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

UPDATED: Aug 25, 2012

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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


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 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.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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