What does it mean to join an LLC that has pre-existing debt?

Asked almost 2 years ago - Manchester, CT

I've been working for an LLC (Single Member Entity) for two years and was recently invited on as a partner. Now that the company has been doing okay for a few years, we started filing tax returns for all previous years. The amount owed is considerable and we will soon begin a payment plan to pay it down.

Do I become personally liable for that debt if I join the company? Is there a difference in joining an LLC and creating a partnership? Is it possible to divide future profit fairly when this debt is a result of the first owner?

Attorney answers (4)

  1. Dominic Spinelli

    Contributor Level 6

    Answered . Agree with the others. In general, members of an LLC are not personally liable for the debt. But you should consult with an attorney to answer your specific questions.

    This communication does not constitute "legal advice", nor does it form an attorney-client relationship
  2. Jeffrey Bruce Gold

    Contributor Level 19

    Answered . The LLC is responsible. There is a difference betweeen an LLC and partnership. And yes it is possible to divide future profits. Your questions indicate that you have no idea what you are getting into. You should get into a lawyer's office before signing anything.

    If you'd like to discuss, please feel free to call. Jeff Gold Gold, Benes, LLP 1854 Bellmore Ave Bellmore,... more
  3. Michael T Millar

    Pro

    Contributor Level 19

    Answered . I concur with Mr. Gold.

    Generally, members of an LLC are not personally liable for the company's debt unless they personally sign guarantees (something I advise that you do NOT do).

    You can divide future profits and decide how to do it in your operating agreement.

    There is a different between a partnership and an LLC (a partnership does not provide you with limited liability - an LLC is typically taxes the same as an LLC and gives you limited liability).

    You should speak to a business law attorney to review your situation.

    If this answer was helpful, please mark it as helpful or as a best answer. This answer is for general education... more
  4. Tudor F Capusan

    Contributor Level 8

    Answered . Members are generally not personally liable for the debts of the LLC. You just have to decide whether associating yourself with such an LLC is a good business decision.
    As the other lawyers observed, general partners of a partnership share both profits and losses. So if you were to enter into a partnership with the LLC, then you would be liable for the debt of the LLC. I'm assuming that that's not the situation you're contemplating.
    As far as dividing the future profit fairly, you just have to negotiate the best terms you can as a member and then decide whether you like those terms. If you do, then take the deal.

Related Topics

Small business partnerships

A business partnership is an arrangement whereby parties enter an agreement to cooperate for their mutual benefit.

Business debt

Business debt has different implications depending on how the business is structured. In some cases, you may be personally liable.

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