Eric has a conversation with his friend Amy Annandale, an established Media professional and a sole proprietor. Ann offers to mentor Eric and tells him that she will make him a loan in the amount of $250,000 to help him get started. Eric is thrilled by this opportunity. Eric, LLC enters into a "Loan Agreement" with Ann, dated May 1, 2010 that contains the following provisions:
Ann will loan Ben, LLC $250,000, which shall accrue interest at 0%.
Eric, LLC will give 10% of its profits to Ann every month until the loan is paid back in full.
Ann must be consulted prior to Eric, LLC making any financial commitments (e.g., (1) taking on additional debt, or (2) hiring an employee). Eric, LLC cannot take on any new financial commitments without Ann's approval.
On September 1, 2010 Eric, LLC decides that it needs another loan to continue operations. Eric, LLC takes out a loan from ABC Bank N/A in the amount of $100,000 (after consulting with and receiving the approval of Ann). At that point, $200,000 of the loan from Ann is still outstanding, that is to say, Eric, LLC has only paid back $50,000 to Ann.
On September 1, 2011 Eric, LLC defaults on the loan from ABC Bank N/A. The bank brings a lawsuit against Eric, LLC and Ann, claiming that Eric, LLC and Ann are partners and jointly liable on the debt
Are Eric, LLC and Ann partners?
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