How is a partner paid back upon buying into a business with debt?

I have an HVAC business that is currently 65k in debt with some vendors due to a bad business deal. The business is an LLC, 3 years old. I have received an offer for someone to buy into my business as a partner. If they buy in for 100k and 65k goes to the debt and the the other 35k for marketing, etc. I assume I would pay back the 65k, but I am wondering what it typical? Would it be a higher percentage of profits over X amount of time until paid back then 50/50 split? What happens if the business never turns a profit? Would I be personally responsible for the 65K or would it be considered loss?

Asked on July 31, 2012 under Business Law, Washington


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

There is no general answer to your question--it depends on 1) circumstances and 2) what you and the potential partner agree to. It would be legal for you to not repay the $65k; it would also be legal for you to pay it back. If you pay it back, it would be legal to pay it back dollar for dollar, at interest, with a flat additional fee or amount on top of the principal, etc. You and the partner need to negotiate something that works for both of you. As you do that, bear in mind that different actions have different tax consequences--you need to have input from an accountant or similar professional in determining what to do.

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