LLC Partnership Issue

4 Replies

Hi BP community, 

I wanted to reach out to seek advice on an issue that I'm having. For a little background info, I bought two houses under my and my business partner's LLC of which I'm the managing member. We renovated them and tried to sell, but couldn't get either to move. We've had them in hard money for 9 months now and the fees are killing both of us.

I've been seeking to refinance both properties and after looking all over the place I found some private lenders that will do longer term lower interest. Throughout this process (couple months) of trying to get them stabilized, I've had no help (other than holding cost payments) from my partner. He was barely even communicating with me at all. 

After this month's holding cost payment that he sent late, I received an email from him saying that he will no longer be contributing in money, effort, or resources to these two projects. He also said that he has blocked my number and will only communicate via email from now on. I'm paying the costs for the refinances and everything myself right now even though he is responsible for half based on our operating agreement and JV agreements.

I don't know why he just went off of the deep end, but now he doesn't even respond to my emails about these deals/the company. And as I said, he's blocked my phone number. What should I do in this situation? I know that we all aren't lawyers, but I'd love to get some educated advice and possibly some educated advice from a lawyer-member on here on what to do. 

Do I just eat the costs, stabilize the assets, and just let these properties ride while never working with him again? Do I try and force him out of the entity? At what point would I look into suing him? One thing that he messed up on is that he wrote an email to me that was very descriptive on what he WASN'T going to do even though it is directly in conflict with the OA and JV. So I have that going for me...

I'm confused and a bit worried. Any help is much appreciated.

Thank you, 

Jake



Originally posted by @Jake Lassie :

Hi BP community, 

I wanted to reach out to seek advice on an issue that I'm having. For a little background info, I bought two houses under my and my business partner's LLC of which I'm the managing member. We renovated them and tried to sell, but couldn't get either to move. We've had them in hard money for 9 months now and the fees are killing both of us.

I've been seeking to refinance both properties and after looking all over the place I found some private lenders that will do longer term lower interest. Throughout this process (couple months) of trying to get them stabilized, I've had no help (other than holding cost payments) from my partner. He was barely even communicating with me at all. 

After this month's holding cost payment that he sent late, I received an email from him saying that he will no longer be contributing in money, effort, or resources to these two projects. He also said that he has blocked my number and will only communicate via email from now on. I'm paying the costs for the refinances and everything myself right now even though he is responsible for half based on our operating agreement and JV agreements.

I don't know why he just went off of the deep end, but now he doesn't even respond to my emails about these deals/the company. And as I said, he's blocked my phone number. What should I do in this situation? I know that we all aren't lawyers, but I'd love to get some educated advice and possibly some educated advice from a lawyer-member on here on what to do. 

Do I just eat the costs, stabilize the assets, and just let these properties ride while never working with him again? Do I try and force him out of the entity? At what point would I look into suing him? One thing that he messed up on is that he wrote an email to me that was very descriptive on what he WASN'T going to do even though it is directly in conflict with the OA and JV. So I have that going for me...

I'm confused and a bit worried. Any help is much appreciated.

Thank you, 

Jake


How much is the initial down payment  for the loan? And who Contributed that fund?

Since he is just walking away, is he on the title ? 


Who drafted your operating agreement? What does it say about this situation? 

 

@Jake Lassie

You as the managing-member should work towards stopping the cash bleed, whether that involve selling at a discount or turning the properties into rentals if the numbers work.  Did you have multiple exit strategies when you bought these properties?

The high carrying costs are compressing ROI further each month that passes (and likely driving it negative). It also sounds like the LLC is under-capitalized if carrying costs require a capital contribution each month.

You cannot just "force him out of the entity".  You'll open yourself up to a lawsuit if you do that.

As @Ashish Acharya mentioned, we don't know what's in your operating agreement so a specific answer is hard to give.

It may be advisable to sell the properties at a discount and then liquidate the partnership by distributing all proceeds according to the operating agreement.  It doesn't sound like either of you want to remain partners after this venture is concluded.

If you have the cash or access to the cash, you could offer to buy him out as well.  Talk to an attorney about this route, especially your exposure if you buy him out, manage to turn the properties around and do really well in a few years.

@Jake Lassie

As the other commentators noted, this is an impossible question to answer without reviewing the underlying agreements. I would suggest that you hire an attorney to review the relevant agreements and see what your options are. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Hi Jake,  I am curious what the outcome of this situation has been since you first posted this issue.  Your outcome whether negative or positive will definitely help many up here.

Originally posted by @Jake Lassie :

Hi BP community, 

I wanted to reach out to seek advice on an issue that I'm having. For a little background info, I bought two houses under my and my business partner's LLC of which I'm the managing member. We renovated them and tried to sell, but couldn't get either to move. We've had them in hard money for 9 months now and the fees are killing both of us.

I've been seeking to refinance both properties and after looking all over the place I found some private lenders that will do longer term lower interest. Throughout this process (couple months) of trying to get them stabilized, I've had no help (other than holding cost payments) from my partner. He was barely even communicating with me at all. 

After this month's holding cost payment that he sent late, I received an email from him saying that he will no longer be contributing in money, effort, or resources to these two projects. He also said that he has blocked my number and will only communicate via email from now on. I'm paying the costs for the refinances and everything myself right now even though he is responsible for half based on our operating agreement and JV agreements.

I don't know why he just went off of the deep end, but now he doesn't even respond to my emails about these deals/the company. And as I said, he's blocked my phone number. What should I do in this situation? I know that we all aren't lawyers, but I'd love to get some educated advice and possibly some educated advice from a lawyer-member on here on what to do. 

Do I just eat the costs, stabilize the assets, and just let these properties ride while never working with him again? Do I try and force him out of the entity? At what point would I look into suing him? One thing that he messed up on is that he wrote an email to me that was very descriptive on what he WASN'T going to do even though it is directly in conflict with the OA and JV. So I have that going for me...

I'm confused and a bit worried. Any help is much appreciated.

Thank you, 

Jake