Guaranteed Payments

Payments that are guaranteed to be made to members (members are owners) of limited liability companies irrespective of whether the company makes a profit or not. Guaranteed payments to members of an LLC are made to ensure that the members are compensated for their specific contributions to the company, whether those contributions are in the form of assets or services. Guaranteed payments further ensure that a member’s contribution to the company is never not repaid by the company, particularly if the company is not successful. In that sense, a guaranteed payment is similar to a salary that an employee would draw when working for any employer. That is, in exchange for an employee’s contribution of his or her services to the employer company, the company guarantees to pay the employee a certain amount of compensation. Members of limited liability companies often will also take distributions from the company in the form of draws, which are another form of compensation to those members, in addition to guaranteed payments. When founders of LLCs form a new company and one or certain number of those founders want to ensure that they will be regularly compensated, they often negotiate into the operating agreement of the company a guaranteed payment provision.