Is An LLC A Good Idea In This Situation?
I am manager of a gym for an out-of-state owner. This owner just took back the business (not the building) from a party that was purchasing it...due to abandonment and non payment.
Anyhow, she recently asked me if I would like to form an LLC with her to protect the business from this other party...in case she tries to retaliate. I am pretty sure she will say that she is due compensation or something. She is threatening her with court.
I am planning on purchasing the business once it is back up and running again.
We opened the doors last week and people are coming in to work out! The previous owner apparently took the clients money and did not provide them with the service...instead, they closed down. Some people paid a year in advance. Some are requesting us to honor their membership. We are reopened under a new business name and license and are not required to do so, however...I have been, since it is the right thing to do for these people. I am trying to regain their trust in the business and keep them as gym members.
Should I just play the part of manager until this all blows over or should I form an LLC? Would a person be able to sue an LLC or me individually?
Should I form an LLC with this lady in order to protect the business from this woman? I do want to purchase it down the road.
Would this make it more complicated when I decide it is time to buy? Will this protect the business? :-?
An LLC is almost always a good idea but that is not the immediate issue here as an LLC will not protect the current owner from a lawsuit by the former owner because the former owner could attach (or void as a fraudulent transfer) the current owners interest in the LLC if she is sucessful in court.
All in all this sounds like it was done without benefit of legal advice and both the owner and gym (business) have a large potential liability. The owner needs to retain legal counsel immeaditely, no if's, and's, or but's, and you should not purchase/or join any portion of the business until this issue is properly settled.
You may want to seek counsel as well as if the business is not already held in a company/LLC/etc. The former owner may try to assert that your management harmed her in some way. If the business is not in a corporate structure a court might decide that you and the owner have/had a partnership you are therefore liable as well (courts have done stranger things).
Run, don't walk, or at least dial fast, to an attorney's office. After that, if the business is a good deal then yes, engage an attorney to help form a proper business structure (an LLC is a good choice, I like Nevada) and buy the business.
thanks for your reply. I have decided to "manage" the gym until this business builds and I see that it is a stable investment.
The owner knows that I plan to purchase one day. We will not form an LLC. I am putting money aside each month for future purchase.
I am not familiar with CA real estate laws and customs. However, where is the written, signed contract between you and this buyer for this property? It sounds from your post that there is no contract for the sale of this property.
Thank You Nancy for your reply. I'm building the house owner-builder and I marketed it for sale by owner. We went to escrow w/out a purchase agreement the only written thing we have is the escrow instructions which the escrow co. left some ambiguity.For instance the agreement was written up on Oct. 28,2002 and on page 1 there is a paragraph stating Furthermore, I (meaning the escrow) will execute and deliver any instruments and/or funds which this esrow requires to show title as called for, all of which you are instructed to use on or before April 25,2003, provided you hold a Policy of Title Insurance www.etc.Then it has the standard inclusions for escrows. After that in the contingencies section besides the standard ones also includes this one .The consummation ofv this escrow is subject to the completion to new construction as per plans and specs provided to the buyer,etc.,Deposit of buyers closing funds shall be deemed buyer's full approval of constuction and further be deemed the waiver of this contingency. Then in the standard additional escrow instructions and provisions #24 states Your Escrow Holder agency shall terminate six months following the date last set for close of escrow and shall be subject to earlier termanation by receipt by you of mutually executed cancellation www.instructions.If this escrow was not closed or cancelled within the desrcibed six month period, you shall have no further obligations as Escrow Holder except to disburse funds and documents pursuant to written escrow instuctions and to interplead or otherwise dispose of funds and documents in accordance with a validly served order from a court of competent jurisdiction. If the conditions of this escrow have not been complied with at the expiration date in these escrow instructions, you are instructed to complete the conditions at the earliest possible date, unless Buyer or Seller have made written demand upon you for the return of the funds and/or instruments deposited by Buyer or Seller and/or for cancellation of this escrow. Sorry for the length but I wanted to give as much info as possible. Thank you and anyone else that could help. If there's an escrow specialist could explain the meaning of the escrow statements it would be appreciated. Thanks. Mark
This situation is exactly why real estate agent are worth their commission ! I have yet heard of an agent simply opening escrow without any signed contracts. Do you have any documents that both you and the buyer have signed?
I agree with Nancy ... where was your written agreement between you the seller and the buyer the purchaser?
Yes ... you are "For Sale By Owner" but that does not mean "For Sale Without Contract".
The escrow company is a "neutral" third party to your selling and the buyer purchasing. They take the info you provide and create an escrow transaction.
Sounds like you and the buyer are trying to make the escrow documents your only type of agreement (which from what I am reading is unfortunately it).
Do you have any documents that are signed by both you and the buyer? That is the basic requirement of a contract. When the seller and buyer sign a contract ... you have "meeting of the minds".
Next time obtain some contract from the board of realtor ... use their forms. Or hire a professional real estate agent.
Cheryl Lopez
[ Edited by cheryllopez on Date 09/16/2004 ]
markbuddy,
Let me take another pass at this. Not an attorney and not familiar with CA.
I have read what you posted here from what I'll call the "escrow agreement." I do not feel that an escrow agreement is a substitute for a purchase/sale contract. Unless CA is very different on this from PA, it would seem that the purpose of an escrow agreement is to provide a way for funds to be held by some third party subject to completion of a contract OR termination of it by the buyer and seller.
Now I understand that there was no contract here and that the escrow agreement has expired. However, the escrow agent is still holding the funds.
The job of the escrow agent, I suspect, is merely to be the holder of the funds and is not required to determine liability of the parties. The escrow agent, if there's a dispute between the parties, probably has the obligation to pay the escrowed funds into court and let the court decide the merits of the case.
The buyer obviously feels she is entitled to your property. I assume you would be willing to return her 10% in exchange for a release from her of whatever claim she thinks she has.
What I feel you should do here is get yourself to a real estate attorney quickly. There is too much at stake and you may need your attorney to take certain action immediately with regard to both the (former) escrow agent and the buyer.
Nancy