How do you structure your private lender contracts???

[Dionte Graves]

Good Morning,

My company has a couple potential private lenders who are interested in lending to us for the purchase of a distressed residential property. My company will serve as the Gc over the project once complete, we will sell the property retail. We've been doing this for a few yrs but all for out of state investors with no shot at equity.  Although these people are my family or a close acquaintance so for our peace of mind and legal reasons of course I want to have an operating agreement of some sort in place... 

I've worked consistently with an uncle of mine who trusted me enough to do two deals and we just did business with a handshake, he got is original investment as well as the return we discussed... I know that I'd go to hell and back to repay my investors but in business its naive to just give a good word because someone knows you...

Anyhow any words of advice on drafting an operating agreement or an attorney reccomendation would be greatly appreciated! Also one lender is borrowing from his retirement if this adds a level of complication to this please advise.

[Bill Gulley]

I like your attitude! And yes, a formal agreement needs to be made, especially with family.

First, you need to speak to your tax adviser, as a member managed and manager managed LLC has different tax consequences.

Voting, liquidation, liability can be based on contributions to capital if not addressed to the contrary in your OA. 

Understand events of withdrawing members, different members can move in or out depending on the deal or business need. You can also have different classes of members, much like preferred and common stock and as to voting rights. 

I like, as the money guy or not, using an LLC rather than being a lender, there are advantages and disadvantages to both, your attorney can guide you.

You need to read your state LLC law and look to the default provisions, things that operate by law unless otherwise stated, it generally better to otherwise state such matters, when and how a member might be treated for tax purposes, liability, creating debt, inheritance and other aspects.

Best advice from me is plan ahead, map out what you might do and cover it in the beginning so you aren't having to revise articles and see your accountant and attorney. :)