Partner structure for new LLC
UPDATED: Sep 30, 2022
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Partner structure for new LLC
A manufacturing company overseas wants to sell their products in the US. The owner is a friend of mine and he wants to partner with me to open up an online business. I need to register a US company to do so. We’ve decided that my compensation is 3 of the total sales revenue and he keeps the remaining profit. So my questions is how do I structure the new LLC to reflect this compensation structure. Should I register the LLC under my name only he is ok with this, or a partnership LLC, which we each own an equity share of the company? If it is a 70/30 split in equity, can we still keep the above mentioned compensation structure (i.e. I keep 3 of revenue and he keeps the rest of the profit)?
Asked on August 8, 2017 under Business Law, Colorado
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 5 years ago | Contributor
LLC's are highly flexible, and ownership, profit/loss participation, and management can also reflect different percentages, so long as they are set forth in the operating agreement. A person can own X%; have Y control over operations; and be paid $Z--and X, Y, and Z do not have to be related; all that's required is that the members (that's what you call LLC owners) agreed to these things.
Structure the agreement to accurately reflect what you have and want: e.g. the equity split; the way profits or other compensation are paid; and how it is managed (e.g. who makes what decisions, how). Also include provisions about what happens if one of you wants out or if there are some irreconcilable differences arising between you--e.g. is there is mandatory buy out clause (and for how much money) if one person wants out, or if the majority (70%) owner wants to buy out the minority one?
Any lawyer who does business formation (e.g. sets up LLCs and corporations) can help you structure this exactly as you want. He or she will also know the questions to ask you to make you think about things you should address, but have not considered yet.
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