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LLC with 2 business partners, only one signing personal guarantees for lease, if some thing happen to business.

Anaheim, CA |

LLC with 2 business partners, only one signing personal guarantees for lease, if some thing happen to business. are the both partner is responsible and the company or just one who sign the lease?

Attorney Answers 6

Posted

In the absence of a written agreement it could be argued both ways.
Your "partner" may claim that your guaranty was part of an agreement you had. You would argue that you have a right to equitable contribution. This is not something usually covered in the off the shelf operating agreement I suspect your LLC has.

While you are straightening this out, make sure you also get a buy-sell agreement between you. There is no public market for your shares if one of you dies, wants to retire or becomes permanently disabled. You want somthing that sets a formula for the buyout (not a number, a formula) before the event (otherwise you will never agree) and compels the LLC or your "partner" to buy you out. Usually there is also a right of first refusal in case your "partner" wants to sell to the "future partner from hell".

The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.

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John P Corrigan

John P Corrigan

Posted

In all likelihood the operating agreement likely has an "Entire Agreement" clause that would defeat any such assertion being made against the non-guaranteeing member. Moreover, the entity is an LLC so there can be no imputed liability for additional capital unless agreed to.

Posted

If your LLC's finances are being properly and separately managed (i.e. nobody uses the LLC as their own personal piggy bank), then the lessor would only be able to recover from the LLC and the partner signing the guaranties. With that said, the partner who signed the guaranty will likely be willing to try anything and everything, including alleging side-agreements, promissory reliance, etc. in order to the other partners contribute to his liability. If you haven't already, please consider going to an attorney to make sure that you have an operating and/or membership agreement that completely outlines your understanding with your partners.

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Posted

In a typical LLC setting the member is not responsible for the liabilities of the LLC beyond the agreed capital contribution, ergo there is no imputed responsibility of a member to assume some level of additional contribution unless expressly agreed to in writing. Consequently, absent a written indemnity agreement between the lease guarantor and the other member to assume equal responsibility for any default damages being assumed personally, then you are out of luck.

My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained. Please click "helpful" or "best answer" if my answer added any value or add a "comment" if you have more info for me to help you get a better answer.

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Posted

I recommend that you have the other Member guarantee the lease. At the very minimum I recommend that he or she signed an indemnity agreement for your benefit. The indemnity agreement is irrelevant with the landlord, but it may benefit you down the road if you need to be reimbursed for any funds you personally guaranteed.

The above is not legal advice. It is an illustration of options that can be used in certain situations. I have not examined all of your facts, if I did I might provide a different response.

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Posted

You will want someone to take a look at the operating agreement for the limited liability company to determine your liability to each other. As far as the lease goes, only the parties that are signatories to the lease would be responsible. However, I think you could possibly make an argument for liability from one partner to another (although it would be a stretch.)

You should consult counsel on this issue and have someone review your operating agreement.

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Posted

An LLC is a type of business entity that provides limited liability for its members (owners), which means that they are not personally liable for any contract, tort, or other obligation of the LLC by virtue of solely being a member. However, pursuant to Corporation Code Section 17101(e), a member can waive this protection and agree to be personally liable for any or all of the debts, obligations, and liabilities of the LLC as long as the waiver agreement is set forth in the Articles of Organization or the Operating Agreement. Another way for a member of a LLC to be held personally liable to a 3rd party is by personally guaranteeing a contractual obligation of the LLC.

To answer your question, if the LLC is a party to the lease and one member is also personally guaranteeing this contractual obligation, if there is a default, then the lessor can seek recovery from both the LLC and that member to recover unpaid funds due under the terms of the lease agreement. Hope this helps.

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