Is it normal for a 10% sweat equity real estate partner, without any decision making power, to be forced to personally guaranty 10% of a bank loan?

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Is it normal for a 10% sweat equity real estate partner, without any decision making power, to be forced to personally guaranty 10% of a bank loan?

There are 2 partners in an LLC. One owns 90% and is the managing, controlling member. The other owns 10% of the LLC and is a minority partner that has no rights (can’t sell shares, can’t put shares to majority partner, can’t make any decisions). The LLC owns commercial real estate and is seeking mortgages on its properties. Is it fair/common for the minority partner to be forced to personally guaranty 10% of the loan amount to the majority partner when s/he has no control over the company’s actions?

Asked on April 12, 2012 under Business Law, New York

Answers:

Glenn M. Lyon, Esq. / MacGregor Lyon, LLC.

Answered 9 years ago | Contributor

Fair and common are two different standards.  It is common for owners to have to personally guarantee a company loan, and using percentage ownership is also common.  Whether it is fair based on your non-controlling interest, that is a question for you to answer.


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