Take a look at this recent U.S. Court of Appeals-8th Circuit case, where a two-member LLC wound up in court fighting over money because of failing to properly document transactions and maintain adequate records.
Here, a successful real estate development company found itself underwater and unable to make ends meet. Mr. Robl, the member owning 60% of the business advanced the Company over $400,000 to keep it afloat. Robl argued that the advances were intended as a loan to the company and that Homoly, the other owner, agreed to personally guarantee the loan by Agreement. Homoly denied agreeing to the loan and argued that he should not have to repay his share. In reviewing the terms of the contract, the email exchanges between the members and the Company’s accountant, the court found that Homoly DID intend for the advance to be a loan and was therefore liable for its repayment.
Why is this important to you? It is imperative to understand the importance of maintaining proper records and documentation, regardless of a company’s size or prior relationship of its owners. Many LLCs, like this one, are formed by people who have some sort of personal relationship with one another. However, a personal relationship does not justify informal business practices! Failure to comply with formalities can result in costly misunderstandings. This will cost time, money and other resources. This applies to businesses of all sizes across all industries.
Check out the piece on this case by Jennifer Villier, J.D. of WealthCounsel here
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