:29 PM »
I have a technical question about llcs or business agreements. Suppose 2 people went into an LLC together to buy properties. Everything is 50/50 but at the beginning person a invested x more (say 100k) via a loan under their name. A number of years later the LLC is dissolving. The balance is now y 70k, with interest payments of z 25k. What does partner b owe partner a to make things even?
« Last Edit: August 04, 2019, 09:03:54 PM by partgypsy »

marty998

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Re: Question about llcs, unequal investment
« Reply #1 on: August 04, 2019, 08:17:56 PM »
Not enough info for a full answer (would need to understand the entire balance sheet of the company) but generally speaking creditors should always be paid out first before equity holders in a company dissolution.

So the loan is paid back first out of the remaining assets. Then whatever is left over is split between the shareholders.

partgypsy

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Re: Question about llcs, unequal investment
« Reply #2 on: August 04, 2019, 09:01:30 PM »
The loan is from partner a, that partner b needs to make whole. What I'm asking is what should be paid back,  the original loan or current balance? Partner a says partner b owes partner a half of original loan (x) plus half of all interest payments paid (z). Partner b says half of remaining balance (y) plus half of interest payments (z).
« Last Edit: August 04, 2019, 09:03:35 PM by partgypsy »

SeattleCPA

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Re: Question about llcs, unequal investment
« Reply #3 on: August 06, 2019, 07:40:43 AM »
The loan is from partner a, that partner b needs to make whole. What I'm asking is what should be paid back,  the original loan or current balance? Partner a says partner b owes partner a half of original loan (x) plus half of all interest payments paid (z). Partner b says half of remaining balance (y) plus half of interest payments (z).

It sounds to me as if the partnership accounting maybe hasn't been done correctly.

But the LLC should honor its loan agreement with partner A if it can. (This would be true with any loan obviously.)

And if it can't, the LLC limits the liabilities of its members to their original investment.

E.g., if partner A loans $100 to LLC and then both partner A and B each invest $50 into the LLC, $200 of money has been contributed. If the LLC loses the entire $200, nobody gets any money back. Partner A loses $150 and partner B loses $50.

And the one thing that should happen here is that, essentially, the partnership tax return and its K-1s do capital account maintenance (partnership capital account bookkeeping) to reflect this reality.

partgypsy

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Re: Question about llcs, unequal investment
« Reply #4 on: August 06, 2019, 07:49:26 AM »
Sorry if not being clear. There was no loss of monies, just that the partnership is ending and there is tying up loose ends in particular a personal loan taken to invest in the partnership that wasn't included in the bookkeeping.

I think I figured it out it would be any actual amount paid/2, plus remaining balance/2. It would be like if partner a borrowed 1 million dollars for the business and partner A paid 800K dollars in interest and payments. Partnership is ending, there was a 200K balance. Partner A pays off 200K balance. Partner A is asking partner b to pay half of 1 mill and half of interest payments.

To make partner A whole, seems you would divide 800/2 (actual payments) plus 200K (remaining balance) by two to get amount owed (500K per person), not 1 million/2 plus 800K/2 (partner B owes 900K).

 
« Last Edit: August 06, 2019, 07:55:27 AM by partgypsy »