Forming a multi-member LLC

5 Replies

We are starting a 9-member LLC to buy real estate. One of the potential members has a substantial lien against him for failing to have auto insurance during an accident. He may even file for bankruptcy. Will his situation affect our LLC and be a liability?

No it should not affect your LLC, but it could affect your ability to get a loan using the LLC.

9 member LLC sounds like a nightmare. Why so many partners? Make sure you have everyone's roles clearly defined in the operating agreement. Better yet, shed half or more of the members

@Andrew Polakiewicz

You will want to talk to a business attorney familiar with your jurisdiction.

Most states only allow a creditor to attach a charging order to a multi-member LLC if a member is in default with that creditor outside of the LLC. i.e. They cannot force liquidation of the LLC simply because one member is in default on debt outside the LLC. But -- it is state specific.

Single-member LLCs are a different story and usually offer less protection.

Andrew,

You are setting up a nightmare. Time for the group to step up to professional behavor. If there are people with baggage, they may not be able to participate.

Be careful about criminal behavor tied to a discussion of a 9 member LLC. As someone else highlighted, you could easily be breaking 1 or more SEC and state regulations.

If you get through the above, how will things be managed? That has to be clear. So you can be successful rather than just having a major war.

Thank you for all the insight. Potential members are all family, and was hoping to find a workaround to include all of them.  The one member assumes he can't participate, but I wanted to get a clearer understanding and perspective thru third party opinions. We will have a comprehensive operating agreement, that's certain!