Single Member LLC - Buying into the business as an outsider

[yipfolio]

What is the name of your state (only U.S. law)?

New Jersey.

Hi everyone. There is a single member LLC that I want to buy into the business or give some equity but I need some help with the legal portion of this. First, I do not want to assume any liability for the company besides the portion I am willing to put into the business. As in, if I give $100,000, but the business is in debt for $250,000 I can't be liable for that $250,000. Also, who determines what percentage of the company my equity is worth?

Any advice on the best way to approach this or the right way to do this would be extremely helpful!

Thanks,

 

[LikestoHelp]

Hi, here are a few things that hopefully will help you. This is just a general explanation to get you started, you will definitely need a real lawyer if you want to do this correctly and protect your interests. First, if you are really going to buy equity in an LLC, you will become a member, so it won't be a single member LLC anymore, since you will be becoming a member. Generally the way this is done is to revise the operating agreement. In addition, there will usually be a subscription and/or purchase agreement. The operating agreement will lay out all your various rights and obligations. Usually an LLC (unlike a general partnership) protects members from claims by creditors of the company. However, this means it has to be done exactly right because if your LLC is not validly formed you won't get the benefit of this special statutory protection. Further, the LLC has to be operated in the right way so it continues to receive that treatment, for there are ways in which you can give creditors an argument that the entity should be "disregarded," in which case your fear of personal liability could come true. The other thing to be conscious of is the possibility of a capital call, which could create liability to the entity, and this would be covered in the operating agreement. This is very complicated stuff and honestly I can't imagine doing it without consulting a lawyer. I AM a securities lawyer with over 10 years experience and I wouldn't even do my own documents without having a colleague look them over, so I hope you're not offended that I am urging you to please try to consult a lawyer. It sounds like you are investing what is for most people a very large sum of money, also, so I think it is worth it for you to get some good quality help. good luck to you.