September 16, 2016

Need To Include Investors In My LLC?

Hello. Great website with a lot of information.

Here’s my scenario: I have not yet created my LLC yet. I am attempting to buy a small multifamily property – 16 units. For the down payment, I have 8 investors (mainly family members and close friends) that are each going to put up $10,000. I will pay them back with a lump sum including a nice interest rate. They could be silent partners but I do not wish to include them in the LLC. Do I need to? Should I set up a separate LLC just for them? What other legal form or documentation could be set up so that they are at ease with loaning me the money? Any advise is greatly appreciated.

– Rob, Texas

Answer

If you want them to actually own a percentage of the property, then they should be members of the “main” LLC. There is no need to create a separate LLC just for the investors.

On the other hand, if they are merely lenders, then you’ll need signed promissory notes by which the LLC agrees to repay the loans plus interest.

From your description of the business arrangement between you and your friends that you’re going to repay the principal plus interest, it sounds like this is a lender-borrower relationship and not a co-ownership situation.

Texas is a deed of trust state, so your lenders might insist on a deed of trust on the property to secure the promissory notes.

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