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I was approached by someone to assist in a food startup. He is aware that I can
not offer any capitol. he is well aware of the value I bring to a business, as
we have worked together before. I am very strong in areas that he has no interest
in and we compliment each other very well. In joining this venture, I give up my
own small but successful business, so there is some risk in this for me as
Can you offer any assistance in how to structure this so that my efforts are
rewarded with a percentage or share of this new business?
Asked on July 15, 2016 under Business Law, New Jersey
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 5 years ago | Contributor
Create an LLC; you and the other person will be the members. You can each have whatever ownership % you can agree to, reflecting your respective contributions cash AND non-cash--there is no requirment that LLC ownership % reflect cash investment. So you could be 50-50 owners even though you are not contributing money, to reflect your value and the sacrifice you are making by giving up an existing business. I did this with a NJ LLC I'd had: I was putting $50k in, but would do most work; I had two partners, one of whom put in no money and would work about 1/2 as much time as I did, and another who would do no work, but put in $250k. I was the 55% owner, since I was the single indispensible person--without me to do the majority of the work, there was no business--and put in at least some money; the $250k investor was 25% owner, to reflect his cash contribution (he was a multi-millionaire, so it relativley low risk for him to invest); and the third partner was 20% owner for working half time and bringing some useful skills. Similarly, you and your partner can work out to any ownership share the two of you are comfortble with. Or you could let him be a majority owner, but the operating agreements could give you a larger percentage (e.g. 50%) of the profits and (despite his majority ownership) a mandatory say in certain critical business decisions. Figure out what you and he want, then let a lawyer set it up for you; there will be a way to reflect whatever your plans and agreement are.
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