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Ask a Lawyer -- LLCs
LLC Question 133
Question:
My brother and I formed an LLC to purchase and sell real estate. We both put in cash, he more than I, but I did all the work to make up the difference. The venture was very successful for two years, now we have had a falling out and are dissolving the LLC. He now wants to call his contributions, loans. Cash was put into the company account, we were 50/50 members and all property and cash went through the LLC. Contributions were not specified in dollar amounts.
Question? What determines what is a loan and what is contribution to the LLC?
Response: I assume you and your brother do not have a written operating agreement or, if you do, it does not specify the amount of initial capital contributions that can be made by each member. I also assume there is no signed loan agreement between your brother and the LLC. Even if there are no signed agreements between the two of you designating capital contributions or loans, there may be other documents generated by the LLC which would constitute evidence of the amount capital held by the LLC (from which one can deduce the initial capital contributions of the members). First place to look is the annual tax return. Specifically, check Schedule L of IRS form 1065 that your LLC filed. It will show the amount of member capital and loans. Another place to look are any balance sheets the LLC submitted to banks as part of an application for financing. I'd take these documents to an accountant and have him tell you whether the documents supports the argument advanced by your brother that his initial infusion of assets into the LLC was only a loan.
Submitted: 09/17/2007; andy, al
Response: 09/17/2007; JJR
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