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Will a business loan for an LLC have to be paid back if the LLC is dissolved?

Los Angeles, CA |

I have an LLC in California with a partner which we are going to dissolve. The LLC has no money and has about $20,000 owed to a small business loan. I am owed $15000 from the LLC because that is the amount that my partner has taken out even though the profits were to be split evenly. My question is, what is the best approach to deal with both issues? If the LLC is dissolved will the bank be able to go after me for the amount owned on the loan? How should I go about insuring that I able to get payment for what I'm owed by the LLC? Do I have to sew my partner or can we come to some kind of legal agreement where I get paid?

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Attorney answers 3


Most small business loans have personal guarantees. I would be stunned if your bank did not make you and all other members guarantee the loan. So, if you have a guarantee, it does not matter if you dissolve the LLC. They will just go after one or all of you for the debt.

As to the member, the first thing to review is your written operating agreement. If you have none, then your rights are under state statute and case law. You should speak with the member to try to resolve the dispute. If that can't be resolved mutually then your only option is to sue.

Please, hire a local business attorney to try to resolve this and get an agreement. Best of luck.

This answer is for informational purposes only and is not legal advice regarding your question and does not establish an attorney-client relationship.


Yes, the business loan will most likely have to be paid back to the bank if the LLC dissolves (as opposed to file for bankruptcy). This will depend, in part, on the loan agreement which the LLC signed.

The LLC's Operating Agreement will control how the members of the LLC deal with each other, as well as how the LLC dissolves and winds up. Does the Operating Agreement specify how profits are to be split? Does the Operating Agreement have a provision on the procedure for dissolving? (If not, then the CA Corporations Code controls).

Litigation is expensive and time consuming. It would be most prudent if you could work out an arrangement with your partner/member for repayment to you as well as to the bank. You don't indicate the facts as to how the other member was able to pull out the $15,000, or whether that other member admits owing that amount to the LLC.

Frank W. Chen has been licensed to practice law in California since 1988. The information presented here is general in nature and is not intended, nor should be construed, as legal advice for a particular case. This posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult with your own attorney.



We started the company over 10 years ago with the understanding that profits were to be split evenly. I'm not sure if this is in the operating agreement or even if we have an operating agreement. We were not on salaries and over time my partner took more money out but there was also an understanding that I would be compensated for the dependency in payment.


I agree with the other attorneys' answers. I would also like to point out that there may be some tax implications in this deal....for both of you. You need to talk to an attorney.

This is not legal or tax advice or opinions. I am not your lawyer. I do not have the facts necessary to give you an opinion. The answer is a general answer based on the limited facts you have provided. You may contact me direct for legal and/or tax advice.

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