Corporate Law LLC Partnership: Liability after signing over ownership.

[forestrunner]

Partner A and Partner B both own 50% of an LLC company. Partner A gets a loan from family in order for the business to pay off an immediate debt. Partner A has Partner B sign an agreement that if the business or Partner B cannot pay back Partner A within 30 days, then Partner B's ownership will transfer to Partner A.

1. If the LLC has debts (bank line of credit loans, tax liability, ownership of property under the LLC) what is Partner B's obligation to these debts now that Partner A is the sole owner of the LLC?

2. What steps does Partner B need to take to protect himself from any business debts that he was personally liable for?

3. Partner A contends that Partner B is still fully liable for all past debts and must work to absolve these debts of the business.

Thoughts or suggestions?

 

[dee_dub]

1) Whether Partner B is liable for any existing debts depends on the partnership agreeement and the articles of incorporation, what Partner B did while a member of the company, and how the debts were incurred. Partner B might have guaranteed the bank loans and is personally liable for them. The tax authorities or other creditors might decide that the disposition is a fraudulent preference or is void for some other reason and B is still on the hook for liabilities incurred while he was involved. I'm not sure what you mean by "ownership of property" - that is an asset, not a debt.

2) He can't completely absolve himself from debts he was personally liable for without the agreement of the creditor. If he co-signed a loan, the bank is not going to let him out without him arranging sufficient other security. Conceivably, he could arrange an indemnity with the corporation and/or Partner A so that if the creditors go after him personally, he gets reimbursed by them. But I suspect that will be worthless.

3) See 1.