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cma1203
Level 1

We’re starting an LLC. My partner is incarcerated until 2028. I’m paying the expenses. I don’t want to become in debt or have my credit score drop. How do I prevent this?

Hello my business partner is incarcerated until 2028. I am paying all of the expenses for the clothing. I have ok credit and he doesn't have credit. I would like to go into an llc together as this was his idea. I just do not want to become in debt or have my credit score drop. Would I  be liable if he puts the business in debt? Also we do not want any other llc members, just us. We are starting the llc within the next few weeks
4 Replies
MMTaxMM
Level 10

We’re starting an LLC. My partner is incarcerated until 2028. I’m paying the expenses. I don’t want to become in debt or have my credit score drop. How do I prevent this?

General partners are individually liable for partnership debt. You should get a lawyer and a tax pro.

Rick19744
Level 12

We’re starting an LLC. My partner is incarcerated until 2028. I’m paying the expenses. I don’t want to become in debt or have my credit score drop. How do I prevent this?

While general partners are responsible for the debts of a general partnership, the OP indicates they want an LLC which is not the same entity structure; no general partner in an LLC.

I agree that having a one on one with a tax professional would be a good idea to talk about the different entity structures available and which one is best for you at this point in time.

Without any additional details, I have the following suggestions / thoughts:

  • It appears there is a significant time period before you will be able to have a multi-member LLC since the one partner will be incarcerated for a while.
  • Based on that, is this something you are going to attempt to run by yourself in the interim?
  •  If you have concerns about one individual incurring too much debt for the business, you need to consider whether this is a good business decision to begin with.
  • With smaller businesses, most lending institutions will probably want at least one LLC member to guarantee the loan.  Is someone able to do this and does that person want to take on the responsibility?
  • A lending institution would most likely want this regardless of the entity structure unless there is some type of tangible product that the lending institution can attach a lien to the property.
  • If you are interested in beginning this business now, and by yourself, you can easily do so with a single member LLC or even just a standard sole proprietor.
  • Once again, think about the above and discuss all of this with a tax professional before doing anything. 
*A reminder that posts in a forum such as this do not constitute tax advice.*
MMTaxMM
Level 10

We’re starting an LLC. My partner is incarcerated until 2028. I’m paying the expenses. I don’t want to become in debt or have my credit score drop. How do I prevent this?

While general partners are responsible for the debts of a general partnership, the OP indicates they want an LLC which is not the same entity structure; no general partner in an LLC.

This is true BUT the OP implied that this incarcerated person was already a partner......he said "my business partner" and the impression is they might already have a partnership operating and are now thinking about starting an LLC. So this OP needs to get matters straightened out before his "partner" does something that can't be undone easily.

Opus 17
Level 15

We’re starting an LLC. My partner is incarcerated until 2028. I’m paying the expenses. I don’t want to become in debt or have my credit score drop. How do I prevent this?

You've got a lot of issues to work out.  For example, if your business partner is the "idea" person, but they can't actually participate in running the business and contribute nothing to the startup costs, how should you divide the business interest and profits?  Should they be a 50% partner, or maybe only a 10% partner, or something in between. 

 

As an LLC, you might be able to walk away from a badly indebted business without losing your personal assets, but this is not 100% foolproof, the veil of the LLC can be pierced in some situations.

 

You should discuss this with an attorney and an accountant.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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