What are the legal implications for being 20% owner of an LLC?

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What are the legal implications for being 20% owner of an LLC?

My husband and I are considering buying into a business which is an LLC. For our contribution, we will be 20% owners of the company. The company is worth $52K and for the first 2 years, all profits will roll back into the company to continue to grow it. After it begins making $5k per month, half of this will go back into the company and the remaining $2500 will be divided 20/80 between us and the company owner. Our percentage will not increase. Is this fair? What if someone sues the company?

Asked on August 25, 2012 under Business Law, Hawaii

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

As to whether the agreement is fair, there is no right answer--if you feel it's fair, it is. A word of warning, however: the majority owners of the LLC control it, so make sure you get everything spelled out precisely in writing, including when you will start being paid, any minimum amounts you must be paid, if you have a right to withdraw and have your interest bought out, etc. Anything not in writing is something the majority owners could potentially change later. A lawyer can help you draft the necessary agreements.

In terms of liability: the members of an LLC are not generally liable for the LLC's debts or other liability (i.e. if it's sued), unless they personally guaranteed the debt or the liability flowed out of something they personally did (e.g. you were driving the car for business when you ran someone over). There are a few other exceptions for the managing or responsible members--e.g. the members in charge of taxes or payroll can sometimes be liable in those areas.


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