Legal Question in Business Law in New York

Re: Rights over business assets related to a loan to acquire such assets.

The terms of the loan itself will determine its nature and the nature of the lenders' rights in the event of default. Often entrepreneurs create corporate forms (in your case, the LLC) as means to limit their personal liability; in your case, then, the LLC would in fact be the borrower, not you personally. You would then negotiate the terms of the note as to what happens in the event of default. You can, as you indicate, borrow the money personally but you need not do so if your goal is limiting the lenders' ability to control the company or access its assets (including cash, etc.). You do that by negotiating the terms of the loan itself.

Re: Rights over business assets related to a loan to acquire such assets.

If the loan is termed as such, and is paid back in accordance with the terms of the loan, the lender would have no rights in the LLC.

Setting up a LLC involves many issues. Please let me know if you need anything further on this.

Re: Rights over business assets related to a loan to acquire such assets.

As the other commentators already noted, a simple, unsecured loan to your LLC (without any personal guarantees) would not normally give your brother in law as the creditor any rights to the LLC assets or profits or your personal assets. In the event of your default (non-payment) under the loan, the creditor basically acquires a contract claim against the LLC that he would have to file as a lawsuit (with all attendant legal costs involved). If your LLC did not have sufficient assets to satisfy the judgment (assuming the creditor won in the proceeding), the creditor would not have recourse against you (except in a rare case where a plaintiff can successfully "pierce the corporate veil" and hold the shareholder personally liable).

Having said that, it would be a bad business practice not to reduce this loan to a written contract. You would negotiate the terms together with your brother in law and sign a promissory note as an officer (Managing Member ?) of the LLC. Sounds like too much work ? Failure to have a written agreement, on the other hand, can open up avenues for your brother in law, later to argue that he was in fact contributing capital and not acting as a simple unsecured creditor -- exactly the opposite of the result you want to achieve, in addition to assorted tax problems. There may be other pitfalls to avoid by having a written loan agreement, but not knowing your specific situation I cannot comment further.

The above reply is in the nature of general information, is not legal advice and should not be relied on as such.