Court Rules LLC Member not Obligated to Contribute Money to LLC

The New York case of Duff v.Curto, 2012 NY Slip Op 30264(U) (Sup Ct Suffolk County Jan. 25, 2012), by Suffolk County New York Justice Emily Pines involved a claim by one LLC member that the other member failed to contribute money to the company. Duff claimed he contributed $523,000 to the capital of Fairlea Court Holding, LLC, of which Gary Duff and Peter Curto, Jr., were the only two members. Duff claimed that Curto breached the Operating Agreement because he did not contribute any money to the company and that Curto was unjustly enriched.

They signed an Operating Agreement that said:

“[u]pon the execution of this Agreement, each Member shall contribute cash and/or property to the Company as set forth opposite their names in Exhibit A”

Exhibit A stated that each member had a 50% interest in the company, but it did not show that either member was to contribute any capital to the company. The Court said:

“The Court finds that the documentary evidence provided raises an issue of the parties intent in placing the 50% figure in the Agreement and does not definitively dispose of the plaintiff’s claim”

The Court found that Duff reported on his tax returns that he loaned $309,000 to the LLC and that Curto never agreed to contribute any money to the company.

Lesson for Members of LLCs

Arizona LLC law provides that no member of an Arizona limited liability company is liable to contribute money or property or services to the LLC unless the member agrees to do so in writing. Arizona Revised Statutes Section 29-702.A states:

“A promise by a member to make a capital contribution to the limited liability company is not enforceable unless set out in writing and signed by the member.”

California LLC law provides that a contribution is “in accordance with an agreement” with the initial members when forming the LLC, the company after forming the LLC or existing members after forming the LLC.  See California RULLCA Section 17701.02(c).

If you have an Arizona or a California LLC and want to create a legal obligation on the part of one or more members then the LLC must obtain a written document signed by the member(s) that states the amount of money or the description of the property or the nature and extent of the services and when the money or property or services must be contributed. The best way to obligate members of an LLC to contribute money or property to the LLC is in an Operating Agreement signed by all of the members.

By | 2017-05-29T14:53:50+00:00 April 7th, 2016|General Information|

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