Need advice with my note, please!

[Dustin Allen]

Hi all, 

I have a question and didnt know where else to post this. I have a note from my business partner buying out my share. The note is secured with a first lien against the business, however no property. The sale was for only $20K & he has made 2 payments of $1,000. 

Do you guys think this is something i would be able to sell, and if so how do I go about it?

[Dion DePaoli]

It is not clear if you actually set this up correctly.  A UCC Form 1 is the security instrument which would accompany the note.  That UCC filing is a formal document and can be ineffective as a security instrument if filled out improperly. 

We understand you mention the company has no real property assets but does the company own any chattel (non-real property) assets?  ie - vehicles, equipment, inventory, etc

It is possible to lien the economic rights of a partner within a company.  That is, your lien (if done properly) would be able to seize distributions due to your partner under the obligations of the debt if the debt goes un-serviced.  However, this gets pretty sticky real quick as you are currently a member of said company and may have governing rights (those rights granted to you to vote and legally direct the company found in the operating agreement) which could be used to defend against a right to enforce an economic interest.

If the company has a tangible asset (or more) those too can be concerning from an enforcement perspective and the proper setup of all this really matters.  If you own a printing company with a printing press - do you have a right to simply call for that asset to be liquidated in the open market to satisfy the debt owed to you?  Yes and no.  A liquidation of the press would mean the demise of the company which can be an idea that limits your enforcement rights.

If all of the provisions of the agreement between you and your partner are contained outside of a UCC filing than you have an unsecured debt.  We would have to look to the remedies provided for in that contract as to what enforcement remedies you have afforded to you.  They may or may not be practical or enforceable.  Depends on what you folks agreed to.

So a market value of the debt would be dependent on all those things.  What is owed.  How it is to be paid back.  The remedies afforded by way of contract and/or UCC filing.  Any tangible assets the company owns.  Any intangible assets (interests) encumbered and those restrictions to that encumbrance.  

To be clear, what you have is not like a real property lien.  So nothing in that realm will apply.  Careful with the advice you take on this matter from folks who do not understand the difference.

Do not attempt to go to market and attempt sell this note.  Do not go to market and attempt to sell this note.  Do not go to market and attempt to sell this note.  

This note is a security  (all notes are).  Notes secured by real property are exempt from certain securities laws.  Your note does not appear to have the same exemptions.

Find a corporate or securities lawyer in your area and take all the documents to them first.  They will help you clean it up (if possible) and can advise on marketing, sale and transaction documents.  

Failing to make sure it is all correct and you correctly conduct marketing and sales can cause you liability which can be fairly costly.

Good luck.