Auto Loans Car lease with an LLC as primary, with one member as co-signer

[mikef]

We have an LLC, with three members, with one of the members leasing a vehicle (from Toyota).
The LLC is the primary on the lease, and the member that drives the vehicle is the co-signer.
The lease is about half way through a 36-month term
If the LLC were to cease trading, which entity would be on the hook for the remainder of the lease....the co-signer, or the other members of the LLC?
We are not considering putting the LLC in to bankruptcy, and the only external debt is the car lease.
Thanks.

 

[army judge]

Think about it, my friend. An LLC is an entity, a person, if you will; so if it goes BK, the co-signer gets stuck for the remainder if the lease period.


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[guestpost]

Thanks for the reply - though note I mentioned that we are not considering putting the LLC in to bankruptcy, just an orderly closure. So the question is - how exposed are the other two LLC members, if the LLC is NOT in bankruptcy.

 

[mikef]

Thanks for the reply, but note the last line of my question - we are not considering putting the LLC in to bankruptcy, we prefer an orderly closure. So my question is more aimed what exposure the other two members of the LLC have with respect to the car lease, in the event the LLC is not put in to bankruptcy. Which I guess than adds another question - can an LLC be closed with an outstanding liability - ie a car lease?

 

[army judge]

Without knowing more, and I don't want to know more, I suggest you seek legal counsel in your area.

Either way, the lease liability on a Toyota is no big deal. That said, why not work it out with the third party?


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[despritfreya]

In general, members of a LLC or shareholders in a corporation are not personally liable for the entity's debt unless they either co-signed or gave a personal guarantee. That is why you have "entities". If you are correct that only one member of the LLC co-signed (and no other member signed a personal guarantee) then the only one who has exposure is the co-signing member.

If the LLC stops operating or winds down but payments are made by the co-signer, the lender will do nothing but gladly accept payments.

If the LLC stops operating or winds down AND payments are no longer made on the vehicle, the lender will repossess its collateral, sell the collateral, apply what it gets to the loan and seek to collect the balance from both the entity and the co-signer. If the entity is "dead", it would be seeking payment from a dead person so, who cares? However, it will also seek payment from the co-signer and, assuming the co-signer is not judgment proof, once it has a judgment the creditor will find ways to collect.

And, yes, the LLC can simply shut its doors - done all the time without an official "winding down". Again, any creditor of the LLC could file suit against the LLC but what would that creditor do with a judgment that it cannot collect on if the LLC has no assets and is, for all intents and purposes, "dead". This assumes the members do not open up under a new name which could create successor liability issues.

Des.

 

[mikef]

Thankyou Des - your reply included everything we needed to know to move forward with a constructive plan.