LLC Partnership

[S T]

Well here is a question

50/50 LLC - filing as a partnrship
Partner A is contributing $$ off of credit cards and bank loans (personal) - as well as sweat equity as in "construction Mgr" to have the real estate project finally become a "Rental" (small Artist Studio with about 8 rentals)

Partner b for the last twp uears has contributed no money and no "sweat equity" Only the initail investment and signature on loan from the bank for construction/remodel

We are tracking initial investment and bank loans that both partners are contractually responsible for, plus the amount that Partner A has incurred for costs paid.

Now partner B just wants to walk with a "cash out" amount - which I would think would be based on investment in - less liabilities and then use a FMV on property based on appraisal and then balance the Partner A and Partner B accounts

Question arises as to whether or not Partner A that has performed the "sweat equity" can be paid compensation for his time and efforts to offset the resulting net equity to the partner that would like to cash out?

I don't see in the LLC Agreement any "guarantee of income" to a managing member/partner.

Thoughts,

Sandy

Sandy

[Gretel]

Sandy, are you saying that partner A never received any guaranteed payments for his work, and all items of income, loss, etc. were allocated strictly by original % of ownership interest in LLC?

Is this the third year of operation? If partner A never demanded payment for his work (to be documented in year-end minutes, or whatever it is called for a LLC) then it might be a legal issue to get what he deserves?

Sorry, just more questions.

[S T]

More Questions

Gretel, I guess more questions might lead to more answers or a direction for this mess!

Should be the 3rd year of operation - you asked, does that mean something? No Partner A has not demanded any payment for his "sweat equity" other than verbal communication.

Rental Real Estate - not active until late 2010 - All costs capitalized - 2008 filed based on 50/50 no income and almost no expenses - 2009 is not completed, nor is 2010 - I just acquired this mess! and trying to reconstruct or construct accounting. Right now all is in boxes as in receipts, credit card charges, etc. Client is looking to obtain new financing or refinancing.

Does a LLC operating as a partnership have to have "year end" minutes or meetings?

Sandy

[BHoffman]

Hi Sandy - partnerships are pretty open to whatever the partners agree on. It's when they disagree that it gets messy. So, - no - they don't have annual minutes or anything like that.

Maybe some states require different things, but I don't think so.

[Gretel]

Agreed. They don't have to, but it would help partner A to get his fair share if they had. Verbal agreements are as valid but much harder to enforce. Will partner B honor the verbal agreements?

I won't be available much the next two days but can look at a case I had some years ago where one partner just left. I will either e-mail or call you, Sandy.

[S T]

Probably not

Partner B is being difficult, so doubt that he will honor any verbal communications - Partner B just wants $$

Thanks Gretel - as I said not urgent as they are behind in filing and we are trying to construct accounting records.

Not sure why I signed on for this task - guess because it is part of a "family group"

Sandy