Loan collateralized by shares of an LLC that owns property

[Tiffany Shan]

Hi-

Seeking to give out loans to property owners who hold the property in an LLC (multi-member, if that's relevant at all). For anyone's who's done this...

-Does it make a difference if the loan is made out to the LLC versus to the individual? Is the former simpler to set up from a regulatory perspective?

-If the loan is secured by shares in the LLC that owns the house... does that count as a personal loan or a mortgage?

[Chris Martin]

Regarding "Does it make a difference if the loan is made out to the LLC versus to the individual?" In my book, yes, absolutely.

Disclaimer: California is not like a lot of other states. I can only go by CA Codes and what I find in them. So don't rely on what I say as legal advice or guidance, since I know not of foreign states like CA.

In NC, like in CA, LLC membership interest is personal property. Not the subtle difference in wording between these states: NC says in the LLC statutes that . I can theoretically sell my LLC membership interest just like I can sell my car. It's not quite that simple, though, because of operating agreements, member makeups, etc., but hopefully you get the point. CA code says: So you'll need to explore what limits on transfers there are.

An LLC is an entity, it is not personal property. As an entity, it has certain rights and privileges, can encumber property it owns, etc.

Lending against someone's personal property does not, by definition, constitute an action by the entity and it would not be considered a mortgage against LLC owned property.

Hope that helps.