When lending money to a company is it better as individual or as an LLC?
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When lending money to a company is it better as individual or as an LLC?
My husband and I are starting a relationship with X company. The goal is to
eventually invest in this company and for now, my husband will be in an advisory
role. We have three different contracts to deal with the advisory role referral
fee, referral plus active role fee, and share compensation for the advisory role at
the end of each role. New Link Destination
establish this role, we have been asked to make a
three year loan at 6 int. rate at the end of which we can pull our money out or
buy shares at 20 off. My husband and I opened an LLC to establish the first
two contracts referral fees. For the Advisory role and for the loan, should we
establish that through our LLC or is it better to establish these as individuals
my husband name? In other words, is there an advantage of drawing these
two last contract as a company or as and individual?
Asked on October 24, 2016 under Business Law, Connecticut
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 7 years ago | Contributor
There is no difference in the enforceability of your rights, whether you lend as individuals or as an LLC: either can sue if the agreement is violated or you do not receive what you are entitled to. There is no tax difference, if the LLC is set up as a "pass through" entity (elects partnership tax treatment), since then the LLC profits and losses drop through to your personal taxes (no double taxation) and are taxed with your other income.
You are better protected from any lawsuits or other liability arising from the business transations (e.g. from being sued for one reason or another) if you engage in this through an LLC, since then only the LLC, and not you personally, could be sued.
Having an LLC will slightly increase your costs: you'll have the filing/registration fee, and *if* need to sue, you must have an attorney rather than represent the LLC yourself, unlike if you engage in the business in your names, where you could represent yourselves in court if you chose.
Balance the slightly higher costs vs. the liability protection in deciding what to do.
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