Four physicians formed an LLC to operate a medical practice. They capitalized the venture with a bank loan to the LLC. Each physician signed a personal guarantee to secure a proportionate part of the loan (25 percent each). A dispute developed that led two of the physicians to depart and move to another practice. The bank became concerned that the loan was in jeopardy, so it brought suit against the remaining physicians in the practice to recover the amount due under the loan from them. While the bank sued the remaining physicians, the departing physicians were engaged in litigation with the remaining physicians over mismanagement of their former practice. The remaining physicians contended that the bank could not enforce the personal guarantees until disputes among the physicians were resolved because the LLC may still have assets if the litigation is successful.

CASE QUESTIONS

1. Does the bank have to wait until the litigation is complete to enforce the personal guarantees against the physicians? Why or why not?

2. What is the impact of the departing physicians’ dissociation from the LLC?