Possible Legal Troubles LLC Partners And Financing
Possible Legal Troubles LLC Partners and Financing
I am involved with what is suppose to be a Managed Partnership LLC..
We supposedly got a bank loan but things just do not seem correct. Need advice because I am totally confused on this.
First the LLC was created and registered with the members as equal partners, then a contract was entered into “an operating partnership LLC agreement” and within this contract the partners could not indebt the LLC without the other partners consent, however, one of the partners within the contract was made the manager for the daily operations of the LLC and this partner also had another contract to do work for the LLC.
Now things did not get confusing until we took out the loan. In hindsight, the loan is actually in an individual’s name who also happens to be one of the partners, however, on the security deed it shows the LLC was the borrower, but on other documents it shows a mixture of the two… one doc says the private individual is the borrower and on other docs it says the LLC is.
This presents several problems…
Now what makes it worse is on the loan checking and savings account these are listed and named as the LLC’s… however the LLC cannot get the documents which show if the LLC has paid it’s monthly interest on the loan because the bank says that the loan is not the LLC’s. Now here it is time to do the IRS thing and wow… who files what??? In actuality the LLC has not borrowed anything from anyone, but the private individual borrowed money and has slowly put this into the LLC accounts.
What makes it worse is the other partner who had a separate contract with the LLC has to deposit money in the Main LLC account and out of that account pay the interest on the loan which is not even the LLC’s loan…
How in the world did this get like this and is this normal???? Totally lost in an LLC partnership….
gtc
Thanks Mark for your reply.. the shady was more of what I was leaning for… lol.. I have tried everything to get out but I have more money in it than the other partner, and can not get anyone to give me copies of documents… not even the bank… this is what is so wired and strange…. I have even sent to them certified letters requesting the documents where the LLC it’s self has a loan with them… and I get no reply… and when I called the credit loan dept of the bank they said they could not give me any information because the LLC nor I were on the loan.
Now another question is… if the partner who is making the interest payments is not making interest payments on the LLC loan and this money is going to a private individual’s loan payment then isn’t this like against the law? And if the deed is in the LLC and the money is going through the LLC’s account but the LLC has no loan, what and how does or is this going to work with the other partner and the IRS? And can the other partner just transfer the deed out of the LLC into there private name since in actuality the loan is not the LLC’s only the deed to secure the debt is in the LLC’s name… can they walk away with everything, including my money, at the stroke of the pen?
Real messed up isn’t it……
gtc
I just had a thought… hypothetical scenario..
1. A person decides to build a new construction house. They go and take out a construction loan in their personal name but they have the land put into the name of their LLC to which they are the sole member… this would be legal to do but why would they do it that way?
2. This same hypothetical scenario but in addition to them putting the land in the name of their sole member LLC they also set up a savings account and a construction account under the name of the LLC thus having the bank put the money from their personal loan directly into the construction account where all checks for cost of building the house are written. Now the question is since their LLC did not actually have the loan but run the money through the LLC account and under the LLC’s IRS EIN #, how could the LLC set up their IRS documents to show this was not theirs but that it was just handling the money for the individual who borrowed it??? Makes not sense
All of this would not make further sense if the LLC had more than one partner.
Yet in addition to all the above the second partner was putting personal money into the LLC Main account under the knowledge that the first partner was writing checks out of the main LLC account to make payments on the LLC’s loan, which turns out that the first partner was actually writing the checks and making payments on the interest of the first partners personal loan? checks made out to the bank but with the account # only showing (-) a name to the account.
Still confused..
gtc
Thanks everyone on your replies this really is helping me try to figure out what the heck is going on… and by the way I “partner (2)” have 8 times the money in this than what partner (1) has in it…
Well there is a signed Operating agreement and lays out the managing members and authority, however partner (1) seems to forget it exist since the loan is in partners (1)’s name only and has been causing a tremendous amount of confusion at the bank and with partner (2), and continuously hiding and dodging facts as to paper work, but it is tax time and things have really started to fall apart to the point of just finding out a lot of this, like the loan not being in the LLC’s name.
However, how it was suppose to be set up was partner (1) as there investments portion was to co-sign for the LLC in order to get it established… by the way it was partner (1)’s idea to establish the LLC to begin with.
The Managing Partner (2) was also the Daily Manager, however, partner (1) stated in writing that the loan was going to be in the LLC, now if partner (1) is not honest and actually goes to extremes to hide this little fact, and partner (1) tells partner (2) there is no money to pay the interest on the supposedly loan of the LLC, and partner (2) goes and puts personal money in the Main LLC account “a loan which was not suppose to occur” to pay the interest on the Loan which was suppose to be in the LLC, but was not but is in the personal name of partner (1), then partner (1) goes and writes checks out of the Main LLC account an pays interest on partner (1)’s personal loan… and continues to hide this little fact…. Huummm.. no such contract to borrow money from the individual and no deposits from partner (1) in the Main LLC account or the Partner (1) investment account per contract… the documents and security deed given to partner (2) by partner (1) states the LLC has the loan but does not, the actual loan is in partner (1) individual name.
Then of course there is the problem with the LLC filing with the IRS, since the LLC did not have a loan but only funneled the money from an individuals account through the LLC’s Construction account and LLC can not even claim interest on loan paid because it is not the LLC’s loan…..
This is similar to a Contractor and a private individual agreeing for the contractor to build the individual a house… except one problem… the LLC never agreed to build this individual a house “nor” did partner (2) ever agree to such a set up especially the dishonesty in it, I think in order for it to be legal… all partners in authority have to know the truth in borrowing and lending… I would hope that is the way it goes anyway.
Regardless, it is confused and is a legal mess and makes no sense….
Another little thing I just found out was that Partner (1) did not give the bank a copy of the operating agreement and really can not find out what he gave to the bank. And partner (1) is now refusing to send copies of documents… sooooo with this in mind I can only presume that something is not legal or they would be willing to send documents… and still partner (2) has no knowledge of any IRS documents being filed for the LLC. Very strange things are beginning to surface….
gtc
Well I wish it were as simple as you have explained.
1. The security deed is in the name of the LLC and states the LLC borrowed and made a loan with the bank.
2. However, the loan is in “partner (1)’s name” and the bank says the LLC is not on the loan. So how can the LLC owe and have a security deed if it does not owe nor is on the Loan?
3. The Partner (1) refuses to hand over documents concerning “anything”
4. The IRS says that in order to claim the loan or the interest paid on the loan the LLC must show that the Loan is the LLC’s… Now this would not really make a difference much if the LLC and partner (1) had a contract to this crazy arrangement, or if partner (1) was the only one in the LLC. But there is more than one… so all this presents big problems. (a) the LLC actually has nothing to report to the IRS (b) but the LLC does have things to report to the IRS due to the fact it used it’s account to handle the private money and pay contractors, vendors and such…
Yes it is a crazy situation and no, I did not want a partner to begin with and I should have never allowed myself to get talked into this LLC thing to begin with…. However, kicking myself I have already done, but in the mean time the issue at hand is how to handle this situation and figure out how partner (1) got it so screwed up to begin with, so that all the issues can be handled and get me out of this LLC with out loseing my shirt to the IRS and who ever else that he may have tied us up with.
gtc
well wish it were that simple...